P3 Health Partners(PIII) - 2024 Q1 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements This statement warns readers about forward-looking information, highlighting risks and uncertainties that could cause actual results to differ PART I—FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for P3 Health Partners Inc. and its subsidiaries, including balance sheets, statements of operations, statements of stockholders' equity and mezzanine equity, statements of cash flows, and accompanying notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Total Assets | $855,925 | $860,967 | | Total Liabilities | $470,493 | $427,305 | | Total Stockholders' Equity | $146,596 | $142,130 | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific periods Condensed Consolidated Statements of Operations Highlights (in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Total Operating Revenue | $388,488 | $302,077 | | Operating Loss | $(43,831) | $(48,817) | | Net Loss | $(49,606) | $(52,448) | | Net Loss Attributable to Controlling Interest | $(18,700) | $(9,199) | Condensed Consolidated Statements of Stockholders' Equity and Mezzanine Equity This section outlines changes in the company's equity and mezzanine equity over specific periods Stockholders' Equity and Mezzanine Equity Highlights (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :------------- | :---------------- | | Redeemable Non-controlling Interest | $238,836 | $291,532 | | Total Stockholders' Equity | $146,596 | $142,130 | | Accumulated Deficit | $(386,044) | $(367,344) | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(20,030) | $(23,722) | | Net Cash Used in Investing Activities | $0 | $(464) | | Net Cash Provided by Financing Activities | $11,401 | $14,102 | | Cash and Restricted Cash, End of Period | $32,305 | $8,373 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1: Organization P3 Health Partners Inc. is a patient-centered, physician-led population health management company, operating as the successor to P3 Health Group Holdings, LLC - P3 Health Partners Inc. is a patient-centered and physician-led population health management company[33] - The company provides at-risk shared savings model services to insurance plans offering medical coverage to Medicare beneficiaries under Medicare Advantage programs[34][35] - P3 also provides primary healthcare services through employed physician clinic locations, reimbursed via FFS contracts and capitated arrangements[37] Note 2: Going Concern and Liquidity The Company has incurred significant net losses and negative cash flows since inception, raising substantial doubt about its ability to continue as a going concern within one year - The Company experienced net losses of $49.6 million (Q1 2024) and $52.4 million (Q1 2023)[38] - Unrestricted cash and cash equivalents were $27.3 million as of March 31, 2024, down from $36.3 million at December 31, 2023[39] - Substantial doubt exists about the Company's ability to continue as a going concern within one year due to ongoing losses and negative cash flows[39] Note 3: Significant Accounting Policies This note outlines the basis of presentation, principles of consolidation, comprehensive loss, use of estimates, and revenue recognition policies - The Company consolidates P3 LLC as its primary beneficiary and also consolidates Network VIEs (physician practices)[45] - Capitated revenue increased by $7.7 million for the three months ended March 31, 2024, due to the release of a risk adjustment revenue constraint for 2023 services[49] Revenue Type Breakdown (in thousands) | Revenue Type | Three Months Ended March 31, 2024 (in thousands) | % of Total (2024) | Three Months Ended March 31, 2023 (in thousands) | % of Total (2023) | | :-------------------------- | :-------------------------------- | :---------------- | :-------------------------------- | :---------------- | | Capitated revenue | $384,134 | 98.9 % | $298,704 | 98.9 % | | Other patient service revenue | $4,354 | 1.1 % | $3,373 | 1.1 % | | Total revenue | $388,488 | 100.0 % | $302,077 | 100.0 % | Note 4: Recent Accounting Pronouncements The Company adopted ASU 2024-02 and ASU 2020-06 effective January 1, 2024, with no material impact on financial statements - ASU 2024-02 (Codification Improvements) and ASU 2020-06 (Convertible Instruments) were adopted effective January 1, 2024, with no material impact on the Company's consolidated financial statements[51][52] - The Company is evaluating ASU 2023-09 (Income Tax Disclosures), ASU 2023-07 (Segment Reporting), and ASU 2023-06 (Disclosure Improvements), which are not yet adopted[53][54][55] Note 5: Fair Value Measurements and Hierarchy This note details the fair value measurements of financial liabilities, specifically warrant liabilities, using a three-level hierarchy Warrant Liability Fair Value (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Warrant liability (Level 3) | $24 | $29 | Key Level 3 Inputs for Warrant Valuation | Input | March 31, 2024 | December 31, 2023 | | :------------------ | :------------- | :---------------- | | Volatility | 88 % | 75 % | | Risk-free interest rate | 4.50 % | 4.01 % | | Exercise price | $11.50 | $11.50 | | Expected term | 2.7 Years | 2.9 Years | - The Company recorded gains on changes in the fair value of public warrants of $0.2 million (Q1 2024) and $0.6 million (Q1 2023)[58] Note 6: Property and Equipment The net property and equipment decreased to $8.1 million as of March 31, 2024, from $8.7 million at December 31, 2023 Property and Equipment, Net (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Property and equipment, net | $8,121 | $8,686 | - Total depreciation of property and equipment was $0.5 million for the three months ended March 31, 2024, compared to $0.6 million for the same period in 2023[60] Note 7: Intangible Assets Net intangible assets decreased to $645.7 million as of March 31, 2024, from $666.7 million at December 31, 2023, primarily due to amortization expense Intangible Assets, Net (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------- | :------------- | :---------------- | | Intangible assets, net | $645,703 | $666,733 | - Amortization of intangible assets was $21.0 million for the three months ended March 31, 2024, consistent with $20.9 million in the prior year period[62] Note 8: Debt The Company's total debt increased, primarily due to a new $25.0 million VGS 2 Promissory Note and short-term financing Long-term Debt, Net (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------- | :------------- | :---------------- | | Long-term debt, net | $118,123 | $108,319 | - P3 LLC entered into a new VGS 2 Promissory Note on March 22, 2024, for up to $25.0 million, with $10.0 million drawn immediately and an additional $15.0 million drawn on April 5, 2024[65][67] - The VGS 2 Promissory Note matures on September 30, 2027, with interest at 17.5% per annum (8.0% cash, 9.5% PIK, or 17.5% PIK)[67] - The Company was in compliance with its debt covenants under the term loan facility and unsecured promissory notes as of March 31, 2024[72] Note 9: Net Loss per Share Basic and diluted net loss per share attributable to controlling interest improved to $(0.16) for Q1 2024 from $(0.22) in the prior year Net Loss Per Share and Shares Outstanding (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to controlling interest | $(18,700) (in thousands) | $(9,199) (in thousands) | | Basic Net Loss Per Share | $(0.16) | $(0.22) | | Diluted Net Loss Per Share | $(0.16) | $(0.22) | | Weighted Average Class A Common Shares Outstanding (Basic) | 118,887 (in thousands) | 41,579 (in thousands) | - Potentially dilutive securities totaling 288.7 million (including stock warrants, options, RSUs, and Class V common stock) were excluded from diluted EPS calculation as their effect would have been anti-dilutive[75] Note 10: Redeemable Non-controlling Interest Non-controlling interest holders' ownership of Common Units decreased slightly to 62.2% as of March 31, 2024, from 62.8% at December 31, 2023 Non-controlling Interest Holders' Ownership of Common Units (in thousands) | Date | Units (in thousands) | Ownership % | | :-------------------- | :---- | :------------ | | March 31, 2024 | 196,494 | 62.2 % | | December 31, 2023 | 196,569 | 62.8 % | - A $20.6 million remeasurement adjustment was recorded as of March 31, 2024, due to the fair value of redeemable non-controlling interest being less than its carrying value[78] Note 11: Segment Reporting The Company operates under a single reportable segment, with the CEO managing operations and reviewing financial information on a consolidated basis - The Company operates under one reportable segment, with the Chief Executive Officer serving as the chief operating decision maker[79] - All the Company's revenue was earned, and all long-lived assets were located, in the United States for the periods presented[79] Note 12: Commitments and Contingencies The Company has a remaining settlement balance of $2.4 million as of March 31, 2024, related to a renegotiated health plan service agreement from 2021 - The remaining settlement balance within health plan settlements payable was $2.4 million as of March 31, 2024, down from $3.0 million at December 31, 2023, related to a renegotiated service agreement[80] Note 13: Variable Interest Entities P3 LLC is the primary beneficiary of several Network VIEs (physician practices) through Management Services Agreements and deficit funding agreements - P3 LLC is identified as the primary beneficiary of several Network VIEs (physician practices) through Management Services Agreements and deficit funding agreements[81] Network VIEs Financial Summary (in thousands) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Total Assets | $10,529 | $8,637 | | Total Liabilities | $59,515 | $57,848 | | Members' Deficit | $(48,986) | $(49,211) | | Revenue (Q1) | $9,764 | $10,839 | | Net Loss (Q1) | $(133) | $(2,836) | Note 14: Subsequent Events In April 2024, the Company borrowed the remaining $15.0 million from the VGS 2 Promissory Note - In April 2024, the Company borrowed the remaining $15.0 million available on the VGS 2 Promissory Note[85] - On May 2, 2024, the Chief Executive Officer repaid $0.7 million in withholding taxes attributable to the vesting of restricted stock units[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of P3 Health Partners' business model, key factors affecting performance, non-GAAP financial measures, and a detailed analysis of financial results Overview P3 is a patient-centered and physician-led population health management company focused on the Medicare Advantage (MA) market - P3 is a patient-centered and physician-led population health management company focused on the Medicare Advantage (MA) market[90][92] - The company operates predominantly through capitated contracts with health plans, receiving PMPM fees to manage healthcare needs for MA members[93] - As of March 31, 2024, P3 served approximately 126,800 at-risk members in 27 markets across five states, with a network of approximately 2,900 physicians[95] Key Factors Affecting our Performance This section details key factors influencing performance, such as membership growth, revenue per member, medical claims, and operating efficiencies - Growth in Medicare Advantage membership is achieved through expanding existing contracts, adding new contracts in existing markets, and entering new/adjacent markets[97] - Capitated revenue per member is expected to improve as the Company better understands and documents members' health status (acuity)[99] - Medical claims expense, representing 88% of total operating expense, is managed by improving access to healthcare and leveraging primary care to avoid costly downstream services[102] - Operating efficiencies are achieved by leveraging the affiliate model and existing infrastructure, expecting corporate, general, and administrative expenses to decrease as a percentage of revenue over time[104][105] - Operational and financial results are subject to seasonality, with largest member growth in Q1, declining revenue per member over the year, and higher medical expenses in Q1 and Q4 due to seasonal illnesses[106][107][108][109] Non-GAAP Financial Measures and Key Performance Metrics This section defines and reconciles non-GAAP financial measures like Adjusted EBITDA and presents key operational metrics Adjusted EBITDA Loss Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(49,606) | $(52,448) | | Adjusted EBITDA loss | $(19,770) | $(19,133) | Medical Margin (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Capitated revenue | $384,134 | $298,704 | | Less: medical claims expense | $(347,582) | $(259,458) | | Medical margin | $36,552 | $39,246 | Gross Profit (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Total operating revenue | $388,488 | $302,077 | | Less: medical claims expense | $(347,582) | $(259,458) | | Less: other medical expense | $(34,475) | $(26,112) | | Gross profit | $6,431 | $16,507 | - At-risk membership increased 23% year-over-year to 126,800 as of March 31, 2024[127] - Affiliate primary care physicians increased to 2,900 as of March 31, 2024[128] - Platform support costs decreased from 10.1% of total operating revenue in Q1 2023 to 5.5% in Q1 2024[130] Key Components of Results of Operations This section describes the primary revenue and expense categories that drive the company's financial performance - Capitated revenue is the primary revenue source, based on fixed per member per month (PMPM) fees from health plans, adjusted by a risk adjustment model for patient acuity[132][133] - Medical expenses, including incurred but not reported (IBNR) claims, are the largest expense, covering costs for services provided by non-P3 employed providers[136] - Corporate, general and administrative expenses include employee-related costs, technology, occupancy, and public company operational expenses[139] Results of Operations This section analyzes the company's financial performance for the three months ended March 31, 2024, compared to the prior year Key Financial Results (Q1 2024 vs Q1 2023, in thousands) | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Change (Amount, in thousands) | Change (%) | | :------------------------------------------ | :------ | :------ | :-------------- | :--------- | | Total Operating Revenue | $388,488 | $302,077 | $86,411 | 29 % | | Capitated Revenue | $384,134 | $298,704 | $85,430 | 29 % | | Medical Expense | $382,057 | $285,570 | $96,487 | 34 % | | Premium Deficiency Reserve | $1,000 | $5,140 | $(4,140) | (81)% | | Corporate, General and Administrative Expense | $27,401 | $37,643 | $(10,242) | (27)% | | Operating Loss | $(43,831) | $(48,817) | $4,986 | (10)% | | Net Loss Attributable to Controlling Interest | $(18,700) | $(9,199) | $(9,501) | 103% | - The 29% increase in capitated revenue was primarily driven by a 23% increase in at-risk members (to 126,800) and a 5% increase in capitated revenue rates due to higher patient acuity[150] - The 27% decrease in corporate, general and administrative expense was mainly due to a $7.1 million reduction in professional fees and a $2.5 million decrease in salary and related expenses from a 20% headcount reduction[154] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations and its sources of funding - P3 Health Partners Inc. is a holding company with no independent means of generating revenue or cash flow, relying on P3 LLC's financial results and distributions[156] - The Company had $27.3 million in unrestricted cash as of March 31, 2024, and has experienced ongoing net losses and negative cash flows, leading to substantial doubt about its ability to continue as a going concern[39][160][185] - Shelf Registration on Form S-3 for $250 million, with $75 million available for at-the-market sales; $33,000 net proceeds from sales as of March 31, 2024[161][162] - March 2023 Private Placement raised approximately $86.6 million net proceeds[163] - Term Loan Facility: $65.0 million outstanding as of March 31, 2024, with 12.0% interest[167] - VGS Promissory Note: $29.1 million outstanding as of March 31, 2024, with 14.0% interest[171] - VGS 2 Promissory Note: $10.0 million drawn by March 31, 2024, with an additional $15.0 million drawn in April 2024; 17.5% interest[85] - The estimated Tax Receivable Agreement (TRA) liability is $11.0 million as of March 31, 2024, but no TRA liability has been recorded due to the Company's history of losses making payments not probable[181] Cash Flows This section provides a detailed analysis of cash generated from or used in operating, investing, and financing activities Summary of Cash Flows (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(20,030) | $(23,722) | | Net cash used in investing activities | $0 | $(464) | | Net cash provided by financing activities | $11,401 | $14,102 | | Net change in cash | $(8,629) | $(10,084) | | Cash at end of period | $32,305 | $8,373 | - Net cash used in operating activities decreased by $3.7 million, primarily due to changes in working capital[188] - Net cash provided by financing activities in Q1 2024 was mainly from the issuance of the VGS 2 Promissory Note and short-term financing agreements[190] Critical Accounting Estimates This section highlights accounting estimates that require significant judgment and could materially impact financial results - No significant changes to critical accounting estimates were disclosed from the Company's Annual Report on Form 10-K for the year ended December 31, 2023[192] Recent Accounting Pronouncements This section provides an update on recently adopted and pending accounting standards and their potential impact - For details on recent accounting standards, refer to Note 4 "Recent Accounting Pronouncements" in the unaudited condensed consolidated financial statements[194] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not required for Smaller Reporting Companies - This section is not required for Smaller Reporting Companies[195] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to identified material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to identified material weaknesses in internal control over financial reporting[197] - Identified Material Weaknesses include: inadequate policies, procedures, or qualified resources for significant accounts; insufficient risk assessment process; ineffective evaluation of internal control components; ineffective information technology general controls (user access); insufficient segregation of duties; ineffective management review controls; and ineffective controls over estimation of claims expense and payable[199] - Remediation activities are ongoing and include: engaging an external advisor to enhance controls and provide training; formalizing enhanced policies and procedures; hiring qualified accounting, financial reporting, and IT personnel; implementing a revised IT general controls framework and user access reviews; and designing a segregation of duties risk framework[199] PART II—OTHER INFORMATION This section contains other information not included in the financial statements, such as legal proceedings and risk factors Item 1. Legal Proceedings The Company is involved in ongoing legal proceedings, including the consolidated Hudson Action and P3 Action, challenging the 2021 Business Combinations - The Company is involved in ongoing legal proceedings, including the consolidated Hudson Action and P3 Action, challenging the 2021 Business Combinations[204][205][206] - While some claims have been dismissed, others, including bad faith breach of contract and tortious interference, are proceeding to a five-day trial scheduled for July 22, 2024[211][212][213] - Former members of P3 (excluding Hudson) have agreed to indemnify the Company for damages related to the dispute[209] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's 2023 Form 10-K - There have been no material changes to the risk factors previously disclosed in Part I, Item 1A., "Risk Factors" of the Company's 2023 Form 10-K[214] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the period - No unregistered sales of equity securities or use of proceeds occurred during the three months ended March 31, 2024[215] Item 3. Defaults Upon Senior Securities This item is not applicable - This item is not applicable to the Company[216] Item 4. Mine Safety Disclosures This item is not applicable - This item is not applicable to the Company[217] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[220] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements, organizational documents, debt agreements, and certifications - The report includes various exhibits such as merger agreements, organizational documents, debt agreements (e.g., Unsecured Promissory Note with VGS 2, Subordination Agreement, Fourth Amendment to Term Loan Agreement), and certifications (31.1, 31.2, 32.1, 32.2)[222] SIGNATURES This section contains the required signatures for the filing, certifying its accuracy and completeness