UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange | ||
Title of each class | Trading Symbol(s) | on which registered |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of outstanding shares of the Registrant’s Class A Common Stock, par value $0.0001 as of October 14, 2022, was
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-Q”) for the quarterly period ended March 31, 2022, may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Form 10-Q 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 forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Form 10-Q entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q. These forward-looking statements are subject to numerous risks, including, without limitation, the following:
● | our management has performed an analysis of our ability to preserve an adequate level of liquidity for a period extending twelve months and has identified substantial doubt about our ability to continue as a going concern. As a result of this analysis, we may look to add additional capital or may delay or scale back growth as needed, to generate liquidity and positive cash flow as soon as possible; |
● | our ability to recognize the anticipated benefits of the Business Combinations (as defined below), which may be affected by, among other things, competition and our ability to grow and manage growth profitably following the Business Combinations; |
● | changes in applicable laws or regulations; |
● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors, including economic instability and inflationary conditions; |
● | the possibility that we may never achieve or maintain profitability; |
● | the difficulty in evaluating our future prospects, as well as risks and challenges, due to the new and rapidly evolving business and market and our limited operating history; |
● | the possibility that we may need to raise additional capital to fund our existing operations, develop and commercialize new services or expand our operations; |
● | possible difficulty managing growth and expanding operations; |
● | the continuing impact of the COVID-19 pandemic on operations, which may materially and adversely affect our business and financial results; |
● | our ability to retain qualified personnel; |
● | our ability to successfully execute on growth strategies, including identifying and developing successful new geographies, physician partners, payors and patients, and accurately estimating the size, revenue or medical expense amounts of target geographies; |
● | delays and uncertainties in the timing and process of reimbursements by third-party payors and individuals, including any changes or reductions in Medicare reimbursement rates or rules; |
● | the termination or non-renewal of the Medicare Advantage contracts held by the health plans with which we contract, or the termination or non-renewal of our contracts with those plans; |
● | reductions in the quality ratings of the health plans we serve; |
● | the effectiveness and efficiency of our marketing efforts, and our ability to develop brand awareness cost-effectively; |
● | spending changes in the healthcare industry; |
● | we, our affiliated professional entities and other physician partners may become subject to medical liability claims; |
● | a failure in our information technology systems; |
● | security breaches, loss of data or other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information, expose us to liability and our reputation may be harmed and we could lose revenue, clients and members; |
● | any future litigation against us could be costly and time-consuming to defend; |
● | failure to adhere to all of the complex government laws and regulations that apply to our business could result in fines or penalties, being required to make changes to our operations or experiencing adverse publicity; |
● | failure to establish and maintain effective internal control over financial reporting and remediate identified material weaknesses; |
● | failure to comply with the continued listing standards of Nasdaq; |
● | the possibility that our arrangements with affiliated professional entities and other physician partners is found to constitute improper rendering of medical services or fee splitting under applicable state laws; |
● | the possibility that we face inspections, reviews, audits and investigations under federal and state government programs and contracts; |
● | the impact on us of recent healthcare legislation and other changes in the healthcare industry and in healthcare spending is currently unknown; |
● | the transition from volume to value-based reimbursement models may have a material adverse effect on our operations; |
● | the risks and uncertainties identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in the Form 10-Q; and |
● | the risks and uncertainties described under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
PART IFINANCIAL INFORMATION
Item 1.Financial Statements
P3 HEALTH PARTNERS INC and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| ||||||
| As of March 31, 2022 |
| As of December 31, 2021 | |||
ASSETS | ||||||
CURRENT ASSETS: | ||||||
Cash | $ | | $ | | ||
Restricted Cash |
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Health Plan Receivables |
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Clinic Fees and Insurance Receivables, Net |
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Other Receivables |
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Prepaid Expenses and Other Current Assets |
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TOTAL CURRENT ASSETS |
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LONG-TERM ASSETS: |
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Property and Equipment |
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Less: Accumulated Depreciation |
| ( |
| ( | ||
Property and Equipment, Net |
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Goodwill |
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Intangible Assets, Net |
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Notes Receivable, Net |
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Right of Use Asset |
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TOTAL LONG-TERM ASSETS |
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TOTAL ASSETS (1) | $ | | $ | | ||
LIABILITIES, MEZZANINE EQUITY and STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts Payable and Accrued Expenses | $ | | $ | | ||
Accrued Payroll |
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Health Plans Settlements Payable |
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Claims Payable |
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Premium Deficiency Reserve |
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Accrued Interest |
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Current Portion of Long-Term Debt |
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Short-Term Debt |
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TOTAL CURRENT LIABILITIES |
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LONG-TERM LIABILITIES: |
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Right of Use Liability |
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Warrant Liabilities |
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Contingent Consideration |
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Long-Term Debt |
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TOTAL LONG-TERM LIABILITIES |
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TOTAL LIABILITIES (1) |
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COMMITMENTS AND CONTINGENCIES (NOTE 23) |
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MEZZANINE EQUITY |
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Redeemable Non-Controlling Interest |
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STOCKHOLDERS’ EQUITY: |
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Class A Common Stock, $ |
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Class V Common Stock, $ |
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Additional Paid in Capital |
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Accumulated Deficit |
| ( |
| ( | ||
TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES, MEZZANINE EQUITY & STOCKHOLDERS’ EQUITY | $ | | $ | |
(1) |
See accompanying notes to condensed consolidated financial statements.
1
P3 HEALTH PARTNERS INC and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended | Three Months Ended | ||||||
March 31, 2022 | March 31, 2021 | ||||||
(As Restated) | |||||||
OPERATING REVENUE: | |||||||
Capitated Revenue | $ | | $ | | |||
Other Patient Service Revenue |
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TOTAL OPERATING REVENUE |
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OPERATING EXPENSES: |
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Medical Expenses |
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Premium Deficiency Reserve |
| ( |
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Corporate, General and Administrative Expenses |
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Sales and Marketing Expenses |
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Amortization of Intangibles | | — | |||||
Depreciation |
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TOTAL OPERATING EXPENSES |
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OPERATING LOSS |
| ( |
| ( | |||
OTHER INCOME (EXPENSES): |
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Interest Expense, net |
| ( |
| ( | |||
Mark-to-Market of Stock Warrants |
| ( |
| ( | |||
TOTAL OTHER INCOME (EXPENSE) |
| ( |
| ( | |||
LOSS BEFORE INCOME TAXES |
| ( |
| ( | |||
PROVISION FOR INCOME TAXES |
| — |
| — | |||
NET LOSS | ( | ( | |||||
LESS NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTERESTS |
| ( |
| — | |||
NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS | $ | ( | $ | ( | |||
NET LOSS PER SHARE (BASIC AND DILUTED) | ( |
| N/A1 |
See accompanying notes to condensed consolidated financial statements.
2
P3 HEALTH PARTNERS INC and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’/MEMBERS’ EQUITY (DEFICIT) AND MEZZANINE EQUITY
(UNAUDITED)
Predecessor | ||||||||||||||||||||||||||||||
Class A | Class D | Class B‑1 | Class C | |||||||||||||||||||||||||||
Redemption of | Accumulated | Total Members’ | ||||||||||||||||||||||||||||
| Units |
| Amount |
| Units |
| Amount |
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| Units |
| Amount |
| Units |
| Amount |
| Profit Interest |
| Deficit |
| Deficit | ||||||||
MEMBERS' DEFICIT, DECEMBER 31, 2020 As Restated |
| | $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | ( | $ | ( | ||||||||||
Class C Unit Based Compensation |
| — |
| — | — | — | — |
| — |
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| — |
| — |
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Net Loss |
| — |
| — | — | — | — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||||||
MEMBERS’ DEFICIT, MARCH 31, 2021 As Restated |
| | $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | ( | $ | ( |
Successor | |||||||||||||||||||||||
Additional Paid in | |||||||||||||||||||||||
Redeemable Noncontrolling | Class A Common Stock | Class V Common Stock | Capital | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||
| Interests |
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| Shares |
| Amount |
| Shares |
| Amount |
| Amount |
| Amount |
| Amount | |||||||
STOCKHOLDERS’ EQUITY (DEFICIT), December 31, 2021 | $ | | $ | | | $ | | $ | | $ | ( | $ | | ||||||||||
Vesting of stock compensation awards | — | — | — | | | — | — | | |||||||||||||||
Stock compensation |
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| — |
| — |
| — |
| — |
| — |
| — |
| — | |||||||
Net Loss |
| ( |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||
STOCKHOLDERS’ EQUITY (DEFICIT), March 31, 2022 | $ | |
| | $ | |
| | $ | | $ | | $ | ( | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements
3
P3 HEALTH PARTNERS INC and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Successor |
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| Predecessor | |||
Three Months Ended | Three Months Ended | ||||||
March 31, 2022 | March 31, 2021 | ||||||
(As Restated) | |||||||
Cash Flows from Operating Activities | |||||||
Net Loss | $ | ( | $ | ( | |||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: |
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Depreciation Expense |
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Amortization of Intangibles | | ||||||
Stock-Based Compensation |
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Amortization of Discount from Issuance of Debt |
| — |
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Mark-to-Market Adjustment of Stock Warrants |
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Amortization of Debt Origination Fees |
| — |
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Premium Deficiency Reserve |
| ( |
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Non-Cash Interest Expense | | — | |||||
Changes in Assets and Liabilities: |
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Accounts Receivable |
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| ( | |||
Health Plan Receivables / Premiums |
| ( |
| ( | |||
Other Current Assets |
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| ( | |||
Net Change in ROU Assets and Liabilities | | | |||||
Accounts Payable |
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Accrued Payroll |
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Accrued Interest |
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Health Plan Payables / Premiums |
| ( |
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Claims Payable |
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Net Cash used in Operating Activities |
| ( |
| ( | |||
Cash Flows from Investing activities |
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Purchase of Property and Equipment |
| ( |
| ( | |||
Increase in Notes Receivable, Net |
| ( |
| ( | |||
Net Cash used in Investing Activities |
| ( |
| ( | |||
Cash Flows from Financing activities |
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Repayment of Short-Term and Long-Term Debt |
| ( |
| ( | |||
Net Cash used in Financing Activities |
| ( |
| ( | |||
Net Change in Cash and Restricted Cash |
| ( |
| ( | |||
Cash and Restricted Cash, Beginning of Period |
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Cash and Restricted Cash, End of Period | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
P3 HEALTH PARTNERS INC and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Organization and Basis of Presentation
Description of Business and Business Combination
P3 Health Partners Inc. (the “Company” or “P3”) is a patient-centered and physician-led population health management company and the successor to P3 Health Group Holdings, LLC
P3 Health Group Holdings, LLC and Subsidiaries was founded on April 12, 2017, and began commercial operations on April 20, 2017, to provide population health management services on an at-risk basis to insurance plans offering medical coverage to Medicare beneficiaries under Medicare Advantage programs. Medicare Advantage programs are insurance products created solely for Medicare beneficiaries. Insurance plans contract directly with the Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare beneficiaries benefits that replace traditional Medicare Fee for Service (“FFS”) coverage.
On December 3, 2021, (the “Closing Date”), the Company consummated the transactions pursuant to which, among other things, P3 Health Group Holdings, LLC merged with and into FAC Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Foresight Acquisition Corp. (“Foresight” or “Merger Sub”) (the “P3 Merger”), with Merger Sub as the surviving company, which was renamed P3 Health Group, LLC (“P3 LLC”), and FAC-A Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of Foresight, FAC-B Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of Foresight (together with FAC-A Merger Sub Corp., the “Merger Corps”) merged with and into CPF P3 Blocker-A, LLC, a Delaware limited liability company, CPF P3 Blocker-B, LLC a Delaware limited liability company (together with CPF P3 Blocker-A, LLC, the “Blockers”), with the Blockers as the surviving entities and wholly-owned subsidiaries of Foresight (collectively, the “Business Combinations”). Upon completion of the Business Combinations (the “Closing”), the Company and P3 LLC were organized in an “Up-C” structure in which all of the P3 LLC operating subsidiaries are held directly or indirectly by P3 LLC, and the Company directly owned approximately
The Company’s contracts with health plans are based on an at-risk shared savings model. Under this model, the Company is financially responsible for the cost of all contractually covered services provided to members assigned to the Company by health plans in exchange for a fixed monthly “capitation” payment, which is generally a percentage of the payment health plans receive from CMS. Under this arrangement, Medicare beneficiaries generally receive all their healthcare coverage through the Company’s network of employed and affiliated physicians and specialists (except for emergency situations).
The services provided to health plans’ members vary by contract. These may include utilization management, care management, disease education, and maintenance of a quality improvement and quality management program for members assigned to the Company. Effective January 1, 2019, the Company is also responsible for the credentialing of Company providers, processing and payment of claims and the establishment of a provider network for certain health plans. At March 31, 2022, and December 31, 2021, the Company had agreements with
The Company has Management Services Agreements (“MSAs”) and deficit funding agreements with Kahan, Wakefield, Abdou, PLLC and Bacchus, Wakefield, Kahan, PC, P3 Health Partners Professional Services P.C., P3 Medical Group, P.C. and P3 Health Partners California, P.C. (collectively, the “Network”). As more fully described in Note 25 “Variable Interest Entities”, the entities in the Network are variable interest entities and the Company is the primary beneficiary of the Network. The MSAs provide that the Company or its subsidiaries will furnish administrative personnel, office supplies and equipment, general business services, contract negotiation and billing and collection services to the Network. Fees for these services are the excess of the Network’s revenue over expenses. Per the deficit funding agreements, the Company or its subsidiaries are obligated to lend amounts to the Network to the extent expenses exceed revenues. The loan will bear interest at prime plus
In addition to the Company’s contracts with health plans, through its relationship with Kahan, Wakefield, Abdou, PLLC and Bacchus, Wakefield, Kahan, PC, the Company provides primary healthcare services through its employed physician clinic locations. These primary care clinics are reimbursed for services provided under FFS contracts with various payers and through capitated – per member, per month (“PMPM”) arrangements.
5
Basis of Presentation
These unaudited interim condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (“SEC”) Regulation S-X. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in our 2021 Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to SEC rules and regulations dealing with interim financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the periods presented. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. For further information, refer to the consolidated financial statements and notes thereto included in our 2021 Form 10-K. There have been no significant changes to our accounting policies and estimates during the three months ended March 31, 2022, from those previously disclosed in the 2021 Form 10-K.
As a result of the Business Combinations, for accounting purposes, Foresight is the acquirer and P3 Health Group Holdings, LLC is the accounting acquiree and predecessor. The financial statement presentation includes the financial statements of P3 Health Group Holdings, LLC as “Predecessor” for the periods prior to the Closing Date (the “Predecessor Period(s)”) and of the Company as “Successor” for the periods after the Closing Date (the “Successor Period(s)”), including the consolidation of P3 Health Group Holdings, LLC.
As a result of the application of the acquisition method of accounting as of the Closing Date of the Business Combinations, the accompanying unaudited condensed consolidated financial statements include a black line division that indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are therefore, not comparable.
The Company qualifies as an Emerging Growth Company (“EGC”) and as such, has elected the extended transition period for complying with certain new or revised accounting pronouncements. During the extended transition period, the Company is not subject to certain new or revised accounting standards applicable to public companies. The accounting pronouncements pending adoption as described in Note 6 “Recent Accounting Pronouncements Not Yet Adopted” reflect effective dates for the Company as an EGC with the extended transition period.
Restatement of Prior Year Amounts
As discussed in the Company’s 2021 consolidated financial statements included in the 2021 Form 10-K, the Company restated the previously issued unaudited condensed consolidated financial statements for each interim period within the fiscal years ended December 31, 2021, and December 31, 2020.
Note 2: Restatement of Previously Issued Financial Statements
The Company has restated the condensed consolidated financial statements for the three months ended March 31, 2021.
Network
Since 2017, P3 Health Group Holdings and P3 Health Partners, LLC (collectively with P3 Health Partners, Inc., "P3") have entered into a collective of arrangements with the Network whereby P3 consolidates the Network under the Variable Interest Entity model in accordance with ASC Topic 810, Consolidation (“ASC 810”). Historically, all of the net losses incurred by the Network has been allocated to loss attributable to non-controlling interests. Based on an analysis of the deficit funding agreement between P3 and the Network, P3 is obligated to fund losses incurred by the Network. Because P3 is contractually obligated to fund the losses, losses incurred by the Network should not be allocated to non-controlling interests.
Based on management’s evaluation, it was concluded that the Company’s accounting for non-controlling interests related to the Network is not attributed in the manner contemplated by ASC 810. As a result, the Company is reclassifying the loss attributable to non-controlling interest related to the Network to loss attributable to controlling interests on the Consolidated Balance Sheets, Consolidated Statements of Operations, and the Consolidated Statements of Changes in Stockholders’/Members’ Equity for the periods described above.
6
The Company's accounting for the loss in controlling interests instead of non-controlling interests has no impact on the Company's current or previously reported cash position, revenue, operating expenses or total operating, investing or financing cash flows.
Preferred Returns
P3's capital structure consists of Class A Units, which represent commitments from the Company’s private equity sponsors, and Class D Units, which represents an additional investment from a private equity sponsor. Both the Class A and Class D Units have voting rights and, accrue a preferred return in the amount of
Historically, all of the accrued returns have been incorrectly recognized as interest expense on P3’s Statements of Operations and as equity on P3’s Balance Sheets. Based on the analysis of the Class A and Class D Units, the preferred returns should not be accrued until they are legally declared. As a result, the Company’s historical recording of preferred returns in equity and interest expense has been removed as no recognition is necessary until legally declared.
Class A Units
Historically, the Class A Preferred Units issued by P3 have been accounted for as permanent equity. Since the Class A Preferred Units are redeemable upon the occurrence of a Sale of the Company via the liquidation and distribution preferences that returns invested capital and the preferred return, management evaluated whether the occurrence of such an event is outside of the Company’s control. As the Class A preferred unit holders hold a majority vote, the redemption of Class A Preferred Units upon a Sale of the Company, irrespective of probability, is outside of the Company’s control.
Based on management’s evaluation, the Class A Preferred Units should be reclassified from permanent to mezzanine equity. Additionally, the Company entered into the Second Amended and Restated Limited Liability Company Agreement in 2019, which provided the holders of Class A units an
Capitated Revenues
Medicare pays capitation using a “risk adjustment model”, which compensates providers based on the health status (acuity) of each individual patient (via a Risk Adjustment Factor, “RAF”). The Company’s policy is to recognize the variable RAF component of capitation revenues, to the extent that it is probable a significant reversal will not occur. At the December 31, 2020 balance sheet date the Company determined its estimates of the RAF components of certain capitation revenues were constrained and therefore not estimable, as it was not probable a significant reversal would not occur. The Company subsequently collected the RAF components of capitation payments prior to the issuance of the 2020 financial statements, effectively relieving the constraints which previously existed at the December 31, 2020 balance sheet date. As a result, capitation revenues for 2020 were restated based on the results of management’s analysis of the RAF component of cash receipts collected prior to the issuance 2020 financial statements which were previously determined to not be estimable. The revenue now recognized in 2020 was previously recognized in June of 2021. The total amount of the RAF adjustment was $
There were two other errors related to capitated revenue, other patient service revenue, and medical expenses which were corrected in the restatement. Firstly, the Company has reclassified capitated revenue streams attributable to the Network. These capitated revenues were previously classified as “other patient service revenue” and then have been reclassified into “capitated revenue”. Secondly, the Company has eliminated intercompany revenue and expense related to transactions between Bacchus and P3-NV that should have been eliminated in consolidation. Prior to the restatement noted above regarding capitated revenue, this adjustment was a decrease to other patient service revenue and a decrease to medical expenses.
Disclosure Correction
The disclosure of the condensed financial statement of the Company’s consolidated VIE has been corrected for accrued interest and interest expense relating to the advances made to the VIE for the period ended March 31, 2021 (see Note 25). There is no impact to the condensed consolidated financial statements of the Company of this correction to the disclosures.
7
The following tables summarize the restatement adjustments on each financial statement line item affected by the restatement as of the dates, and for the periods, indicated:
As Previously | Network | Preferred Returns | Class A Units | Revenue | ||||||||||||||
| Reported |
| Adjustment |
| Adjustment |
| Adjustments |
| Adjustment |
| As Restated | |||||||
Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2021 (Unaudited) | ||||||||||||||||||
Capitated Revenue | $ | $ | — | $ | — | $ | — | $ | $ | |||||||||
Other Patient Service Revenue | — | — | — | ( | ||||||||||||||
Total Operating Revenue | — | — | — | ( | ||||||||||||||
Medical Expenses | — | — | — | ( | ||||||||||||||
Total Operating Expenses | — | — | — | ( | ||||||||||||||
Interest Expense, net | ( | — | — | — | ( | |||||||||||||
Total Other Expenses | ( | — | — | — | ( | |||||||||||||
Net Loss Attributable to Non-Controlling Interests | ( | — | — | — | — | |||||||||||||
Net Loss (formerly Net Loss Attributable to Controlling Interests) | ( | ( | — | — | ( | |||||||||||||
Condensed Consolidated Statements of Changes in Members’ Deficit for the 3 Months Ended March 31, 2021 | ||||||||||||||||||
Preferred Return at | $ | $ | — | $ | ( | $ | — | — | $ | — | ||||||||
Net Loss | ( | — | — | — | ( | |||||||||||||
Balance as of March 31,2021 | ( | — | ( | ( | ||||||||||||||
Condensed Consolidated Statements of Cash Flows for the 3 Months Ended March 31, 2021 | ||||||||||||||||||
Net Loss | $ | ( | $ | — | $ | — | — | $ | ( | |||||||||
Class A and Class D Preferred Returns | — | ( | — | — | — | |||||||||||||
Consolidated Statements of Changes in Members’ Deficit for the Year Ended December 31, 2020 | ||||||||||||||||||
Balance as of December 31, 2020 | $ | ( | $ | — | $ | $ | ( | $ | $ | ( |
*Rounding may cause variances
Note 3: Going Concern and Liquidity
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced losses since its inception and had losses of $
As of March 31, 2022, and December 31, 2021, the Company had $
8
in order to reduce costs, which will likely have an unfavorable effect on the Company’s ability to execute on its business plan, and have an adverse effect on its business, results of operations and future prospects. As a result of these matters, substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Note 4: Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company, and its subsidiaries, all of which are controlled by the Company through majority voting control, and variable interest entities for which the Company is the primary beneficiary. As more fully described in Note 25 “Variable Interest Entities”, the Company is the primary beneficiary of the following physician practices (“Network”):
Kahan, Wakefield, Abdou, PLLC (“KWA”)
Bacchus, Wakefield, Kahan, PC (“BACC”)
P3 Health Partners Professional Services PC
P3 Medical Group, P.C.
P3 Health Partners California, P.C.
All intercompany accounts and transactions have been eliminated in consolidation.
Variable Interest Entities (“VIE” or “VIEs”)
Management analyzes whether the Company has any financial interests in VIEs. This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review. Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), requires a reporting entity to consolidate a VIE when that reporting entity has a variable interest that provides it with a controlling financial interest in the VIE. The entity which consolidates a VIE is referred to as the primary beneficiary of the VIE. See Note 25 “Variable Interest Entities”.
Segment Reporting
The Company presents the financial statements by segment in accordance with Accounting Standard Codification Topic No. 280, Segment Reporting (“ASC 280”) to provide investors with transparency into how the chief operating decision maker (“CODM”) manages the business. The Company determined the CODM is its Chief Executive Officer. The Company’s CODM manages the operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess overall corporate profitability based on consolidated revenues and adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as defined in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company has
Management’s Use of Estimates
Preparation of these condensed consolidated financial statements and accompanying footnotes, in conformity with U.S. GAAP, requires Management to make estimates and assumptions that could affect amounts reported here. Management bases its estimates on the best information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances including estimates of the impact of COVID 19. See Note 23 “Commitments and Contingencies” for further discussion on the impact of COVID-19.
The areas where significant estimates are used in these accompanying condensed consolidated financial statements include revenue recognition, the liability for unpaid claims, unit-based and share-based compensation, premium deficiency reserves (“PDR”), fair value and impairment recognition of long-lived assets (including intangible assets and goodwill), fair value of acquired assets and liabilities in Business Combinations, fair value of liability classified instruments and judgments related to deferred income taxes. Actual results could differ from those estimates.
9
Earnings (Loss) per Share and Member Unit
Basic and diluted net loss per share attributable to common stockholders in the Successor Period is presented in conformity with the two-class method required for participating securities.
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of Public Warrants, Private Placement Warrants, restricted shares and escrow shares.
As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
The Company analyzed the calculation of net loss per member unit for the Predecessor Period and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, net loss per member unit information has not been presented for the Predecessor Period.
Cash and Restricted Cash
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at banks. Accounts at each institution are insured up to $
At March 31, 2022, and December 31, 2021, the Company had unrestricted cash of $
Successor | ||||||
| March 31, 2022 |
| December 31, 2021 | |||
Checking | $ | | $ | | ||
Restricted |
| |
| | ||
Total Cash Balances | $ | | $ | |
Restricted Cash is that which is held for a specific purpose (such as payment of partner distributions and legal settlements) and is thus not available to the Company for immediate or general business use. Restricted Cash appears as a separate line item on the Company’s condensed consolidated balance sheets.
The following table provides a reconciliation of cash and restricted cash reported on the condensed consolidated balance sheet at March 31, 2021, that sum to the total of this item reported in the condensed consolidated statement of cash flows.
| Predecessor | ||
March 31, 2021 | |||
Unrestricted | $ | | |
Restricted |
| | |
Total Cash Balances | $ | |
10
Revenue Recognition and Revenue Sources
The Company categorizes revenue based on various factors such as the nature of contracts and order to billing arrangements as follows:
Successor | Predecessor |
| ||||||||||
Three Months | ||||||||||||
Three Months | Ended |
| ||||||||||
Ended | March 31, 2021 |
| ||||||||||
Revenue Type |
| March 31, 2022 |
| % of Total |
|
| (As Restated) |
| % of Total |
| ||
Capitated Revenue | $ | |
| | % | $ | |
| | % | ||
Other Patient Service Revenue: | ||||||||||||
Clinical Fees & Insurance Revenue |
| |
| | % |
| |
| | % | ||
Care Coordination / Management Fees |
| |
| | % |
| |
| | % | ||
Incentive Fees |
| |
| | % |
| |
| | % | ||
Total Other Patient Service Revenue |
| |
| | % |
| |
| | % | ||
Total Revenue | $ | |
| | % | $ | |
| | % |
The following table depicts the health plans from which the Company has a concentration of revenue that is 10.0% or more:
Successor | Predecessor |
| ||||||||||
Three Months |
|
| Three Months |
| ||||||||
Ended | Ended |
| ||||||||||
Plan Name |
| March 31, 2022 |
| % of Total |
|
| March 31, 2021 |
| % of Total |
| ||
Health Plan C | $ | |
| | % | $ | |
| | % | ||
Health Plan B |
| |
| | % |
| |
| | % | ||
Health Plan A |
| |
| | % |
| |
| | % | ||
Health Plan D |
| |
| | % |
| |
| | % | ||
All Other |
| |
| | % |
| |
| | % | ||
Total Revenue | $ | |
| | % | $ | |
| | % |
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity’s performance obligation is complete, and revenue is earned, upon the transfer of a promise to deliver services to customers commensurate with consideration to which it would expect to be received in exchange for the actual delivery of those services. The terms of the contract and all relevant facts and circumstances should be considered when applying this guidance. This includes application of a practical expedient (a “portfolio approach”) to contracts with similar characteristics and circumstances. Specific revenue streams are described in more detail below.
Capitated Revenue
The Company contracts with health plans using an at-risk (shared savings) model. Under the at-risk model, the Company is responsible for the cost of all covered services provided to members assigned by the health plans to the Company in exchange for a fixed premium payment, which generally is a percentage of the payment based on health plans’ premiums received from CMS. Through this capitation arrangement, the Company stands ready to provide assigned Medicare Advantage beneficiaries all their medical care via the Company’s directly employed and affiliated physician/specialist network.
The premiums health plans receive are determined via a competitive bidding process with CMS and are based on the costs of care in local markets and the average utilization of services by patients enrolled. Medicare pays capitation using a “risk adjustment model”, which compensates providers based on the health status (acuity) of each individual patient. Medicare Advantage plans with higher acuity patients receive higher premiums. Conversely, Medicare Advantage plans with lower acuity patients receive lesser premiums. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after final data is compiled. The Company generally estimates transaction prices using the most likely methodology. Amounts are only included in the transaction price to the extent any significant uncertainty of reversal on cumulative revenue will not occur and is, furthermore, resolved. In certain contracts, PMPM fees also include adjustments for items such as performance incentives or penalties based on the achievement of certain clinical quality metrics as contracted with payors.
11
Capitated revenues are recognized based on an estimated PMPM transaction price to transfer the service for a distinct increment of the series (e.g., month) and is recognized net of projected acuity adjustments and performance incentives or penalties as Management cannot reasonably estimate the ultimate PMPM payment of those contracts. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term. The capitation amount is subject to possible retroactive premium risk adjustments based on the member’s individual acuity. There were no premium risk adjustments recorded in 2021 or the first quarter of 2022 as related to prior years. As the period between the time of service and time of payment is typically one year or less, Management elected the practical expedient under ASC 606-10-32-18 and did not
The Company’s contracts with health plans may include core functions and services for managing assigned patients’ medical care. The combination of those services is offered as one “single solution” (“bundle”). Capitation contracts have a single performance obligation that is a stand ready obligation to perform healthcare services to the population of enrolled members and constitutes a series for the provision of managed healthcare services for the term of the contract, which is deemed to be
At March 31, 2022, and December 31, 2021, the Company had POP contracts in effect with
Each month, in accordance with contractual obligations (for non-delegated health plans; e.g. – those for which the Company has not been delegated for claims processing), each plan funds a medical claims payment reserve equal to a defined percentage of premium attributable to members assigned to the Company. In turn, the Company administers and funds medical claims for contractually covered services, for assigned health plan members, from that health plan’s reserve. On a quarterly or monthly basis, health plans conduct a settlement of the reserve to determine any surplus or deficit amount. The reconciliation and distribution of the reserve occur within
At March 31, 2022, and December 31, 2021, health plan receivables and health plan settlement payables, by health plan, by year, were as follows:
Health Plan Receivables | ||||||
Successor | ||||||
| March 31, 2022 |
| December 31, 2021 | |||
Health Plan A | $ | | $ | | ||
Health Plan B |
| |
| | ||
Health Plan C |
| |
| | ||
Health Plan D |
| |
| | ||
Health Plan E |
| |
| | ||
Health Plan F |
| |
| | ||
Health Plan G |
| |
| | ||
Health Plan H |
| |
| | ||
Health Plan I |
| |
| | ||
Health Plan J |
| ( |
| | ||
Health Plan K |
| |
| | ||
Health Plan L |
| |
| | ||
Health Plan M |
| |
| | ||
Health Plan N |
| |
| | ||
Health Plan O |
| |
| | ||
Health Plan P |
| |
| | ||
Health Plan Q |
| |
| | ||
Health Plan R |
| |
| | ||
Health Plan S |
| |
| — | ||