|9 Months Ended
Sep. 30, 2022
Note 11: Goodwill
A summary of changes in the Company’s goodwill during the nine months ended September 30, 2022 is as follows:
Goodwill, which represents the excess of cost over the fair value of net assets acquired, was $463,496,191 and $1,309,750,216 as of September 30, 2022, and December 31, 2021. The Company acquired two medical practices during the nine months ended September 30, 2022. In the second quarter of 2022, the overall market had significantly deteriorated and there was a sustained decrease in the Company’s share price. As a result, and as required by ASC 350, the Company performed an interim goodwill impairment test as of June 30, 2022.
The Company first assessed qualitative factors to determine if it was more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. Management noted that the steady decline in share price from April 1, 2022, through June 30, 2022, covers a period of three months. The stock was 63% lower than its opening price on December 2, 2021, and has not surpassed that price since December 15, 2021. Additionally, the Company’s share price continued to decline in May 2022, which did not follow the overall rebound pattern in the healthcare industry. Thus, management determined that it was not just market factors affecting the price and that the share price performance covered a sustained period of time. In addition, the Company incurred higher than expected medical expenses due to the COVID-19 pandemic, which resulted in a decrease in adjusted EBITDA. Management concluded that, given the macroeconomic and financial market conditions, industry-specific considerations, the Company’s performance, and the sustained decrease in share price, it was more likely than not that the fair value of P3 was less than its carrying amount at June 30, 2022. As a result, management performed an interim test of impairment using quantitative methods.
When performing quantitative testing, the Company first estimated the fair values of its reporting units using a weighted combination of discounted cash flows and a market-based method. Taking into consideration the updated business outlook and current difficult market conditions, management updated the assumption for future cash flow estimation. In particular, management increased expected medical expense in the cash flow projection for the goodwill impairment test, which lowered the forecast for adjusted EBITDA. Under the market approach, management estimated a fair value based on comparable companies' market multiples of revenues and EBITDA. Finally, management compared the weighted estimated fair value to the carrying amount. Based on management’s quantitative analysis, an $851.5 million goodwill impairment charge was recorded for the three-month period ended June 30, 2022. No goodwill impairment was recorded for the three-month period ended September 30, 2022 as there were no indicators of impairment during this period.
Because the Company’s goodwill impairment analysis is sensitive to market capitalization, projected revenues, and adjusted EBITDA, the Company will continue to monitor key assumptions and other factors utilized in the interim goodwill impairment analysis.