P3 Health Partners Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Equity-Based Compensation

Equity-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

Equity-Based Compensation

Note 14: Equity-Based Compensation

Common Unit Awards

In connection with the closing of the Business Combinations, unvested incentive unit awards granted under the then-current equity plan were converted into Common Units, which were paired with an equal number of shares of the Company’s Class V common stock, and remained subject to the original vesting conditions. If a forfeiture of unvested Common Units occurred, the associated shares of Class V common stock were also forfeited.

The following summarizes Common Unit award activity for the year ended December 31, 2023:


	Weighted Average Grant Date Fair Value		Number of Units (in thousands)
Non-vested as of December 31, 2022	$	9.20	380
Granted	$	—	—
Vested	$	9.20	(349)
Forfeited	$	9.20	(31)
Non-vested as of December 31, 2023			—

Total fair value of Common Unit awards vested during the years ended December 31, 2023 and 2022 was $0.5 million and $17.6 million, respectively.

The Common Unit awards vested ratably over a period between one month and two years, so long as the grantee stayed employed.

2021 Incentive Award Plan

In connection with the Business Combinations, the Company’s Board of Directors adopted, and its stockholders approved, the 2021 Incentive Award Plan (the “2021 Plan”), effective on its adoption date, in order to facilitate the grant of cash and equity incentives to employees, consultants, and directors of the Company and certain affiliates. The 2021 Plan provides that the initial aggregate number of shares reserved and available for issuance is 14.6 million plus an increase each January 1, beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (i) 1% of the aggregate number of shares of Class A common stock and Class V common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of Class A common stock as is determined by the Company’s Board of Directors. Since January 1, 2022, the aggregate number of shares of Class A common stock reserved and available for issuance under the 2021 Plan has increased by a total of 4.9 million pursuant to the automatic annual increase provision under the 2021 Plan. As of December 31, 2023, the number of shares of Class A common stock reserved and available for issuance under the 2021 Plan was 5.9 million.

The 2021 Plan allows for the grant of (i) stock options, including incentive stock options, (ii) stock appreciation rights, (iii) restricted stock awards (“RSAs”), (iv) restricted stock unit (“RSU”) awards, or (v) other stock or cash based awards as may be determined by the plan’s administrator from time to time. The term of each option award shall be no more than 10 years from the date of grant. Options exercised under the 2021 Plan provide the purchaser with full rights

equivalent to those of existing Class A common stockholders and holders as of the date of exercise. The Company’s policy for issuing shares upon stock option exercise is to issue new shares of Class A common stock. Additionally, the P3 LLC A&R LLC Agreement states that P3 LLC will maintain at all times a one-to-one ratio between the number of Common Units owned by the Company and the number of outstanding shares of Class A common stock, including, but not limited to, those issued as result of stock option exercises and vesting of RSU awards.

The 2021 Plan also provides for dividend equivalent units based on the value of the dividends per share paid on the Company’s Class A common stock, which are accumulated on RSUs during the vesting period.

The following table summarizes time-based stock option activity for the year ended December 31, 2023:


	Number of Stock Options (in thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022	3,402	$	5.60	9.62	$	—
Granted	1,663	$	1.35
Forfeited	(978)	$	3.79
Outstanding as of December 31, 2023	4,087	$	4.24	8.77	$	140
Fully vested and expected to vest as of December 31, 2023	4,087	$	4.24	8.77	$	140
Exercisable as of December 31, 2023	1,102	$	5.78	8.39	$	13

The following additional disclosures are provided for time-based stock options:


	Year Ended December 31,
	2023		2022
Weighted average grant date fair value	$	0.81	$	2.58

The following table summarizes performance-based stock option activity for the year ended December 31, 2023:


	Number of Stock Options (in thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022	1,500	$	4.95	9.83	$	—
Granted	150	$	1.07
Outstanding as of December 31, 2023	1,650	$	4.60	9.00	$	51
Fully vested and expected to vest as of December 31, 2023	1,650	$	4.60	9.00	$	51
Exercisable as of December 31, 2023	—	$	—	—	$	—

The following additional disclosures are provided for performance-based stock options:


	Year Ended December 31,
	2023		2022
Weighted average grant date fair value	$	0.77	$	3.34

The vesting criteria for 0.1 million performance-based stock option awards has not yet been achieved; therefore, no expense has been recorded.

There were no stock options exercised during the years ended December 31, 2023 and 2022.

The weighted average assumptions used in estimating the grant date fair value of stock options are listed in the table below:


	Year Ended December 31,
	2023		2022
Expected volatility	60.2	%	51.0	%
Risk-free interest rate	3.8	%	3.2	%
Expected term	6.6 years		7.3 years
Dividend rate	0.0	%	0.0	%

Time-based stock options vest ratably over a period between two and five years, so long as the optionee continues to provide services to the Company. As of December 31, 2023, there was $4.2 million and $4.8 million of unrecognized equity-based compensation cost related to time-based and performance-based stock options, respectively, which is expected to be recognized over a weighted-average period of 2.9 years and 9.0 years, respectively.

The following table summarizes RSU activity for the year ended December 31, 2023:


	Weighted Average Grant Date Fair Value		Number of Units (in thousands)
Non-vested as of December 31, 2022	$	—	—
Granted	$	1.80	7,548
Vested	$	2.15	(2,713)

Non-vested as of December 31, 2023	$	1.60	4,835

The following additional disclosures are provided for RSU awards:


	Year Ended December 31, 2023
Weighted average grant date fair value	$	1.80
Total fair value of shares vested (in thousands)	$	5,826

In August 2023, the Company granted an aggregate of 2.5 million RSUs pursuant to the 2021 Plan to the Company’s Chief Executive Officer and Chief Medical Officer (collectively, the “Executives”) in full satisfaction of the “Second Bonus” earned by each Executive during the year ended December 31, 2022 pursuant to the terms of the transaction bonus agreements, dated May 2022, entered into between each Executive and the Company and P3 Health Group Management, LLC in connection with the consummation of the Business Combinations (together, the “RSU Transaction Bonuses”). The Second Bonus of $5.0 million in the aggregate was recorded within accrued payroll on the consolidated balance sheet as of December 31, 2022. The RSUs were fully vested at the time of grant. The fair value of the RSUs granted was $5.6 million, $0.6 million of which was recorded in equity-based compensation during the year ended December 31, 2023. The RSUs were settled in Class A common stock on January 9, 2024.

RSUs vest ratably over a period between two and four years, so long as the grantee continues to provide services to the Company. As of December 31, 2023, total equity-based compensation cost related to all unvested RSUs was $6.8 million, which is expected to be recognized over a weighted average period of 2.81 years.

The following table summarizes RSA activity for the year ended December 31, 2023:


	Weighted Average Grant Date Fair Value		Number of Units (in thousands)
Non-vested as of December 31, 2022	$	—	—
Granted	$	1.82	250
Vested	$	1.82	(250)

Non-vested as of December 31, 2023			—

The following additional disclosures are provided for RSAs:


	Year Ended December 31, 2023
Weighted average grant date fair value	$	1.82
Total fair value of shares vested (in thousands)	$	598

Compensation Expense

Equity-based compensation recorded within corporate, general and administrative expense on the consolidated statements of operations was $6.0 million and $19.4 million during the years ended December 31, 2023 and 2022, respectively.

The Company did not recognize any tax benefits related to equity-based compensation for the years ended December 31, 2023 and 2022.