Post-effective amendment to a registration statement that is not immediately effective upon filing

Fair Value Measurements and Hierarchy

v3.22.2.2
Fair Value Measurements and Hierarchy
6 Months Ended 11 Months Ended 12 Months Ended
Jun. 30, 2022
Dec. 02, 2021
Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Fair Value Measurements and Hierarchy  

NOTE 11 —FAIR VALUE MEASUREMENTS

The Company follows the guidance in ASC 820 for its financial assets and liabilities that arere-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 2, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

December 2, 

    

Description

    

Level

    

2021

Liabilities:

 

  

 

  

 

  

Warrant Liability - Public Warrants

 

 

1

 

12,860,834

Warrant Liability - Private Placement Warrants

 

 

3

 

288,925

Warrant Liability - Underwriter Warrants

 

 

3

 

63,500

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheet. The warrant liabilities are measured at fair value at inception and remeasured on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the statements of operations.

Measurement

The Company utilizes a Cox-Ross-Rubenstein lattice model to value the warrants at each reporting period, with changes in fair value recognized in the statements of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a binomial lattice model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The Warrants are measured at fair value on a recurring basis. The subsequent measurement of the Public Warrants as of December 3, 2021 is classified as Level 1 due to the use of an observable market quote in an active market.

The key inputs into the binomial lattice simulation model for the Private Placement Warrants and Public Warrants were as follows at initial measurement and December 3, 2021 (Private Placement Warrants only):

February 12, 2021

 

    

(Initial Measurement)

    

December 3, 2021

Risk-free interest rate

 

0.56

%  

1.13

%

Trading days per year

 

252

 

252

Expected volatility

 

17.8

%  

21.0

%

Exercise price

$

11.50

$

11.50

Stock Price

$

9.65

$

9.48

On February 12, 2021, the fair value of the Private Placement Warrants and Public Warrants were determined to be $1.05 and $1.03 per warrant for aggregate values of $0.2 million and $10.8 million, respectively. On December 2, 2021, the fair value of the Private Placement Warrants and Public Warrants were determined to be $1.22 and $1.27 per warrant for aggregate values of $0.3 million and $12.8 million, respectively.

The following table presents the changes in the fair value of warrant liabilities:

Private

Warrant 

    

Placement

    

Public

    

Liabilities

Fair value as of January 1, 2021

$

$

$

Initial measurement on February 12, 2021 (including over-allotment)

 

280,875

 

10,857,917

 

11,138,792

Change in valuation inputs or other assumptions

$

71,550

$

2,002,917

$

2,074,467

Fair value as of December 2, 2021

$

352,425

$

12,860,834

$

13,213,259

Due to the use of quoted prices in an active market (Level 1) to measure the fair value of the Public Warrants, subsequent to initial measurement, the Company had transfers out of Level 3 totaling $12,860,834 during the period from February 12, 2021 through December 2, 2021.

 
P3 Health Partners Inc.      
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Fair Value Measurements and Hierarchy

Note 8: Fair Value Measurements and Hierarchy

See Note 4 “Significant Accounting Policies” for a summary of the Company’s policies relating to fair value measurements.

The following table presents the carrying amounts of the Company’s financial instruments as of June 30, 2022 and December 31, 2021, respectively:

    

Successor

    

June 30, 2022

    

December 31, 2021

Financial assets:

 

  

 

  

Cash

$

63,145,379

$

140,477,586

Restricted cash

 

753,920

 

356,286

Clinics fees and insurance receivables, net

 

1,931,291

 

1,090,104

Other receivables

 

261,935

 

726,903

Financial liabilities:

 

  

 

  

Accounts payable and accrued expenses

 

20,693,070

 

17,730,683

Warrants liabilities

 

5,429,009

 

11,382,826

The book value of cash, clinic fees and insurance receivables, net, other receivables, and accounts payable and accrued expenses approximate fair value because of the short maturity and high liquidity of these instruments. Liabilities for private placement warrants are measured at fair value using Level 3 inputs.

The following table represents the Company’s fair value hierarchy for its financial liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021:

    

Level 1

    

Level 2

    

Level 3

    

Total

Warrant liability as of June 30, 2022

$

5,270,834

$

$

158,175

$

5,429,009

Warrant liability as of December 31, 2021

 

10,880,550

 

 

502,276

 

11,382,826

The key Level 3 inputs into the option pricing model as of June 30, 2022 relating to the Private Placement Warrants to purchase Class A Common Stock were as follows:

Volatility

    

65.00

%

Risk-Free Interest rate

 

3.00

%

Exercise Price

$

11.50

Expected Term

 

4.4

Years

The key Level 3 inputs into the option pricing model as of December 31, 2021 relating to the Private Placement Warrants to purchase Class A Common Stock were as follows:

Volatility

    

60.00

%

Risk-Free Interest rate

 

1.26

%

Exercise Price

$

11.50

Expected Term

 

4.9

Years

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the warrants would each result in a directionally similar change in the estimated fair value of the Company’s warrant liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the warrant liabilities due to the dividend assumption.

The following tables set forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the periods indicated:

Successor

Predecessor

    

Six Months Ended June

  

  

Six Months Ended June

30, 2022

30, 2021

Beginning Balance of Private Warrant Liability

$

502,276

$

6,316,605

Mark-to-Market Adjustment for Stock Warrants

 

(344,101)

 

10,661,579

Ending Balance of Private Warrant Liability

$

158,175

$

16,978,184

 

Note 8: Fair Value Measurements and Hierarchy

See Note 4 “Significant Accounting Policies” for a summary of the Company’s policies relating to fair value measurements.

The following table presents the carrying amounts of the Company’s financial instruments at December 31, 2021 and 2020:

Successor

Predecessor

December 31, 

December 31, 

    

2021

  

  

2020

Financial Assets:

 

  

 

  

Cash

$

140,477,586

$

36,261,104

Restricted Cash

$

356,286

$

3,641,843

Clinics Fees and Insurance Receivables, Net

$

1,090,104

$

675,954

Other Receivables

$

726,903

$

146,117

Financial Liabilities:

 

  

 

  

Accounts Payable and Accrued Expenses

$

17,730,683

$

11,793,125

Liability for Warrants

$

11,382,826

$

6,316,605

The book value of cash, clinic fees and insurance receivables, net, other receivables, and accounts payable and accrued expenses approximate fair value because of the short maturity and high liquidity of these instruments. Liabilities for private placement warrants are measured at fair value using Level 3 inputs.

The key Level 3 inputs into the option pricing model as of December 31, 2020 related to the Class D warrants to purchase Class D Shares were as follows:

Volatility

    

65.0

%

Risk-Free Interest rate

 

0.10

%

Exercise Price

$

4.68

Expected Term

 

1.1

Years

The key Level 3 inputs into the option pricing model as of December 31, 2021 relating to the Private Placement Warrants to purchase Class A Common Stock were as follows:

Volatility

    

60.0

%  

Risk-Free Interest rate

 

1.26

%  

Exercise Price

$

11.50

 

Expected Term

 

4.9

Years

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the warrants would each result in a directionally similar change in the estimated fair value of the Company’s warrant liabilities. Such changes would increase the associated liability while

decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the warrant liabilities due to the dividend assumption.

The following tables set forth a summary of changes in the fair value of the Company’s Level 3 fair value measurements for the periods indicated:

    

Successor

 

  

Predecessor

   

December 3, 2021

  

  

    

through

Year

December 31,

January 1, 2021

Ended

2021

through

December

(Private

December 2, 2021

31, 2020

Placement

(Class D

(Class D

Warrants)

Warrants)

Warrants)

Beginning Balance

$

793,650

$

6,316,605

$

N/A

Issuance of Class D Warrants

6,316,605

Mark-to-Market Adjustment for Stock Warrants

 

(291,374)

 

7,664,869

 

Ending Balance

$

502,276

$

13,981,474

$

6,316,605