P3 Health Partners Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements and Hierarchy

Fair Value Measurements and Hierarchy

9 Months Ended

Sep. 30, 2022

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 September 30, 2022 and December 31, 2021, respectively:


	Successor
	September 30, 2022		December 31, 2021
Financial assets:
Cash	$	34,357,237	$	140,477,586
Restricted cash		1,003,307		356,286
Clinics fees and insurance receivables, net		1,049,253		1,090,104
Other receivables		2,736,184		726,903
Financial liabilities:
Accounts payable and accrued expenses		24,072,391		17,730,683
Warrants liabilities		7,996,432		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 September 30, 2022 and December 31, 2021:


	Level 1		Level 2		Level 3		Total
Warrant liability as of September 30, 2022	$	7,774,549	$	—	$	221,883	$	7,996,432
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 September 30, 2022 relating to the Private Placement Warrants to purchase Class A Common Stock were as follows:


Volatility		60.00	%
Risk-Free Interest rate		4.16	%
Exercise Price	$	11.50
Expected Term		4.2	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
	Nine Months Ended September		Nine Months Ended September
	30, 2022		30, 2021
Beginning Balance of Private Warrant Liability	$	502,276	$	6,316,605
Mark-to-Market Adjustment for Stock Warrants		(280,393)		12,063,265
Ending Balance of Private Warrant Liability	$	221,883	$	18,379,870

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details