P3 Health Partners Inc. — FY 2021 Form 10-K
Business context and reporting period
Annual report for the year ended December 31, 2021, filed October 20, 2022. P3 is a physician-led population health company focused mainly on Medicare Advantage. It receives predominantly per-member capitation and assumes responsibility for covered medical costs. The December 3, 2021 business combination created an Up-C structure: P3 Health Partners Inc. held approximately 17.1% of P3 LLC and became its sole manager.
Results combine a short post-combination Successor period with the Predecessor period. The accounting basis changed at closing, and the company did not provide full-year pro forma statements; comparisons should therefore be treated cautiously.
Key financial metrics
| Metric | FY 2021 combined | Prior comparable period |
|---|---|---|
| Revenue | $637.4 million; up 30% | $491.1 million in 2020 |
| Capitated revenue | $625.0 million, about 98% of revenue | $480.7 million in 2020 |
| Operating loss | $187.9 million | $28.6 million in 2020 |
| Net loss | $204.3 million | $31.4 million in 2020 |
| Adjusted EBITDA loss | $95.5 million | $48.0 million in 2020 |
| Cash used in operations | $66.5 million | $24.6 million in 2020 |
| Cash and restricted cash at year-end | $140.8 million | $39.9 million in 2020 |
Medical expense was $659.3 million, exceeding revenue; a further $37.8 million premium deficiency reserve was recorded for estimated future contract losses. Year-end current assets were $199.9 million and current liabilities $198.8 million. Debt included $65 million under a term loan, a $15 million unsecured note and $3.6 million of short-term debt. The term loan bears 12% interest, with the company electing to pay 8% in cash and capitalize 4% as paid-in-kind interest for a period.
Material changes and unusual items
- At-risk Medicare Advantage membership grew 32% to approximately 67,000; contracted health plans increased from 12 to 17, and the physician network reached approximately 2,100.
- Revenue growth reflected membership expansion and higher capitation rates, while medical costs rose 36%. General and administrative expense more than doubled, including $29.6 million of business-combination costs and $7.9 million of transaction-related litigation expense.
- The company restated 2019 and 2020 financial statements and interim periods for errors involving non-controlling interests, preferred returns, Class A unit accounting and capitated revenue. The company said the restatement did not affect previously reported cash or total cash flows.
- Year-end goodwill and intangible assets were $2.1 billion, about 91% of total assets. The filing reports that a subsequent $851.5 million goodwill impairment was to be recorded as of June 30, 2022.
- A health-plan contract dispute was expected to result in an additional payment of approximately $10.6 million; the filing records this contingent liability. COVID-19 claims costs were estimated at $67.4 million from March 2020 through December 2021.
Outlook, liquidity and principal risks
Management identified substantial doubt about the company’s ability to continue as a going concern within one year of issuance of the financial statements. It said existing cash resources were not sufficient to support planned operations for at least the next year and was exploring debt, other non-dilutive and equity financing. Management said growth could be delayed or scaled back if additional capital is unavailable. No numerical earnings or revenue guidance is provided; the company described plans to expand in existing and new markets, targeting three to five new markets annually.
Other significant risks include rising medical costs and estimation of unpaid claims, reliance on a concentrated group of health plans (two plans represented 46% of 2021 capitated revenue), reimbursement and regulatory changes, and the possibility of contract non-renewal. The company reported material weaknesses in internal control over financial reporting and ineffective disclosure controls as of December 31, 2021; remediation was ongoing. Nasdaq had initiated delisting proceedings over late filings, and the company had appealed. The filing also describes litigation related to the business combination and uncertainty around the outcome.
Important facts for investors to verify
- Current cash runway, financing availability and progress toward resolving the going-concern uncertainty.
- Subsequent results for medical costs, claims reserves and the $37.8 million premium deficiency reserve.
- Completion and impact of the $851.5 million goodwill impairment, and remaining goodwill and intangible-asset exposure.
- Status of Nasdaq listing compliance, the appealed delisting process and remediation of material control weaknesses.
- Resolution of the $10.6 million health-plan dispute, other litigation and future compliance with debt covenants.