P3 Health Partners Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. The filing was signed October 20, 2022. The request metadata labels the period “2021 Q2,” but the filing is for 2022 Q2. Dollar amounts below are U.S. dollars.
Business context and reporting basis
P3 is a physician-led population health management company focused primarily on Medicare Advantage. It receives mostly monthly capitated payments and bears responsibility for covered member medical costs. At June 30, 2022, it reported approximately 101,700 at-risk members, 2,600 affiliate primary care physicians, and contracts with 20 health plans across five states. Member count was up 73% year over year.
The December 2021 business combination created “successor” financial statements using a new acquisition-accounting basis. Accordingly, 2022 successor and 2021 predecessor results are not fully comparable; 2021 figures shown were restated.
Financial results and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2022 | $269.5 million | $543.0 million |
| Revenue, 2021 (restated) | $144.6 million | $295.9 million |
| Net loss, 2022 | $903.1 million | $963.9 million |
| Net loss, 2021 (restated) | $29.5 million | $54.1 million |
| Adjusted EBITDA loss, 2022 | $28.7 million | $47.6 million |
| Adjusted EBITDA loss, 2021 | $24.0 million | $34.2 million |
| Cash used in operating activities | Not provided for quarter | $73.1 million |
Capitated revenue was $267.1 million for Q2 and $536.8 million for the first half, increases of 89% and 85%, respectively, from the comparable 2021 periods. Management attributed growth mainly to higher membership and a 6% increase in capitation rates. Capitation represented about 99% of revenue. Medical expenses were $267.4 million in Q2 and $533.3 million in the first half—approximately 99% and 98% of revenue, respectively.
Q2 operating loss was $912.2 million, including an $851.5 million non-cash goodwill impairment charge. The impairment followed a sustained share-price decline, higher-than-expected medical costs and reduced adjusted EBITDA forecasts. Goodwill fell from $1.31 billion at year-end 2021 to $458.3 million. Net loss attributable to controlling interests was $154.3 million for Q2 and $164.9 million for the first half; total net loss also includes losses allocated to redeemable non-controlling interests. Warrant fair-value gains partly offset expenses: $11.8 million for Q2 and $6.0 million for the first half.
At June 30, cash was $63.1 million unrestricted and $0.8 million restricted, versus $140.5 million unrestricted at December 31, 2021. Current assets were $171.0 million and current liabilities $228.8 million. Debt included $65.0 million under the term loan, a $15.0 million unsecured note, and $1.2 million short-term debt. The term loan bears 12% interest; the company had elected to pay 8% in cash and capitalize 4% as paid-in-kind interest.
Changes, outlook, risks and unusual items
- Revenue scaled substantially with membership growth, but medical costs and corporate expenses also rose. Corporate, general and administrative expense increased 124% in Q2 and 138% in the first half, reflecting higher staffing, stock compensation, public-company costs and insurance.
- Management expects operating losses and negative operating cash flows to continue as it invests in growth. It stated existing cash was not sufficient for planned operations for at least 12 months from issuance and that substantial doubt existed about the company’s ability to continue as a going concern. Management was exploring additional debt or equity financing and could slow or reduce growth plans; no specific financing commitment or financial guidance was provided.
- Medical-cost estimation, claims development, premium deficiency reserves, member acuity and COVID-19 impacts are significant uncertainties. The company reported approximately $84 million of direct COVID-19 claim costs from March 2020 through June 2022. A $35.0 million premium deficiency reserve remained at June 30.
- A health-plan contract discrepancy was under renegotiation; a payment of approximately $10.6 million was considered reasonably possible. The filing also describes ordinary-course legal and regulatory matters, with no material adverse outcome expected by management.
- Disclosure controls were ineffective at June 30 because of material weaknesses in financial reporting controls, including controls over claims estimates, revenue and risk-adjustment accounting, complex transactions, goodwill, warrants and IT access. Remediation was underway but not complete. The company had restated prior-period financial statements.
- Nasdaq initiated delisting proceedings after delayed filings. The company appealed and had a hearing scheduled for November 3, 2022; the filing states there was no assurance the appeal would succeed. The term-loan lenders had granted a waiver relating to the going-concern audit qualification and extended the deadline for the 2021 audited statements.
Most important facts for investors to verify
- Whether P3 obtained sufficient additional capital and improved cash generation after June 30, 2022, given the going-concern warning and cash decline.
- Subsequent medical claims experience, claims-payable adequacy, premium deficiency reserve changes and the effect of COVID-19 and member acuity on margins.
- Whether the $851.5 million impairment adequately reflects updated forecasts and whether further impairment was recorded.
- Progress on remediation of material weaknesses, accuracy of restated financial information and timeliness of subsequent SEC filings.
- Outcome of the Nasdaq appeal and compliance with listing requirements, plus compliance with debt covenants and the status of the potential $10.6 million health-plan payment.