P3 Health Partners Inc

Previous wording

We operate in the $944 billion Medicare market, which covers approximately 67 million eligible lives as of January 2024. Our core focus is the MA market, which makes up approximately 51% of the overall Medicare market, or nearly 31 million Medicare eligible lives in 2023. Medicare beneficiaries may enroll in an MA plan, under which payors contract with the Centers for Medicare and Medicaid Services (“CMS”) to provide a defined range of healthcare services that are comparable to Medicare FFS (which is also referred to as “traditional Medicare”).

Current wording

We operate in the $944 billion Medicare market, which covers approximately 67.2 million eligible lives as of March 2024. Our core focus is the MA market, which makes up approximately 51% of the overall Medicare market, or nearly 31 million Medicare eligible lives in 2023. Medicare beneficiaries may enroll in an MA plan, under which payors contract with the Centers for Medicare and Medicaid Services (“CMS”) to provide a defined range of healthcare services that are comparable to Medicare FFS (which is also referred to as “traditional Medicare”).

Previous wording

Our company was formed in 2017 and our first at-risk contract became effective on January 1, 2018. We have demonstrated an ability to rapidly scale, primarily entering markets with our affiliate physician model, and expanding to a PCP network of approximately 2,900 physicians, in 27 markets (counties) across five states in over six full years of operations as of March 31, 2024. As of March 31, 2024, our PCP network served approximately 126,800 at-risk members.

Current wording

Our company was formed in 2017 and our first at-risk contract became effective on January 1, 2018. We have demonstrated an ability to rapidly scale, primarily entering markets with our affiliate physician model, and expanding to a PCP network of approximately 2,900 physicians, in 27 markets (counties) across five states in over six full years of operations as of June 30, 2024. As of June 30, 2024, our PCP network served approximately 128,100 at-risk members.

Previous wording

When entering a new market, we supplement the existing physician network with local market leadership teams and support infrastructure to drive the improvement in medical cost and quality. When entering an adjacent market, we are able to leverage the investments we previously made to have a faster impact on our expanded footprint. As of March 31, 2024, we operate in 27 markets, markets being counties, across five states.

Current wording

When entering a new market, we supplement the existing physician network with local market leadership teams and support infrastructure to drive the improvement in medical cost and quality. When entering an adjacent market, we are able to leverage the investments we previously made to have a faster impact on our expanded footprint.

Previous wording

Once established in a market, we have an opportunity to efficiently expand both our provider and payor contracts. Given the benefits PCPs experience from joining our P3 Care Model, which offers providers the teams, tools and technologies to better support their patient base, we often experience growth in our affiliate network after entering a market. Because of the benefits, we have also historically experienced high retention with our affiliate providers. From 2018 through March 31, 2024, we experienced a 97% physician retention rate in our affiliate provider network. By expanding our affiliate provider network and adding new physicians to the P3 network, we can quickly increase the number of contracted at-risk members under our existing health plan arrangements.

Current wording

Once established in a market, we have an opportunity to efficiently expand both our provider and payor contracts. Given the benefits PCPs experience from joining our P3 Care Model, which offers providers the teams, tools and technologies to better support their patient base, we often experience growth in our affiliate network after entering a market. Because of the benefits, we have also historically experienced high retention with our affiliate providers. From 2018 through June 30, 2024, we experienced a 96% physician retention rate in our affiliate provider network. By expanding our affiliate provider network and adding new physicians to the P3 network, we can quickly increase the number of contracted at-risk members under our existing health plan arrangements.

Previous wording

Our medical claims expense is our largest expense category, representing 88% of our total operating expense for the three months ended March 31, 2024. We manage our medical costs by improving our members access to healthcare. Our care model focuses on maintaining health and leveraging the primary care setting as a means of avoiding costly downstream healthcare costs, such as emergency department visits and acute hospital inpatient admissions. The power of our model is reflected in the relative performance of our network when compared to local FFS benchmarks.

Current wording

Our medical claims expense is our largest expense category, representing 89% of our total operating expense for the six months ended June 30, 2024. We manage our medical costs by improving our members access to healthcare. Our care model focuses on maintaining health and leveraging the primary care setting as a means of avoiding costly downstream healthcare costs, such as emergency department visits and acute hospital inpatient admissions. The power of our model is reflected in the relative performance of our network when compared to local FFS benchmarks.

Previous wording

(2)Other during the three months ended March 31, 2024 consisted of (i) interest income partially offset by (ii) valuation allowance on our notes receivable. Other during the three months ended March 31, 2023 consisted of (i) interest income offset by (ii) a legal settlement outside of the ordinary course of business, (iii) valuation allowance on our notes receivable, (iv) restructuring and other charges, including severance and benefits paid to employees pursuant to workforce reduction plans, (v) the disposition of our Pahrump operations, (vi) expenses for third-party consultants to assist us with the development, implementation, and documentation of new and enhanced internal controls and processes for compliance with Sarbanes-Oxley Section 404(b).

Current wording

(1)Other during the three and six months ended June 30, 2024 consisted of (i) interest income offset by (ii) severance and related expense in connection with our chief executive officer transition, and (iii) valuation allowance on our notes receivable. Other during the three and six months ended June 30, 2023 consisted of (i) interest income offset by (ii) cybersecurity incident loss, (iii) restructuring and other charges, including severance and benefits paid to employees pursuant to workforce reduction plans, (iv) the disposition of our Pahrump operations, (v) expenses for third-party consultants to assist us with the development, implementation, and documentation of new and enhanced internal controls and processes for compliance with Sarbanes-Oxley Section 404(b) with respect to the six months ended June 30, 2023, (vi) a legal settlement outside of the ordinary course of business with respect to the six months ended June 30, 2023, and (vii) valuation allowance on our notes receivable.

Previous wording

(1)Transaction and other related costs during the three months ended March 31, 2023 consisted of legal fees incurred related to acquisition-related litigation.

Current wording

(2)Transaction and other related costs during the six months ended June 30, 2023 consisted of legal fees incurred related to acquisition-related litigation.

Previous wording

At-risk membership represents the approximate number of Medicare members for whom we receive a fixed percentage of premium under capitation arrangements as of the end of the reporting period. We had 126,800 and 103,400 at-risk members as of March 31, 2024 and 2023, respectively.

Current wording

At-risk membership represents the approximate number of Medicare members for whom we receive a fixed percentage of premium under capitation arrangements as of the end of the reporting period. We had 128,100 and 104,100 at-risk members as of June 30, 2024 and 2023, respectively.

Previous wording

Affiliate primary care physicians represent the approximate number of primary care physicians included in our affiliate network, with whom members may be attributed under our capitation arrangements, as of the end of the reporting period. We had 2,900 and 2,800 primary care physicians as of March 31, 2024 and 2023, respectively.

Current wording

Affiliate primary care physicians represent the approximate number of primary care physicians included in our affiliate network, with whom members may be attributed under our capitation arrangements, as of the end of the reporting period. We had 2,900 and 2,600 primary care physicians as of June 30, 2024 and 2023, respectively.

Previous wording

Interest expense, net. Interest expense primarily consists of interest on our term loan facility and unsecured promissory notes and amortization of debt issuance costs and original issue discount.

Current wording

Interest expense, net. Interest expense primarily consists of interest on our Term Loan Facility (as defined below) and unsecured promissory notes and amortization of debt issuance costs and original issue discount.

Previous wording

The following table sets forth our condensed consolidated statements of operations data for the periods indicated. Amounts may not sum due to rounding.

Current wording

The following tables set forth our condensed consolidated statements of operations data for the periods indicated. Amounts may not sum due to rounding.

Previous wording

Other patient service revenue was $4.4 million for the three months ended March 31, 2024, an increase of $1.0 million, or 29%, compared to $3.4 million for the three months ended March 31, 2023. Other patient service revenue was approximately 1% of total operating revenue for each of the three months ended March 31, 2024 and 2023.

Current wording

Other patient service revenue was $4.9 million for the three months ended June 30, 2024, an increase of $1.4 million, or 40%, compared to $3.5 million for the three months ended June 30, 2023. Other patient service revenue was approximately 1% of total operating revenue for each of the three months ended June 30, 2024 and 2023.

Previous wording

Medical expense was $382.1 million for the three months ended March 31, 2024, an increase of $96.5 million, or 34%, compared to $285.6 million for the three months ended March 31, 2023. The increase was primarily driven by an increase in the total number of at-risk members year-over-year, as described above, resulting from an increase of nine counties under contract with our health plans, effective January 1, 2024.

Current wording

Medical expense was $365.2 million for the three months ended June 30, 2024, an increase of $62.9 million, or 21%, compared to $302.3 million for the three months ended June 30, 2023. The increase was primarily driven by an increase in the total number of at-risk members year-over-year, as described above, resulting from an increase of nine counties under contract with our health plans, effective January 1, 2024.

Previous wording

Premium deficiency reserve was an expense of $1.0 million for the three months ended March 31, 2024, a decrease of $4.1 million, or 81%, compared to an expense of $5.1 million for the three months ended March 31, 2023. The change was due to management’s assessment of the profitability of contracts, wherein increased membership and the maturation of our overall contractual arrangements are expected to reduce our future losses.

Current wording

Premium deficiency reserve was a benefit of $3.4 million for the three months ended June 30, 2024, an increase of $1.4 million, or 69%, compared to a benefit of $2.0 million for the three months ended June 30, 2023. The change was due to management’s assessment of the profitability of contracts, wherein increased membership and the maturation of our overall contractual arrangements are expected to reduce our future losses.

Previous wording

Capitated revenue was $384.1 million for the three months ended March 31, 2024, an increase of $85.4 million, or 29%, compared to $298.7 million for the three months ended March 31, 2023. This increase was primarily driven by a 23% increase in the total number of at-risk members from 103,400 at March 31, 2023 to 126,800 at March 31, 2024, which was primarily due to an increase of nine counties under contract with our health plans, effective January 1, 2024, and a 5% increase in capitated revenue rates, due to increased premiums from patients with a higher average level of acuity. Capitated revenue was approximately 99% of total operating revenue for each of the three months ended March 31, 2024 and 2023.

Current wording

Capitated revenue was $758.4 million for the six months ended June 30, 2024, an increase of $134.1 million, or 21%, compared to $624.3 million for the six months ended June 30, 2023. This increase was primarily driven by a 23% increase in the total number of at-risk members from 104,100 at June 30, 2023 to 128,100 at June 30, 2024, which was primarily due to an increase of nine counties under contract with our health plans, effective January 1, 2024. Capitated revenue was approximately 99% of total operating revenue for each of the six months ended June 30, 2024 and 2023.

Previous wording

Corporate, general and administrative expense was $27.4 million for the three months ended March 31, 2024, a decrease of $10.2 million, or 27%, compared to $37.6 million for the three months ended March 31, 2023. The decrease was primarily driven by decreases of $7.1 million in professional fees supporting our operations as a public company and $2.5 million in salary and related expense as head count decreased 20% from March 31, 2023 to March 31, 2024.

Current wording

Corporate, general and administrative expense was $54.0 million for the six months ended June 30, 2024, a decrease of $10.9 million, or 17%, compared to $64.9 million for the six months ended June 30, 2023. The decrease was driven by decreases of $8.7 million in professional fees supporting our operations as a public company and $2.2 million in salary and related expense.

Previous wording

To date, we have financed our operations principally through the cash we obtained as a result of the Business Combinations, private placements of our equity securities, payments from our payors, issuances of promissory notes, and borrowings under the Term Loan Facility (as defined below). We generate cash from our operations, generally from our contracts with payors. As of March 31, 2024, we had cash and restricted cash of $32.3 million.

Current wording

To date, we have financed our operations principally through the cash we obtained as a result of the Business Combinations, private placements of our equity securities, payments from our payors, issuances of promissory notes, and borrowings under the Term Loan Facility. We generate cash from our operations, generally from our contracts with payors. As of June 30, 2024, we had cash and restricted cash of $78.2 million.

Previous wording

We have experienced losses since our inception and net losses of $49.6 million and $52.4 million for the three months ended March 31, 2024 and 2023, respectively. We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the strong growth we have experienced over the last seven years and the investments we are making in expanding our business, which require up-front expenses. Our future capital requirements will depend on many factors, including the pace of our growth, ability to manage medical costs, the maturity of our members, and our ability to raise capital. We may need to raise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing and to the extent we are unsuccessful at doing so, we may need to adjust our growth trajectory to accommodate our capital needs and look for additional ways to generate cost efficiencies.

Current wording

We have experienced losses since our inception and net losses of $28.8 million and $78.4 million for the three and six months ended June 30, 2024, respectively. We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the strong growth we have experienced over the last seven years and the investments we are making in expanding our business, which require up-front expenses. Our future capital requirements will depend on many factors, including the pace of our growth, ability to manage medical costs, the maturity of our members, and our ability to raise capital. We may need to raise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing and to the extent we are unsuccessful at doing so, we may need to adjust our growth trajectory to accommodate our capital needs and look for additional ways to generate cost efficiencies.

Previous wording

On April 6, 2023, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), dated March 30, 2023 with the purchasers named therein (the “Purchasers”), which included certain affiliated entities of CPF and our Chief Medical Officer and member of our board of directors, we issued 79.9 million units at a price of approximately $1.12 per unit for institutional investors, and a purchase price of approximately $1.19 per unit for employees and consultants. Each unit consisted of one share of Class A common stock and 0.75 of a warrant to purchase one share of Class A common stock at an exercise price of $1.13. Certain institutional investors elected to receive pre-funded warrants to purchase Class A common stock in lieu of a portion of their Class A common stock. In total, we sold (i) an aggregate of 69.2 million shares of our Class A common stock, (ii) Common Warrants to purchase an aggregate of 59.9 million shares of Class A common stock, and (iii) Pre-Funded Warrants to purchase an aggregate of 10.8 million shares of Class A common stock to the Purchasers for aggregate proceeds of approximately $86.6 million, net of offering costs of approximately $2.9 million (collectively, the “March 2023 Private Placement”).

Current wording

On April 6, 2023, pursuant to a securities purchase agreement, dated March 30, 2023, with the purchasers named therein, which included certain affiliated entities of CPF and our Chief Medical Officer and member of our board of directors, we issued 79.9 million units at a price of approximately $1.12 per unit for institutional investors, and a purchase price of approximately $1.19 per unit for employees and consultants. Each unit consisted of one share of Class A common stock and 0.75 of a warrant to purchase one share of Class A common stock at an exercise price of $1.13. Certain institutional investors elected to receive pre-funded warrants to purchase Class A common stock in lieu of a portion of their Class A common stock. In total, we sold (i) an aggregate of 69.2 million shares of our Class A common stock, (ii) warrants to purchase an aggregate of 59.9 million shares of Class A common stock, and (iii) pre-funded warrants to purchase an aggregate of 10.8 million shares of Class A common stock for aggregate proceeds of approximately $86.6 million, net of offering costs of approximately $2.9 million (collectively, the “March 2023 Private Placement”).

Previous wording

On March 22, 2024, we entered into a financing transaction with VBC Growth SPV 2, LLC (“VGS 2”), consisting of the issuance by P3 LLC of an unsecured promissory note (the “VGS 2 Promissory Note”) to VGS 2. The VGS 2 Promissory Note provides for funding of up to $25.0 million, available for draw by P3 LLC in two tranches, as follows: (i) a first tranche of $10.0 million which was immediately drawn on March 22, 2024, and (ii) a second tranche of $15.0 million which was drawn on April 5, 2024. The VGS 2 Promissory Note matures on September 30, 2027. Interest is payable at 17.5% per annum on a quarterly cycle (in arrears) beginning June 30, 2024. We may elect to pay either (1) 8.0% cash interest and 9.5% PIK interest, or (2) 17.5% PIK interest, provided that payment of cash interest will be permitted only to the extent permitted by the Term Loan Agreement and the 2024 Subordination Agreement, and if not so permitted, such interest shall accrue as PIK interest. The VGS 2 Promissory Note provides for mandatory prepayments with the proceeds of certain asset sales, and VGS 2 has the right to demand payment in full upon (i) a change of control of the Company and (ii) certain qualified financings (as defined in the VGS 2 Promissory Note).

Current wording

Promissory Note provided for funding of up to $25.0 million. The VGS 2 Promissory Note matures on September 30, 2027. As of June 30, 2024, we had $25.4 million of borrowings outstanding under the VGS 2 Promissory Note, $0.4 million of which consists of an up-front fee of 1.5% of the aggregate principal amount of the loan paid to VGS 2 in-kind. Interest is payable at 17.5% per annum on a quarterly cycle (in arrears) beginning June 30, 2024. We may elect to pay either (1) 8.0% cash interest and 9.5% PIK interest, or (2) 17.5% PIK interest, provided that payment of cash interest will be permitted only to the extent permitted by the Term Loan Agreement and the 2024 Subordination Agreement, and if not so permitted, such interest shall accrue as PIK interest. The VGS 2 Promissory Note provides for mandatory prepayments with the proceeds of certain asset sales, and VGS 2 has the right to demand payment in full upon (i) a change of control of the Company and (ii) certain qualified financings (as defined in the VGS 2 Promissory Note).

Previous wording

In connection with the issuance of the VGS 2 Promissory Note, we also entered into a subordination agreement, dated as of March 22, 2024 (the “2024 Subordination Agreement”) with VGS 2 which subordinates VGS 2’s right of payment under the VGS 2 Promissory Note to the right of payment and security interests of the lenders under the Term

Current wording

In connection with the issuance of the VGS 2 Promissory Note, we also entered into a subordination agreement, dated as of March 22, 2024 (the “2024 Subordination Agreement”) with VGS 2 which subordinates VGS 2’s right of payment under the VGS 2 Promissory Note to the right of payment and security interests of the lenders under the Term Loan Facility. Under the terms of the 2024 Subordination Agreement, we will be required to pay all interest under the VGS 2 Promissory Note in-kind.

Previous wording

We paid VGS 2 an up-front fee of 1.5% of the aggregate principal amount of the loan in-kind. In addition, we will pay VGS 2 a back-end fee at the time the VGS 2 Promissory Note is redeemed as follows: (i) if paid prior to June 30, 2024, 2.25%; (ii) if paid after June 30, 2024 and on or before September 30, 2024, 4.5%; (iii) if paid after September 30, 2024 and on or before December 31, 2024, 6.75% and (iv) if paid after December 31, 2024, 9.0%.

Current wording

In addition, we will pay VGS 2 a back-end fee at the time the VGS 2 Promissory Note is redeemed as follows: (i) if paid after June 30, 2024 and on or before September 30, 2024, 4.5%; (ii) if paid after September 30, 2024 and on or before December 31, 2024, 6.75% and (iii) if paid after December 31, 2024, 9.0%.

Previous wording

Our primary uses of cash include payments for medical expenses, administrative expenses, cost associated with our care model, debt service, and capital expenditures. Final reconciliation and receipts of amounts due from payors are typically settled in arrears.

Current wording

Our primary uses of cash include payments for medical expenses, administrative expenses, cost associated with our care model, and debt service. Final reconciliation and receipts of amounts due from payors are typically settled in arrears.

Previous wording

The estimation of a liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including (but not limited to) the amount and timing of taxable income generated by the Company each year as well as the tax rate then applicable. The TRA liability is estimated to be $11.0 million as of March 31, 2024. Due to the Company’s history of losses, the Company has not recorded tax benefits associated with the increase in tax basis as a result of the Business Combinations. As a result, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of March 31, 2024.

Current wording

The estimation of a liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including (but not limited to) the amount and timing of taxable income generated by the Company each year as well as the tax rate then applicable. The TRA liability is estimated to be $11.1 million as of June 30, 2024. Due to the Company’s history of losses, the Company has not recorded tax benefits associated with the increase in tax basis as a result of the Business Combinations. As a result, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of June 30, 2024.

Previous wording

As of March 31, 2024, there were no material changes to our primary short-term and long-term requirements for liquidity and capital as disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K.

Current wording

Outside of the aforementioned, and any routine transactions made in the ordinary course of business, there have been no material changes to our primary short-term and long-term requirements for liquidity and capital as disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K.

Previous wording

Net cash used in operating activities was $20.0 million for the three months ended March 31, 2024, compared to net cash used in operating activities of $23.7 million for the three months ended March 31, 2023. Significant changes impacting net cash used in operating activities during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 were primarily due to changes in working capital.

Current wording

Net cash used in operating activities was $30.3 million for the six months ended June 30, 2024, compared to net cash used in operating activities of $52.6 million for the six months ended June 30, 2023. Significant changes impacting net cash used in operating activities during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 were primarily due to changes in working capital.

Previous wording

Net cash used in investing activities was zero for the three months ended March 31, 2024. Net cash used in investing activities was $0.5 million for the three months ended March 31, 2023, primarily consisting of the acquisition of two medical practices, net of cash acquired, and purchases of property and equipment.

Current wording

Net cash used in investing activities was zero for the six months ended June 30, 2024. Net cash used in investing activities was $1.7 million for the six months ended June 30, 2023, consisting of purchases of property and equipment.

Previous wording

Net cash provided by financing activities was $11.4 million for the three months ended March 31, 2024, consisting of proceeds from the issuance of the VGS 2 Promissory Note and short-term financing agreements for the funding of certain insurance policies. Net cash provided by financing activities was $14.1 million for the three months ended March 31, 2023, consisting of proceeds from the issuance of the VGS Promissory Note.

Current wording

Net cash provided by financing activities was $67.5 million for the six months ended June 30, 2024, consisting of proceeds from the May 2024 Private Placement, net of offering costs, borrowings on the VGS 2 Promissory Note, and short-term financing agreements for the funding of certain insurance policies. Net cash provided by financing activities was $101.3 million for the six months ended June 30, 2023, consisting of proceeds from the March 2023 Private Placement, net of offering costs, and borrowings on the VGS Promissory Note.