PIII - P3 Health Partners Announces Second-Quarter 2023 Results

August, 07 2023 04:05 PM P3 Health Partners Inc.

Management to Host Conference Call and Webcast August 7, 2023 at 4:30 PM ET

P3 Health Partners Inc. (“P3” or the “Company”) (NASDAQ: PIII), a patient-centered and physician-led population health management company, today announced its financial results for the second quarter ended June 30, 2023.

“The results for the second quarter of 2023 show the power and trajectory of the P3 model. I’m delighted to say we had solid improvement across all key metrics. The strength we have seen in 2023 has given us the stability and momentum to drive our next phase of success in 2024, and beyond,” said Dr. Sherif Abdou, CEO of P3.

“We experienced approximately 1% medical cost trend for the quarter. That is a reflection of the effectiveness of P3’s model and the increasing maturity of the membership on P3’s platform. The value we deliver and demand for P3’s model is rooted in our ability to bend the cost curve for our patients, providers, and payor clients,” said Bill Bettermann, COO of P3.

Second-Quarter 2023 Financial Results

Capitated revenue was $325.6 million, an increase of 21.9% compared to $267.1 million in the second quarter of the prior year
Net loss was $27.6 million, compared to a net loss of $903.1 million in the second quarter of the prior year. The second quarter of 2022 was negatively impacted by a goodwill impairment charge of $851.5 million
Net loss PMPM was $88 compared to a net loss PMPM of $2,995 the second quarter of the prior year
Adjusted EBITDA ⁽¹⁾ was $0.2 million, compared to an Adjusted EBITDA loss of $28.7 million in the second quarter of the prior year
Adjusted EBITDA PMPM ⁽¹⁾ was roughly breakeven, compared to an Adjusted EBITDA loss PMPM of $95 in the second quarter of the prior year
Gross profit was $26.8 million, an improvement of $24.8 million compared to $2.0 million in the second quarter of the prior year
Gross profit PMPM was $86, an improvement of $79 compared to $7 in the prior year
Medical margin ⁽¹⁾ was $50.5 million, an increase of 132.1% compared to $21.8 million in the second quarter of the prior year
Medical margin PMPM ⁽¹⁾ was $161, an increase of 123.2% compared to a medical margin PMPM of $72 in the prior year

First-Half 2023 Financial Results

Capitated revenue was $624.3 million, an increase of 16.3% compared to $536.8 million in the first half of the prior year
Net loss was $80.0 million, compared to a net loss of $963.9 million in the first half of the prior year. The first half of 2022 was negatively impacted by a goodwill impairment charge of $851.5 million
Net loss PMPM was $129 compared to a net loss PMPM of $1,613 in the first half of the prior year
Adjusted EBITDA ⁽¹⁾ loss was $18.9 million, compared to an Adjusted EBITDA loss of $47.6 million in the first half of the prior year
Adjusted EBITDA PMPM ⁽¹⁾ loss was $30, compared to an Adjusted EBITDA loss of $80 PMPM in the first half of the prior year
Gross profit was $43.3 million, an improvement of 345% compared to $9.7 million in the first half of the prior year
Gross profit PMPM was $70, an increase of 329% compared to $16 in the first half of the prior year
Medical margin ⁽¹⁾ was $89.7 million, an increase of 92.6% compared to $46.6 million in the first half of the prior year
Medical margin PMPM ⁽¹⁾ was $145, an increase of 85.9% compared to a medical margin PMPM of $78 in the prior year

Full-Year 2023 Guidance


Year Ending December 31, 2023


Low

High
Medicare Advantage Members

115,000



120,000

Total Revenues (in millions)
$
1,200


$
1,250

Medical margin ⁽²⁾ (in millions)
$
155


$
175

Medical margin ⁽²⁾ PMPM
$
120


$
130

Adjusted EBITDA ⁽²⁾ Loss (in millions)
$
(50
)

$
(30
)

⁽¹⁾ Adjusted EBITDA, Adjusted EBITDA per member, per month (“PMPM”), medical margin and medical margin PMPM are non-GAAP financial measures. For reconciliations of these measures to the most directly comparable GAAP measures and more information regarding the Company’s use of non-GAAP financial measures, please see the section titled “Non-GAAP Financial Measures” and the tables at the end of this press release.
⁽²⁾ The Company is not able to provide a quantitative reconciliation of guidance for Adjusted EBITDA loss, medical margin and medical margin PMPM to net income (loss), gross profit and gross profit PMPM, the most directly comparable GAAP measures, respectively, and has not provided forward-looking guidance for net income (loss), gross profit (loss) or gross profit (loss) PMPM because of the uncertainty around certain items that may impact net income (loss), gross profit (loss) or gross profit (loss) PMPM that are not within our control or cannot be reasonably predicted without unreasonable effort. For more information regarding the non-GAAP financial measures discussed in this press release, please see “Non-GAAP Financial Measures” below.

Title & Webcast

P3 Health Second-Quarter Earnings Conference Call

Date & Time

August 7, 2023, 4:30pm Eastern Time

Conference Call Details

Toll-Free 1-877-270-2148 (US)

International 1-412-902-6510

Ask to be joined into the P3 Health Partners call

The conference call will also be webcast live in the "Events & Presentations" section of the Investor page of the P3 website ( ir.p3hp.org ). The Company’s press release will be available on the Investor page of P3’s website in advance of the conference call. An archived recording of the webcast will be available on the Investor page of P3’s website for a period of 90 days following the conference call.

About P3 Health Partners (NASDAQ: PIII):

P3 Health Partners Inc. is a leading population health management company committed to transforming healthcare by improving the lives of both patients and providers. Founded and led by physicians, P3 has an expansive network of more than 2,600 affiliated primary care providers across the country. Our local teams of health care professionals manage the care of thousands of patients in 18 counties across five states. P3 supports primary care providers with value-based care coordination and administrative services that improve patient outcomes and lower costs. Through partnerships with these local providers, the P3 care team creates an enhanced patient experience by navigating, coordinating, and integrating the patient’s care within the healthcare system. For more information, visit www.p3hp.org and follow us on LinkedIn and Facebook.com/p3healthpartners .

Non-GAAP Financial Measures

In addition to the financial results prepared in accordance accounting principles generally accepted in the U.S. ("GAAP"), this press release contains certain non-GAAP financial measures as defined by the SEC rules, including Adjusted EBITDA, Adjusted EBITDA PMPM, medical margin and medical margin PMPM. EBITDA is defined as GAAP net income (loss) before (i) interest, (ii) income taxes and (iii) depreciation and amortization. Adjusted EBITDA is defined as EBITDA, further adjusted to exclude the effect of certain supplemental adjustments, such as (i) mark-to-market warrant gain/loss, (ii) premium deficiency reserves, (ii) equity-based compensation expense and (vi) certain other items that we believe are not indicative of our core operating performances. Adjusted EBITDA PMPM is defined as Adjusted EBITDA divided by the number of Medicare Advantage members each month divided by the number of months in the period. We believe these non?GAAP financial measures provide an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other similar companies. Medical margin represents the amount earned from capitation revenue after medical claims expenses are deducted and medical margin PMPM is defined as medical margin divided by the number of Medicare Advantage members each month divided by the number of months in the period. Medical claims expenses represent costs incurred for medical services provided to our members. As our platform grows and matures over time, we expect medical margin to increase in absolute dollars; however, medical margin PMPM may vary as the percentage of new members brought onto our platform fluctuates. New membership added to the platform is typically dilutive to medical margin PMPM. We do not consider these non?GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. These non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these non?GAAP financial measures. In addition, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The tables at the end of this press release present a reconciliation of Adjusted EBITDA to net income (loss) and Adjusted EBITDA PMPM to net income (loss) PMPM, and medical margin to gross profit and medical margin PMPM to gross profit PMPM, which are the most directly comparable financial measures calculated in accordance with GAAP.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "anticipate," "believe," "budget," "contemplate," "continue," "could," "envision," "estimate," "expect," "guidance," "indicate," "intend," "may," "might," "plan," "possibly," "potential," "predict," "probably," "pro-forma," "project," "seek," "should," "target," or "will," or the negative or other variations thereof, and similar words or phrases or comparable terminology, are intended to identify forward-looking statements. These forward-looking statements address various matters, including the Company’s future expected growth strategy and operating performance; current expectations regarding the Company’s outlook as to revenue, at-risk Medicare Advantage membership, medical margin, medical margin PMPM and Adjusted EBITDA loss for the full year 2023, all of which reflect the Company’s expectations based upon currently available information and data. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected or estimated and you are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements.

Important risks and uncertainties that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, our ability to continue as a going concern; our potential need to raise additional capital to fund our existing operations or develop and commercialize new services or expand our operations; our ability to achieve or maintain profitability; our ability to maintain compliance with our debt covenants in the future, or obtain required waivers from our lenders if future operating performance were to fall below current projections of if there are material changes to management’s assumptions, we could be required to recognize non-cash charges to operating earnings for goodwill and/or other intangible asset impairment; our ability to identify and develop successful new geographies, physician partners, payors and patients; changes in market or industry conditions, regulatory environment, competitive conditions, and receptivity to our services; our ability to fund our growth and expand our operations; changes in laws and regulations applicable to our business; our ability to maintain our relationships with health plans and other key payers; the impact of COVID-19, including the impact of new variants of the virus, or another pandemic, epidemic or outbreak of infectious disease on our business and results of operation; increased labor costs; our ability to recruit and retain qualified team members and independent physicians; and other factors discussed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023, as updated by Part II, Item 1A. “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2023 to be filed with the SEC, and in the Company’s other filings with the SEC. All information in this press release is as of the date hereof, and we undertake no duty to update or revise this information unless required by law. You are cautioned not to place undue reliance on any forward-looking statements contained in this press release.

P3 HEALTH PARTNERS INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
*(in thousands, except per share amounts)*
*(unaudited)*


June 30, 2023

December 31, 2022
ASSETS



CURRENT ASSETS:



Cash
$
59,924


$
17,537

Restricted cash

5,575



920

Health plan receivable, net of allowance for credit losses of $150 and $0, respectively

102,482



72,092

Clinic fees, insurance and other receivable

1,937



7,500

Prepaid expenses and other current assets

2,231



2,643

TOTAL CURRENT ASSETS

172,149



100,692

Property and equipment, net

9,521



8,839

Intangible assets, net

709,018



751,050

Other long-term assets

18,271



15,990

TOTAL ASSETS ⁽¹⁾
$
908,959


$
876,571

LIABILITIES, MEZZANINE EQUITY and STOCKHOLDERS’ (DEFICIT) EQUITY



CURRENT LIABILITIES:



Accounts payable
$
9,196


$
11,542

Accrued expenses and other current liabilities

22,471



16,647

Accrued payroll

5,138



8,224

Health plans settlements payable

6,878



13,608

Claims payable

158,528



151,207

Premium deficiency reserve

29,503



26,375

Accrued interest

18,686



14,061

TOTAL CURRENT LIABILITIES

250,400



241,664

Operating lease liability

11,796



11,516

Warrant liabilities

2,599



1,517

Contingent consideration

4,907



4,794

Long-term debt, net

108,188



94,421

TOTAL LIABILITIES ⁽¹⁾

377,890



353,912

COMMITMENTS AND CONTINGENCIES (Note 12)



MEZZANINE EQUITY:



Redeemable non-controlling interest

667,235



516,805

STOCKHOLDERS’ (DEFICIT) EQUITY:



Class A common stock, $.0001 par value; 800,000 shares authorized; 114,098 shares and 41,579 shares issued and outstanding, respectively

11



4

Class V common stock, $.0001 par value; 205,000 shares authorized; 198,505 shares and 201,592 shares issued and outstanding, respectively

20



20

Additional paid in capital

192,389



315,375

Accumulated deficit

(328,586
)


(309,545
)
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY

(136,166
)


5,854

TOTAL LIABILITIES, MEZZANINE EQUITY & STOCKHOLDERS’ (DEFICIT) EQUITY
$
908,959


$
876,571

____________________
⁽¹⁾ The Company’s condensed consolidated balance sheets include the assets and liabilities of its consolidated variable interest entities (“VIEs”). As discussed in Note 13 “Variable Interest Entities,” P3 LLC is itself a VIE. P3 LLC represents substantially all the assets and liabilities of the Company. As a result, the language and amounts below refer only to VIEs held at the P3 LLC level. The condensed consolidated balance sheets include total assets that can be used only to settle obligations of the P3 LLC’s VIEs totaling $10.6 million and $3.1 million as of June 30, 2023 and December 31, 2022, respectively, and total liabilities of the P3 LLC’s consolidated VIEs for which creditors do not have recourse to the general credit of the Company totaled $14.5 million and $9.9 million as of June 30, 2023 and December 31, 2022, respectively. These VIE assets and liabilities do not include $44.6 million and $33.0 million of net amounts due to affiliates as of June 30, 2023 and December 31, 2022, respectively, as these are eliminated in consolidation and not presented within the condensed consolidated balance sheets. See Note 13 “Variable Interest Entities.”

P3 HEALTH PARTNERS INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
*(in thousands, except per share data)*
*(unaudited)*


Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022
OPERATING REVENUE:







Capitated revenue
$
325,616


$
267,102


$
624,320


$
536,787

Other patient service revenue

3,470



2,352



6,843



6,211

TOTAL OPERATING REVENUE

329,086



269,454



631,163



542,998

OPERATING EXPENSE:







Medical expense

302,271



267,448



587,841



533,269

Premium deficiency reserve

(2,012
)


(1,490
)


3,128



(2,814
)
Corporate, general and administrative expense

27,223



41,099



64,866



79,697

Sales and marketing expense

857



1,408



1,858



2,273

Depreciation and amortization

21,780



21,720



43,320



43,472

Goodwill impairment

—



851,456



—



851,456

TOTAL OPERATING EXPENSE

350,119



1,181,641



701,013



1,507,353

OPERATING LOSS

(21,033
)


(912,187
)


(69,850
)


(964,355
)
OTHER INCOME (EXPENSE):







Interest expense, net

(3,851
)


(2,700
)


(7,937
)


(5,455
)
Mark-to-market of stock warrants

(1,731
)


11,815



(1,082
)


5,954

Other

(741
)


(34
)


(645
)


(40
)
TOTAL OTHER EXPENSE

(6,323
)


9,081



(9,664
)


459

LOSS BEFORE INCOME TAXES

(27,356
)


(903,106
)


(79,514
)


(963,896
)
PROVISION FOR INCOME TAXES

(226
)


—



(516
)


—

NET LOSS

(27,582
)


(903,106
)


(80,030
)


(963,896
)
LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTEREST

(17,766
)


(748,756
)


(61,015
)


(798,969
)
NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST
$
(9,816
)

$
(154,350
)

$
(19,015
)

$
(164,927
)








NET LOSS PER SHARE (Note 9):







Basic
$
(0.09
)

$
(3.71
)

$
(0.25
)

$
(3.97
)
Diluted
$
(0.09
)

$
(3.73
)

$
(0.29
)

$
(4.01
)








WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 9):







Basic

107,454



41,579



74,699



41,579

Diluted

107,454



242,053



276,028



240,362

P3 HEALTH PARTNERS INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
*(in thousands)*
*(unaudited)*


Six Months Ended June 30,

2023

2022
CASH FLOWS FROM OPERATING ACTIVITIES:



Net loss
$
(80,030
)

$
(963,896
)
Adjustments to reconcile net loss to net cash used in operating activities:



Depreciation and amortization

43,320



43,472

Equity-based compensation

2,008



15,427

Goodwill impairment

—



851,456

Amortization of original issue discount and debt issuance costs

340



—

Accretion of contingent consideration

113



188

Mark-to-market adjustment of stock warrants

1,082



(5,954
)
Premium deficiency reserve

3,128



(2,814
)
Changes in assets and liabilities:



Health plan receivable

(30,540
)


(49,555
)
Clinic fees, insurance, and other receivable

5,563



(376
)
Prepaid expenses and other current assets

139



1,890

Other long-term assets

(1,289
)


—

Accounts payable, accrued expenses, and other current liabilities

1,924



1,163

Accrued payroll

(3,086
)


(3,041
)
Health plan settlements payable

(6,730
)


(4,526
)
Claims payable

7,321



37,364

Accrued interest

4,625



2,559

Operating lease liability

(452
)


3,555

Net cash used in operating activities

(52,564
)


(73,088
)
CASH FLOWS FROM INVESTING ACTIVITIES:



Purchases of property and equipment

(1,652
)


(1,401
)
Net cash used in investing activities

(1,652
)


(1,401
)
CASH FLOWS FROM FINANCING ACTIVITIES:



Proceeds from long-term debt, net of original issuance discount

14,102



—

Proceeds from private placement offering, net of offering costs paid

87,329



—

Repayment of long-term debt

—



(2,446
)
Payment of debt issuance costs

(173
)


—

Net cash provided by (used in) financing activities

101,258



(2,446
)
Net change in cash and restricted cash

47,042



(76,935
)
Cash and restricted cash, beginning of period

18,457



140,834

Cash and restricted cash, end of period
$
65,499


$
63,899

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (LOSS)
*(in thousands, except PMPM)*
*(unaudited)*


Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

(in thousands)
Net loss
$
(27,582
)

$
(903,106
)

$
(80,030
)

$
(963,896
)
Interest expense, net

3,851



2,700



7,937



5,455

Depreciation and amortization expense

21,780



21,720



43,320



43,472

Provision for income taxes

226



—



516



—

Mark-to-market of stock warrants

1,731



(11,815
)


1,082



(5,954
)
Premium deficiency reserve

(2,012
)


(1,490
)


3,128



(2,814
)
Equity-based compensation

1,031



3,716



2,008



15,427

Transaction and other related costs ⁽¹⁾

—



8,010



70



9,112

Goodwill impairment

—



851,456



—



851,456

Other ⁽²⁾

1,192



143



3,053



149

Adjusted EBITDA (loss)
$
217


$
(28,666
)

$
(18,916
)

$
(47,593
)
Adjusted EBITDA (loss) PMPM
$
1


$
(95
)

$
(30
)

$
(80
)
_____________________
⁽¹⁾ Transaction and other related costs during the six months ended June 30, 2023 consisted of legal fees incurred related to acquisition-related litigation.
⁽²⁾ 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.

MEDICAL MARGIN
*(in thousands, except PMPM)*
*(unaudited)*


Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

(in thousands)
Capitated revenue
$
325,616


$
267,102


$
624,320


$
536,787

Less: medical claims expense

(275,121
)


(245,344
)


(534,579
)


(490,202
)
Medical margin
$
50,495


$
21,758


$
89,741


$
46,585

Medical margin PMPM
$
161


$
72


$
145


$
78

RECONCILIATION OF GROSS PROFIT TO MEDICAL MARGIN
*(in thousands)*
*(unaudited)*


Three Months Ended June 30,

Six Months Ended June 30,

2023

2022

2023

2022

(in thousands)
Gross profit ⁽¹⁾
$
26,815


$
2,006


$
43,322


$
9,729

Other patient service revenue

(3,470
)


(2,352
)


(6,843
)


(6,211
)
Other medical expense

27,150



22,104



53,262



43,067

Medical margin
$
50,495


$
21,758


$
89,741


$
46,585

_____________________
⁽¹⁾ Effective for the quarter ended June 30, 2023, we modified the method by which we reconcile medical margin. Previously, we reconciled medical margin to operating loss as the most directly comparable measure calculated in accordance with GAAP. In the current period and on a go-forward basis we will reconcile to gross profit as we have determined that gross profit is the most directly comparable GAAP measure.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230807910979/en/

Investor Relations

Karen Blomquist
Vice President, Investor Relations
P3 Health Partners
kblomquist@p3hp.org

Kassi Belz
Executive Vice President, Communications
P3 Health Partners
(904) 415-2744
kbelz@p3hp.org

Company Name:	P3 Health Partners Inc.
Stock Symbol:	PIII
Market:	NASDAQ
Website:	p3hp.org

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