P3 HEALTH PARTNERS INC. The following discussion and analysis is intended to provide the reader with an understanding of our business, including an overview of our results of operations and liquidity and should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q, as well as our audited financial statements and related notes included in our 2021 Form 10-K and in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under "Cautionary Statement Regarding Forward-Looking Statements," in Part II, Item 1A. "Risk Factors" and elsewhere in this Form 10-Q.
Overview
P3 is a patient-centered and physician-led population health management company.
We strive to offer superior care to all those in need. We believe that the
misaligned incentives in the fee-for-service ("FFS") healthcare payment model
and the fragmentation between physicians and care teams has led to sub-optimal
clinical outcomes, limited access, high spending and unnecessary variability in
the quality of care. We believe that a platform such as ours, which helps to
realign incentives and focuses on treating the full patient, is uniquely
positioned to address these healthcare challenges.
We have leveraged the expertise of our management team's more than 20 years of
experience in population health management, to build our "P3 Care Model." The
key attributes that differentiate P3 include: 1) patient-focused model, 2)
physician-led model, and 3) our broad delegated model. Our model operates by
entering into arrangements with payors providing for monthly payments to manage
the total healthcare needs of members attributed to our primary care physicians.
In tandem, we enter into arrangements directly with existing physician groups or
independent physicians in the community to join our value-based care network. In
our model, physicians are able to retain their independence and entrepreneurial
spirit, while gaining access to the tools, teams and technologies that are key
to success in a value-based care model, all while sharing in the savings from
successfully improving the quality of patient care and reducing costs.
We operate in the $830 billion Medicare market, which covers approximately 63
million eligible lives. Our core focus is the Medicare Advantage market, which
makes up approximately 42% of the overall Medicare market, or nearly 26 million
Medicare eligible lives. Medicare beneficiaries may enroll in a Medicare
Advantage plan, under which payors contract with the Centers for Medicare &
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").
We predominantly enter into capitated contracts with the nation's largest health
plans to provide holistic, comprehensive healthcare to Medicare Advantage
members. Under the typical capitation arrangement, we are entitled to per member
per month fees from payors to provide a defined range of healthcare services for
Medicare Advantage health plan members attributed to our primary care physicians
("PCPs"). These per member per month ("PMPM") fees comprise our capitated
revenue and are determined as a percent of the premium ("POP") payors receive
from CMS for these members. Our contracted recurring revenue model offers us
highly predictable revenue, and rewards us for providing high-quality care
rather than driving a high volume of services. In this capitated arrangement,
our goals are well-aligned with payors and patients alike-the more we improve
health outcomes, the more profitable we will be over time.
Under this capitated contract structure, we are generally responsible for all
members' medical costs across the care continuum, including, but not limited to
emergency room and hospital visits, post-acute care admissions, prescriptions
drugs, specialist physician spend and primary care spend. Keeping members
healthy is our primary objective. When they need medical care, delivery of the
right care in the right setting can greatly impact outcomes.
When our members need care outside of our network of PCPs, we utilize a number of tools including network management, utilization management and claims processing to ensure that the appropriate quality care is provided.
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Our company was formed in 2017, and our first at-risk contract became effective onJanuary 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 2,800 physicians, in 15 markets (counties) across 5 states in five full years of operations as ofSeptember 30, 2022 . Our platform has enabled us to grow our annual revenue by 94% fromDecember 31, 2018 toDecember 31, 2021 . As ofSeptember 30, 2022 , our PCP network served approximately 101,000 at-risk Medicare Advantage members. We believe we have significant growth opportunities available to us across existing and new markets, with less than 1% of the 491,060 PCPs in theU.S. currently included in our physician network. Impact of COVID-19 OnMarch 11, 2020 , theWorld Health Organization designated COVID-19 a global pandemic. The rapid spread of COVID-19 around the world and throughout theU.S. has altered the behavior of businesses and people, with significant negative effects on Federal, state, and local economies, the duration of which continues to remain unknown. Various mandates were implemented by Federal, state, and local governments in response to the pandemic, which caused many people to remain at home, along with forced closure of or limitations on certain businesses. This included suspension of elective procedures by healthcare facilities. While restrictions have been eased across theU.S. and most states have lifted moratoriums on non-emergency procedures, some restrictions remain in place. COVID-19 disproportionately impacts older adults, especially those with chronic illnesses, which describes many of P3's patients. To ensure a coordinated response to the pandemic, we created aCOVID-19 Task Force that is supported by team members from across the organization. Our company owned clinics remained open to those members with urgent needs, and we successfully pivoted to a telemedicine offering for routine care in order to protect and better serve our patients, providers, care teams and community. We continued to support our affiliate physician network with the tools, team and technology to provide care to the members we serve. Management instituted multiple safety measures for P3 employees including a work-from-home policy and access to free vaccinations and personal protective equipment. Deeply committed to our employees, we made a conscious decision not to furlough any of our employees, even if their function was disrupted by COVID-19. Due to our recurring contracted revenue model, the COVID-19 pandemic did not have a material impact on P3's revenues during 2020, 2021 and the nine-month period endedSeptember 30, 2022 . Nearly 99% the Company's total revenues are recurring, consisting of fixed monthly PMPM capitation payments received from Medicare Advantage health plans. P3 estimates that it incurred approximately$93.3 million of direct costs related to COVID-19 claims during the period fromMarch 1, 2020 throughSeptember 30, 2022 . We expect to incur additional COVID-19 related costs given the volume of positive cases and "breakthrough" cases (positive cases in vaccinated patients) present in our markets. Because of the nature of capitation arrangements, the full impact of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods. The full extent to which COVID-19 will directly or indirectly impact our future results of operations and financial condition will depend on multiple factors. This includes new and emerging information from the impact of new variants of the virus, the actions taken to contain it or treat its impact and the economic impact on our markets. Such factors include, but are not limited to, the scope and duration of stay-at-home practices and business closures and restrictions, government-imposed or recommended suspensions of elective procedures, and expenses required for supplies and personal protective equipment. Because of these factors, management may not be able to fully estimate the length or severity of the impact of the pandemic on our business. However, management continues to closely evaluate and monitor the nature and extent of these potential impacts to P3's business, results of operations and liquidity.
Business Combinations
OnDecember 3, 2021 , the Company consummated the transactions pursuant to which, among other things,P3 Health Group Holdings, LLC merged with and intoFAC Merger Sub LLC , aDelaware limited liability company and wholly owned subsidiary ofForesight Acquisition Corp. ("Foresight" or "Merger Sub"), with Merger Sub as the surviving company, which was renamedP3 Health Group, LLC ("P3 LLC "), and Foresight,FAC-A Merger Sub Corp. , aDelaware corporation and a wholly owned subsidiary of Foresight,FAC-B Merger Sub Corp. , aDelaware corporation and a wholly owned subsidiary of Foresight (together withFAC-A Merger Sub Corp. , the "Merger Corps ") merged with and intoCPF P3 Blocker-A, LLC , aDelaware limited liability company,CPF P3 Blocker-B, LLC aDelaware limited liability company (together withCPF P3 Blocker-A, LLC , the "Blockers"), with the Blockers as the surviving entities and wholly-owned subsidiaries of Foresight (collectively, the "Business Combinations"). As a result of the Business Combinations (see Note 7 "Business Combinations" to the accompanying condensed consolidated financial statements), the Company was deemed to be the acquirer for accounting purposes, andP3 Health Group Holdings, LLC , which 45 Table of Contents is the business conducted prior to the closing of the Business Combinations, was deemed to be the acquiree and accounting predecessor (the "Predecessor"). The financial statement presentation includes the financial statements ofP3 Health Group Holdings, LLC as "Predecessor" for the periods prior to the Closing Date (the "Predecessor Period(s)") and of the Company as "Successor" for the periods after the Closing Date (the "Successor Period(s)"), including the consolidation ofP3 Health Group Holdings, LLC . The Business Combinations were accounted for as a business combination using the acquisition method of accounting, and the Successor's financial statements reflect a new basis of accounting that is based on the fair value of net assets acquired. As a result of the application of the acquisition method of accounting as of the effective time of the Business Combinations, the financial statements for the Predecessor Period and for the Successor Period are presented on different bases. The historical financial information of the Company (the acquirer) has not been reflected in the Predecessor Period financial statements.
Key Factors Affecting our Performance
Growing Medicare Advantage Membership on Our Platform
Membership and revenue are tied to the number of members attributed to our physician network by our payors. We believe we have multiple avenues to serve additional members, including through:
? Growth in membership under our existing contracts and existing markets:
Patients
o and elect to enroll in Medicare Advantage or (b) elect to convert from Medicare
FFS to Medicare Advantage.
? Adding new contracts (either payor contracts or physician contracts) in
existing markets.
? Adding new contracts (either payor contracts or physician contracts) in
adjacent and new markets.
AtSeptember 30, 2022 the number of Medicare Advantage at-risk members on our platform was approximately 101,000 compared to approximately 60,600 members atSeptember 30, 2021 , representing a growth rate of 67% over this period. The table below illustrates membership growth from 2019 to 2022:December 31 ,December 31 ,
2019 2020 2021 2022 CAGR
At-risk Medicare Advantage Members 19,700 50,600 67,000 101,000 81 %
Year-over-year % change 89 % 157 % 32 % 67 %
Growing Existing Contract Membership
According to CMS, the Medicare market covers approximately 63 million eligible lives as of 2021. Over the last decade, Medicare Advantage penetration of the Medicare beneficiary population has increased from 26% to 42% of the overall Medicare beneficiary market and makes up nearly 26 million Medicare eligible lives today. Recent data suggests that the number of Medicare-eligible patients will continue to increase as the US population ages and becomes eligible for the program. Additionally, recent data from theKaiser Family Foundation suggests the Medicare Advantage penetration rates will continue to increase in the upcoming years. As these new patients age-in to Medicare and enroll in Medicare Advantage through our payors, they become attributed to our network of physicians with little incremental cost to us. In addition to age-ins, Medicare eligible patients can change their enrollment selections during select periods throughout the year. Our sales and marketing teams actively work with local community partners to connect with Medicare eligible patients and make them aware of their healthcare choices and the services that P3 offers with our value-based care model, including greater access to their physicians and customized care plans catered to their needs. The ultimate effect of our marketing efforts is increased awareness of P3 and additional patients choosing us as their primary care provider. We believe that our marketing efforts also help to grow our payor partners' membership base as we grow our own patient base and help educate patients about their choices on Medicare, further aligning our model with that of healthcare payors. 46
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Growing Membership in Adjacent and New Markets
Our affiliate model allows us to quickly and efficiently enter into new and adjacent markets in two ways: 1) partnering with payors and 2) partnering with providers. Because our model honors the existing patient-provider relationship, we are able to deploy our care model around existing physicians in a given a market. By utilizing the local healthcare infrastructure, we can quickly build a network of PCPs to serve the healthcare needs of contracted members. Our business development and managed care teams maintain an active pipeline of new partnership opportunities for both providers and payors. These potential opportunities are developed through significant inbound interest and the deep relationships our team has developed with their more than 20 years of experience in the value-based care space and our proactive assessment of expansion markets. When choosing a market to enter, we make our decision on a county-by-county basis acrossthe United States . We look at various factors including: (i) population size, (ii) payor participants and concentration, (iii) health system participants and concentration, and (iv) competitive landscape. 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're able to leverage the investments we previously made to have a faster impact on our expanded footprint. We have historically demonstrated success in effectively growing into new and adjacent markets. As ofSeptember 30, 2022 , we operate in 15 markets, markets being counties, across five states. P3 is actively pursuing opportunities to expand operations to additional states in the Southwest and Midwest.
Growing Membership in Existing Markets
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 throughSeptember 30, 2022 , P3 experienced an average of 98% 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. Additionally, by expanding the number of contracted payors, we can leverage our existing infrastructure to quickly increase our share of patients within our physician network. We have a proven ability to manage medical costs and improve clinical outcomes of our lives under management on behalf of our payor partners. This is evidenced by the receipt of inbound partnership requests from payors to improve growth, quality and profitability in their markets.
Growing Capitated Revenue Per Member
Medicare pays capitation using a risk adjusted model, which compensates payors based on the health status, or acuity, of each individual member. Payors with higher acuity members receive a higher payment and those with lower acuity members receive a lower payment. Moreover, some of our capitated revenues also include adjustments for performance incentives or penalties based on the achievement of certain clinical quality metrics as contracted with payors. Given the prevalence of fee-for-service arrangements, our patients often have historically not participated in a value-based care model, and therefore their health conditions are poorly documented. Through the P3 Care Model, we determine and assess the health needs of our patients and create an individualized care plan consistent with those needs. We capture and document health conditions as a part of this process. We expect that our PMPM revenue will continue to improve the longer members participate in our care model as we better understand and assess their health status (acuity) and coordinate their medical care.
Effectively Managing Member Medical Expense
Our medical claims expense is our largest expense category (except for goodwill impairment), representing 83% of our total operating expenses (excluding goodwill impairment) for the three months and nine months endedSeptember 30, 2022 , respectively. 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
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FFS benchmarks. For example, in 2019 our
Achieving Operating Efficiencies
As a result of our affiliate model and ability to leverage our existing local and national infrastructure, we generate operating efficiencies at both the market and enterprise level. Our local corporate, general and administrative expense, which includes our local leadership, care management teams and other operating costs to support our markets, are expected to decrease over time as a percentage of revenue as we add members to our existing contracts, grow membership with new payor and physician contracts, and our revenue subsequently increases. Our corporate general and administrative expenses at the enterprise level include resources and technology to support payor contracting, quality, data management, delegated services, finance and legal functions. While we expect our absolute investment in our enterprise resources to increase over time, we expect it will decrease as a percentage of revenue when we are able to leverage our infrastructure across a broader group of at-risk members. We expect our corporate, general and administrative expenses to increase in absolute dollars in the future as we continue to invest to support growth of our business, as well as due to the costs required to operate as a public company, including insurance coverage, investments in internal audit, investor relations and financial reporting functions, fees paid to the exchange on which we list our securities, and increased legal and audit fees.
Impact of Seasonality
Our operational and financial results will experience some variability depending upon the time of year in which they are measured. This variability is most notable in the following areas:
At-Risk Member Growth. While new members are attributed to our platform throughout the year, we experience the largest portion of our at-risk member growth during the first quarter. Contracts with new payors typically begin onJanuary 1 , at which time new members become attributed to our network of physicians. Additionally, new members are attributed to our network onJanuary 1 , when plan enrollment selections made during the prior Annual Enrollment Period fromOctober 15th through December 7th of the prior year take effect. Revenue Per Member. Our revenue is based on percentage of premium we have negotiated with our payors as well as our ability to accurately and appropriately document the acuity of a member's health status. We experience some seasonality with respect to our per member revenue as it will generally decline over the course of the year. In January of each year, CMS revises the risk adjustment factor for each patient based upon health conditions documented in the prior year, leading to an overall increase in per-patient revenue. As the year progresses, our per-patient revenue declines as new patients join us typically with less complete or accurate documentation (and therefore lower risk-adjustment scores) and patients with more severe acuity profiles (and, therefore, higher per member revenue rates) expire. Medical Costs. Medical expense is driven by utilization of healthcare services by our attributed membership. Medical expense will vary seasonally depending on a number of factors, including the weather and the number of business days. Certain illnesses, such as the influenza virus, are far more prevalent during colder months of the year, which will result in an increase in medical expenses during these time periods. We would therefore expect to see higher levels of per-member medical expense in the first and fourth quarters. Business days can also create year-over-year comparability issues if one year has a different number of business days compared to another.
Non-GAAP Financial Measures and Key Performance Metrics
We use certain non-GAAP financial measures to supplement our condensed consolidated financial statements, which are presented in accordance withU.S. Generally Accepted Accounting Principles ("GAAP"). These non-GAAP financial measures include Adjusted EBITDA. A non-GAAP financial measure is a numerical measure that departs from GAAP because it includes or excludes amounts that are required under GAAP. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by P3 may not be comparable to similarly titled measures used by other companies. The presentation of non-GAAP financial measures provides additional information to investors regarding our results of operations that our management believes is useful for trending, analyzing and benchmarking the performance of our business. See "Supplemental Unaudited Presentation of Consolidated Adjusted EBITDA," below, for a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure. 48 Table of Contents
In addition to our GAAP and non-GAAP financial information, we monitor the following operating metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following key metrics are useful in evaluating our business:
December 31, December 31, December 31, September 30,
2019 2020 2021 2022
At-risk members 19,700 50,600 67,000 101,000
Affiliate PCPs 1,000 1,500 2,100 2,800
At-Risk Membership
At-risk membership represents the approximate number of Medicare Advantage members for whom we receive a fixed per member per month fee under capitation arrangements as of the end of a particular period.
Contracted Primary Care Physicians
Contracted 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 a particular period.
The key metric we utilize to measure our profitability and performance is Adjusted EBITDA.
Key Components of Results of Operations
Revenue
Capitated revenue
We contract with health plans using an at-risk model. Under the at-risk model, we are responsible for the cost of all covered health care services provided to members assigned by the health plans to the Company in exchange for a fixed payment, which generally is a POP based on health plans' premiums received from CMS. Through this capitation arrangement, we stand ready to provide assigned Medicare Advantage members all their medical care via our directly employed and affiliated physician/specialist network. The premiums health plans receive are determined via a competitive bidding process with CMS and are based on the costs of care in local markets and the average utilization of services by patients enrolled. Medicare pays capitation using a "risk adjustment model", which compensates providers based on the health status (acuity) of each individual patient. Medicare Advantage plans with higher acuity patients receive higher premiums. Conversely, Medicare Advantage plans with lower acuity patients receive lesser premiums. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after final data is compiled. As premiums are adjusted via this risk adjustment model (via a Risk Adjustment Factor, "RAF"), our PMPM payments will change commensurately with how our contracted Medicare Advantage plans' premiums change with CMS. Management determined the transaction price for these contracts is variable as it primarily includes PMPM fees, which can fluctuate throughout the course of the year based on the acuity of each individual enrollee. The Company generally estimates the transaction price using the most likely methodology. Amounts are only included in the transaction price to the extent any significant uncertainty of reversal on cumulative revenue will not occur and is, furthermore, resolved. In certain contracts, PMPM fees also include adjustments for items such as performance incentives or penalties based on the achievement of certain clinical quality metrics as contracted with payors. Capitated revenues are recognized based on an estimated PMPM transaction price to transfer the service for a distinct increment of the series (e.g. month) and is recognized net of projected acuity adjustments and performance incentives or penalties as management can reasonably estimate the ultimate PMPM payment of those contracts. We recognize revenue in the month in which attributed members are entitled to receive healthcare benefits during the contract term. As previously noted, it is the Company's policy to recognize the variable RAF component of capitation revenues, to the extent it is probable that a significant reversal will not occur. Generally, the Company's estimate of the variable RAF component of capitation at theDecember 31 balance sheet is constrained, as it is not probable that a significant reversal would not occur. Due to the timing of 49 Table of Contents filing the 2021 annual financial statements inOctober 2022 , the Company subsequently collected the RAF component of capitation payments prior to the issuance of the 2021 financial statements, effectively relieving the constraints which normally exist at ourDecember 31, 2021 balance sheet date. As a result, capitation revenues of$12.3 million which would have been recognized in 2022 were instead recognized in the 2021 annual report. Other patient service revenue. Other patient service revenue is comprised primarily of encounter-related fees to treat patients outside of P3's at-risk arrangements at company owned clinics. Other patient service revenue also includes ancillary fees earned under contracts with certain payors for the provision of certain care coordination and other care management services. These services are provided to patients covered by these payors regardless of whether those patients receive their care from our directly employed or affiliated medical groups.
Operating expenses
Medical expenses. Medical expenses primarily include costs of all covered services provided to members by non-P3 employed providers. This also includes an estimate of IBNR. IBNR is recorded as Claims Payable in the accompanying condensed consolidated balance sheets. Estimates for incurred claims are based on historical enrollment and cost trends while also taking into consideration operational changes. Future and actual results typically differ from estimates. Differences could result from an overall change in medical expenses per member, changes in member mix or simply due to the addition of new members. IBNR estimates are made on an accrual basis and adjusted in future periods as required. To the extent we revise our estimates of incurred but not reported claims for prior periods up or down, there would be a correspondingly favorable or unfavorable effect on our current period results that may or may not reflect changes in long term trends in our performance. Corporate, general and administrative expenses. Corporate, general and administrative expenses include employee-related expenses, including salaries and related costs and stock-based compensation for our executive, technology infrastructure, operations, clinical and quality support, finance, legal, and human resources departments. In addition, general and administrative expenses include all corporate technology and occupancy costs.
Sales and marketing expenses. Sales and marketing expenses consist of costs related to patient and provider marketing and community outreach. These expenses capture all costs for both our local and enterprise sales and marketing efforts.
Depreciation and amortization expense. Depreciation expense is associated with
our property and equipment. Depreciation includes expenses associated with
leasehold improvements, computer equipment and software, furniture and fixtures
and internally developed software. Amortization expense is associated with
definite lived intangible assets, including trademarks and tradenames, customer
contracts, provider network agreements and payor contracts.
Premium deficiency reserve ("PDR"). Premium deficiency reserves are recognized
when there is a future probable loss on unearned capitated premiums after
deducting estimated and expected claim costs and claim adjustment expenses and
maintenance expenses. PDR represents the advance recognition of a probable
future loss in the current period's financial statements. If a PDR exists, the
amount is recognized by recording an additional liability for the probable
future deficiency on the current period's condensed consolidated balance sheet
with a corresponding non-cash charge to the condensed consolidated statement of
operations.
Results of Operations
The Business Combination resulted in the presentation of the Company's financial
statements on different basis for the periods July 1, 2022 through September 30,
2022 and January 1, 2022 through September 30, 2022 ; and the period July 1, 2021
through September 30, 2021 and January 1, 2021 through September 30, 2021 . The
Company has not provided pro forma statements of operations and cash flows for
the three and nine-month periods ended September 30, 2021 .
The historical financial information of Foresight (a special purpose acquisition
company or "SPAC") prior to the Business Combinations has not been included in
the Predecessor financial statements as this information has been determined not
to be useful to a user of the financial statements. SPACs deposit the proceeds
from their initial public offerings into segregated trust accounts until a
business combination occurs, at which point they are utilized to fund the
business combination. The operations of a SPAC until the closing of a business
combination, other than income from the trust account investments and
transaction expenses, are nominal. Accordingly, the only activity reported in
the Predecessor period was the operations of P3 LLC . Foresight's historical
financial
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information is excluded from the Predecessor financial information. Thus, the
financial results of the Successor and Predecessor entities are expected to be
largely consistent with the exception of certain financial statement line items
impacted by the Business Combinations. Therefore, management believes that a
discussion of the financial results of the Successor Period of 2022 compared
with the Predecessor Period of 2021 is reasonable.
The following table sets forth our condensed consolidated statements of operations data for the periods indicated (dollars in thousands):
Successor Predecessor Successor Predecessor
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2022 % of September 30, 2021 % of September 30, 2022 % of September 30, 2021 % of
(Unaudited) Revenue (Unaudited,As Restated) Revenue (Unaudited) Revenue (Unaudited, As Restated) Revenue
OPERATING REVENUE: Capitated Revenue $ 243,988 98 % $ 153,073 98 % $ 780,775 99 % $ 443,598 98 % OtherPatient Service Revenue 4,272 2 % 3,113 2 % 10,483 1 % 8,472 2 % TOTAL OPERATING REVENUE 248,260 100 % 156,186 100 % 791,258 100 % 452,070 100 % OPERATING EXPENSES: Medical Expenses 254,776 103 % 161,328 104 % 788,046 99 % 458,333 102 % Premium Deficiency Reserve (7,302) -3 % 1,600 1 % (10,116) -1 % 4,600 1 % Corporate, General and Administrative Expenses 37,864 15 % 20,434 13 % 117,560 15 % 53,883 12 % Sales and Marketing Expenses 1,119 0 % 491 0 % 3,392 0 % 1,118 0 % Goodwill impairment - 0 % - 0 % 851,456 108 % - 0 % Depreciation and Amortization 21,815 9 % 456 0 % 65,287 8 % 1,219 0 % TOTAL OPERATING EXPENSES 308,272 124 % 184,309 118 % 1,815,625 229 % 519,153 115 % OPERATING LOSS (60,012) -24 % (28,123) -18 % (1,024,367) -129 % (67,083) -15 % OTHER INCOME (EXPENSE): Interest Expense, net (2,750) -1 % (2,529) -2 % (8,244) -1 % (7,023) -1 % Mark-to-Market of Stock Warrants (2,567) -1 % (1,402) -1 % 3,386 0 % (12,063) -3 % TOTAL OTHER INCOME (EXPENSE) (5,317) -2 % (3,931) -3 % (4,858) -1 % (19,086) -4 % LOSS BEFORE INCOME TAXES (65,329) -26 % (32,054) -21 % (1,029,225) -130 % (86,169) -19 % PROVISION FOR INCOME TAXES - 0 % - 0 % - 0 % - 0 % NET LOSS (65,329) -26 % (32,054) -21 % (1,029,225) -130 % (86,169) -19 % LESS NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTERESTS (54,156) -22 % - 0 % (853,124) -108 % - 0 % NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS $ (11,173) -4 % $ (32,054) -21 % $ (176,101) -22 % $ (86,169) -19 % NET LOSS PER SHARE (BASIC) $ (0.27) $ - $ (4.24) $ - NET LOSS PER SHARE (DILUTED) $ (0.27) $ - $ (4.27) $ - Revenue Capitated revenue was$244.0 million for the three months endedSeptember 30, 2022 , a 59% increase compared to capitated revenue of$153.1 million for the three months endedSeptember 30, 2021 . Capitated revenue was$780.8 million for the nine months endedSeptember 30, 2022 , an 76% increase compared to capitated revenue of$443.6 million for the nine months endedSeptember 30, 2021 . These increases were driven primarily by a 67% increase in the total number of at-risk members from 60,600 atSeptember 30, 2021 to 101,000 atSeptember 30, 2022 , as we increased the number of health plan contracts from fourteen to twenty and a 5% increase 51 Table of Contents
in capitation revenue rates, due to increased premiums from patients with a
higher average level of acuity. Capitated revenue was approximately 98% and 99%
of total revenue for the three and nine months ended
Other patient service revenue was$4.3 million for the three months endedSeptember 30, 2022 , a 37% increase compared to other patient service revenue of$3.1 million for the three months endedSeptember 30, 2021 . Other patient service revenue was$10.5 million for the nine months endedSeptember 30, 2022 , a 24% increase compared to other patient service revenue of$8.5 million for the nine months endedSeptember 30, 2021 . These increases were primarily driven by increased fees associated with care coordination services and additional fees earned at owned clinics. Other patient service revenue was approximately 2% and 1% of total revenue for the three and nine months endedSeptember 30, 2022 ,
respectively. Operating expenses Medical Expenses Medical expenses were$254.8 million for the three months endedSeptember 30, 2022 , a 58% increase compared to medical expenses of$161.3 million for the three months endedSeptember 30, 2021 . Medical expenses were$788.0 million for the nine months endedSeptember 30, 2022 , a 72% increase compared to medical expenses of$458.3 million for the nine months endedSeptember 30, 2021 . These increases were primarily driven by a 56% increase in the total number of at-risk members year-over-year ("YoY").
Corporate, General and Administrative Expenses
Corporate, general, and administrative expenses were$37.9 million for the three months endedSeptember 30, 2022 , an 85% increase compared to corporate, general and administrative expenses of$20.4 million for the three months endedSeptember 30, 2021 . The increase was primarily due to a$1.4 million increase in stock-based compensation expense, a$6.2 million increase in professional fees supporting our operations as a public company, a$1.1 million increase in insurance expense,$1.4 million transaction bonus , and a$6.6 million increase in salary related expenses as the average full time employee count increased from 307 for the three months endedSeptember 30, 2021 to 527 for the three months endedSeptember 30, 2022 . Corporate, general and administrative expenses were$117.6 million for the nine months endedSeptember 30, 2022 , a 118% increase compared to corporate, general and administrative expenses of$53.9 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to a$15.8 million increase in stock-based compensation expense, a$16.6 million increase in professional fees supporting our operations as a public company,$7.3 million transaction bonus ,$1.1 million increase in computer software expense, and a$21.6 million increase in salary related expenses as the average full time employee count increased from 307 for the nine months endedSeptember 30, 2021 to 527 for the nine months endedSeptember 30, 2022 . Sales and Marketing Expenses Sales and marketing expenses were$1.1 million for the three months endedSeptember 30, 2022 , a 128% increase compared to sales and marketing expenses of$0.5 million for the three months endedSeptember 30, 2021 . Sales and marketing expenses were$3.4 million for the nine months endedSeptember 30, 2022 , a 203% increase compared to sales and marketing expenses of$1.1 million for the nine months endedSeptember 30, 2021 . These increases were driven by increases in community outreach spend and higher spending related to patient and provider marketing initiatives.
Depreciation and Amortization Expense
Depreciation and amortization expenses were$21.8 million for the three months endedSeptember 30, 2022 , compared to amortization expenses of$0.5 million for the three months endedSeptember 30, 2021 . Depreciation and amortization expenses were$65.3 million for the nine months endedSeptember 30, 2022 , compared to$1.2 million for the nine months endedSeptember 30, 2021 . These increases were associated with definite lived intangible assets acquired in the Business Combinations in the fourth quarter of 2021, including trademarks and tradenames, customer contracts, provider network agreements and payor contracts. 52 Table of Contents
Premium Deficiency Reserve (PDR)
Reductions to the PDR of$7.3 million and$10.1 million were recorded for the three and nine month periods endedSeptember 30, 2022 , respectively. A PDR of$1.6 million and$4.6 million were recorded in the three and nine month periods endedSeptember 30, 2021 , respectively.
Goodwill Impairment
The Company recorded an$851.5 goodwill impairment charge in the three month period endedJune 30, 2022 due to the macroeconomic and financial market conditions, industry-specific considerations, the Company's performance, and its sustained decrease in share price. See Note 11 "Goodwill ."
Other (Income)/Expense
Interest expense, net was$2.8 million for the three months endedSeptember 30, 2022 , an 8.7% increase compared to interest expense of$2.5 million for the three months endedSeptember 30, 2021 . Interest expense, net was$8.2 million for the nine months endedSeptember 30, 2022 , a 17% increase compared to interest expense of$7.0 million for the nine months endedSeptember 30, 2021 . These increases were primarily due to interest associated with the Company's Term Loan Facility (defined below). A loss of$2.6 million and$1.4 million were recorded for the three months endedSeptember 30, 2022 and the three months endedSeptember 30, 2021 , respectively, for the change in the fair value of warrant liabilities associated with our public, private placement and forward purchase warrants. A gain of$3.4 million and loss of$12.1 million were recorded for the nine months endedSeptember 30, 2022 and the nine months endedSeptember 30, 2021 , respectively.
Provision for Income Taxes
The provision for income taxes was zero in each of the three and nine-month periods endedSeptember 30, 2022 andSeptember 30, 2021 . As a result of the Business Combinations, substantially all of the Company's assets and operations are held and conducted byP3 LLC and its subsidiaries, and the Company's only assets are equity interest inP3 LLC .P3 LLC is treated as a partnership forU.S. federal and most applicable state and local income tax jurisdictions. As a partnership,P3 LLC is generally not subject toU.S. federal, state and local income taxes. Any taxable income or loss generated byP3 LLC is passed through to and included within the taxable income or loss of its members. Prior to the Business Combinations, the income and losses ofP3 LLC was passed through to its members and nontaxable toP3 LLC .
Net Loss
Net loss was$65.3 million for the three-months endedSeptember 30, 2022 , or a 103% increase compared to a net loss of$32.1 million for the three-months period endedSeptember 30, 2021 . The$33.3 million increase primarily reflects a$93.4 million increase in medical expenses, net, a$17.4 million increase in corporate, general and administrative expenses, and a$21.4 million increase in depreciation and amortization expenses, partially offset by the$92.0 million increase in total operating revenue, a$8.9 million decrease in PDR expense, and a$1.2 million increase on the mark-to-market of stock warrants loss in the third quarter of 2022 compared with 2021. Net loss was$1,029.2 million for the nine-month periods endedSeptember 30, 2022 , or a 1,194% increase compared to a net loss of$86.2 million in the nine-months endedSeptember 30, 2021 . The$943.1 million increase primarily reflects a$329.7 million increase in medical expenses, net, a$851.5 million goodwill impairment charge in 2022, a$63.7 million increase in corporate, general and administrative expenses, and a$64.1 million increase in depreciation and amortization expenses, partially offset by a$339.2 million increase in total operating revenue, a$14.7 million decrease in PDR expense, and a$3.4 million gain on the mark-market of stock warrants in 2022 compared with a$12.1 million loss in 2021.
Supplemental Unaudited Presentation of Consolidated Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. We present Adjusted EBITDA because we believe it helps investors understand underlying trends in our business and facilitates an understanding of our operating performance from period to period because it facilitates a comparison of our recurring core business operating results. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. Our presentation of these measures should not be
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construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.
By definition, EBITDA consists of net income (loss) before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA, further adjusted to add back the effect of certain expenses, such as mark-to-market warrant expense, PDR, stock-based compensation expense and transaction expenses.
Adjusted EBITDA is not a measure of performance or liquidity calculated in
accordance with GAAP. It is unaudited and should not be considered an
alternative to, or more meaningful than, net income (loss) as an indicator of
our operating performance. Uses of cash flows that are not reflected in Adjusted
EBITDA include capital expenditures, interest payments, debt principal
repayments, and other expenses defined above, which can be significant. As a
result, Adjusted EBITDA should not be considered as a measure of our liquidity.
Because of these limitations, Adjusted EBITDA should not be considered in
isolation or as a substitute for performance measures calculated in accordance
with GAAP. We compensate for these limitations by relying primarily on our GAAP
results and using Adjusted EBITDA on a supplemental basis. You should review the
reconciliation of net loss to Adjusted EBITDA set forth above and not rely on
any single financial measure to evaluate our business.
The following table sets forth a reconciliation of net loss to Adjusted EBITDA
using data derived from our unaudited consolidated financial statements for the
periods indicated (dollars in thousands):
Successor Predecessor Successor Predecessor
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
(Unaudited) (Unaudited, As Restated) (Unaudited) (Unaudited, As Restated)
Net loss $ (65,329) $ (32,054) $ (1,029,225) $ (86,169)
Adjustments to net loss
Interest expense, net 2,751 2,529 8,245 7,023Depreciation and amortization expense 21,815
456 65,287 1,219
Goodwill impairment - - 851,456 -
Mark-to-market warrants 2,567 1,402 (3,386) 12,063
Premium deficiency reserve (7,302) 1,600 (10,116) 4,600Transaction expense, Business Combinations 112 - 2,248 - Transaction related litigation expense 300 - 1,371 - Transaction bonuses 1,432 - 7,337 - Stock-based compensation expense 1,784
355 17,211 1,379
Restatement related costs 1,563 - 1,563 -
Other - - 109 -
Total adjustments to net loss 25,022 6,342 941,325 26,284
Adjusted EBITDA loss $ (40,307) $ (25,712) $ (87,900) $ (59,885)
Liquidity and Capital Resources
General
To date, we have financed our operations principally through the Business Combination, private placements of our equity securities, payments from our payors and borrowings under the Term Loan Facility (defined below). We generate cash primarily from our contracts with payors. As ofSeptember 30, 2022 , we had cash and restricted cash of$35.4 million . 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 four years and the investments we intend to make
in
expanding our business,
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which will 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 the Company's growth trajectory to accommodate its capital needs and look for additional ways to generate cost efficiencies. 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. Following the completion of the Business Combinations (the "Closing") onDecember 3, 2021 , substantially all of P3's assets and operations are held and conducted byP3 LLC , the surviving company post-combination. The ability ofP3 Health Partners Inc. to pay taxes, make payments under the Tax Receivable Agreement (defined below) and to pay dividends will depend on the financial results and cash flows ofP3 LLC and the distributions received fromP3 LLC . Deterioration in the financial condition, earnings or cash flow ofP3 LLC for any reason could limit or impairP3 LLC's ability to pay such distributions. Additionally, to the extent that P3 needs funds andP3 LLC is restricted from making such distributions under applicable law or regulation or under the terms of any financing arrangements, orP3 LLC is otherwise unable to provide such funds, it could materially adversely affect the liquidity and financial condition of P3. It is anticipated that the distributions P3 will receive fromP3 LLC may, in certain periods, exceed the actual tax liabilities and obligations to make payments under the Tax Receivable Agreement.
Tax Receivable Agreement
Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets ofP3 LLC when its units are redeemed or exchanged. We intend to treat any redemptions and exchanges of P3 LLC Units as direct purchases of the units forU.S. federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent the tax basis is allocated to those capital assets. In connection with the Business Combinations, we entered into a Tax Receivable Agreement ("TRA") with certain of theP3 Equityholders and P3 LLC that provides for the payment by us of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets ofP3 LLC resulting from any redemptions or exchanges ofP3 LLC , (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the "TRA Payments"). We expect to benefit from the remaining 15% of any tax benefits that we may actually realize. 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. As a result of the Business Combinations, the potential future tax benefits are estimated to be$5.4 million , of which$4.6 million is estimated to be the associated TRA liability. As noted above, we have no recorded tax benefits associated with the increase in tax basis as a result of the Business Combinations. As a result, we determined that payments to TRA holders are not probable and no TRA liability has been recorded as ofSeptember 30, 2022 andDecember 31, 2021 . As non-controlling interest holders exercise their right to exchange their units inP3 LLC ("P3 LLC Units"), a TRA liability may be recorded based on 85% of the estimated future tax benefits that the Company may realize as a result of increases in the tax basis ofP3 LLC . The amount of the increase in the tax basis, the related estimated tax benefits, and the related TRA liability to be recorded will depend on the price of our Class A Common Stock at the time of the relevant redemption or exchange.
Liquidity
As of the date of this report, we believe that our cash, cash equivalents and restricted cash are not sufficient to fund our operating and capital needs for at least the next 12 months from the issuance of this Form 10-Q. This evaluation of our cash resources available over the next twelve months does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented or the many factors that determine the company's capital requirements, including the pace of our growth, ability to manage medical costs, the maturity of our members, and our ability to raise capital.
Management continues to explore raising additional capital through a combination of debt financing and equity issuances. If we raise funds by issuing debt securities or preferred stock, or
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by incurring loans, these forms of financing would have rights, preferences, and
privileges senior to those of holders of our Common Stock. If we raise capital
through the issuance of additional equity, such sales and issuance would dilute
the ownership interests of the existing holders of the Company's Common Stock.
The availability and the terms under which we may be able to raise additional
capital could be disadvantageous, and the terms of debt financing or other
non-dilutive financing may involve restrictive covenants and dilutive financing
instruments, which could place significant restrictions on our operations.
Macroeconomic conditions and credit markets could also impact the availability
and cost of potential future debt financing. There can be no assurances that any
additional debt, other non-dilutive and/or equity financing would be available
to us on favorable terms, or potentially at all. We expect to continue to incur
net losses, comprehensive losses, and negative cash flows from operating
activities in accordance with our operating plan.
As of the date of this report, we believe that our existing cash resources are
not sufficient to support planned operations. The matters discussed above raise
substantial doubt about our ability to continue as a going concern within one
year after the date the financial statements are issued. The accompanying
condensed consolidated financial statements do not include any adjustments
related to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result from the outcome
of this uncertainty.
Cash Flows
The following discussion of our cash flows is based on the consolidated
statements of cash flows. The following table sets forth summarized cash flows
for the periods indicated:
Successor Predecessor
Nine Months Ended Nine Months Ended
September 30, 2022 September 30, 2021
(Unaudited) (Unaudited,
As Restated)Net cash used in operating activities$ (94,065,131) $ (39,827,450) Net cash used in investing activities (7,783,535) (7,884,167) Net cash (used in) provided by financing activities (3,624,662)
12,491,534
Net change in cash (105,473,328) (35,220,083)
Cash at beginning of period 140,833,872 39,902,947
Cash at end of period $ 35,360,544 $ 4,682,864
Net cash used in operating activities for the nine months endedSeptember 30, 2022 , was$94.1 million , an increase of$54.3 million compared to net cash used in operating activities of$39.8 million for the nine months endedSeptember 30, 2021 . Significant changes impacting net cash used in operating activities for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 were as follows:
a
months ended
? charge and a
depreciation, amortization, stock-based compensation, mark-to-market
adjustments for warrants and premium deficiency reserves and the performance in
our capitated contracts and increased at-risk Medicare Advantage members, as
described above;
a decrease in our net health plan receivables for the nine months ended
?
plan receivables for the nine months ended
a decrease in our net health plan payables for the nine months ended September
? 30, 2022 of
for the nine months ended
offset by an increase in our claims payable for the nine months
? 2022 of
nine months endedSeptember 30, 2021 of$18.2 million ; 56 Table of Contents Net cash used in investing activities for the nine months endedSeptember 30, 2022 was$7.8 million compared to$7.9 million for the nine months endedSeptember 30, 2021 . The decrease in net cash used in investing activities was primarily driven by a decrease in purchases of property, plant and equipment, which is partially offset by increase in cash from acquisitions. Net cash used in financing activities for the nine months endedSeptember 30, 2022 , was$3.6 million , a$16.1 million decrease, compared to net cash provided by financing of$12.5 million for the nine months endedSeptember 30, 2021 . This decrease reflects net proceeds of$12.8 million from the issuance of long-term debt during the nine months endedSeptember 30, 2021 and repayment of short-term and long-term debt totaling$3.6 million during the nine months endedSeptember 30, 2022 .
Contractual Obligations and Commitments
Our principal commitments consist of repayments of unpaid claims, long-term debt on term loans, unsecured debt and leases obligation for our facilities.
The following table summarizes our contractual obligations as ofSeptember 30, 2022 (in thousands): Payments due by Period Less than More than Total 1 year 1-3 years 3-5 years 5 years Unpaid Claims$ 134,705,426 $ 134,705,426 $ - $ - $ - Short-term debt - - - - - Term loan 65,000,000 - - 65,000,000 - Unsecured debt 15,000,000 - - 15,000,000 - Lease obligation 11,370,108 570,897 3,449,837 3,648,065 3,701,309 Other - - - - - Total$ 226,075,534 $ 135,276,323 $ 3,449,837 $ 83,648,065 $ 3,701,309 Unpaid claims As ofSeptember 30, 2022 , we estimated a balance of unpaid claims due to third parties for health care services provided to members, including estimates for incurred but not reported claims, of$134.7 million . Estimates for incurred claims are based on historical enrollment and cost trends while also taking into consideration operational changes. Future and actual results typically differ from estimates. Differences could result from an overall change in medical expenses per members, changes in member mix or simply due to addition of new members. Term Loan OnNovember 19, 2020 , the Company entered a Term Loan and Security Agreement withCRG Servicing, LLC (the "Term Loan Agreement") providing for funding of up to$100 million (the "Term Loan Facility"). The maturity date of the Term Loan Facility isDecember 31, 2025 . As ofSeptember 30, 2022 , we had$65.0 million of borrowings outstanding under the Term Loan Facility, and the remaining availability under the Term Loan Facility ended upon termination of the commitment period onFebruary 28, 2022 . Interest is payable at 12.0 % per annum on a quarterly cycle (in arrears) beginningMarch 31, 2021 . Commencing in March of 2021, we elected to pay 8.0% with the remaining 4.0% being added to principal as "paid in kind" ("PIK") for a period of three years (or twelve payments), in lieu of the full 12.0% in cash. Under the terms of the Term Loan Agreement, we must remain in compliance with financial covenants such as minimum liquidity of$5.0 million and annual minimum revenue levels. In addition, the Term Loan Facility restricts our ability and the ability of our subsidiaries to, among other things, incur indebtedness and liens. Beginning in 2021, and on an annual basis thereafter, the Company must post a minimum amount of annual revenue equal to or greater than$395.0 million ; increasing to$460.0 million in 2022;$525.0 million in 2023;$585.0 million in 2024 and$650.0 million in 2025 and thereafter. The maturity date may be accelerated as a remedy under the certain default provisions in the agreement, or in the event a mandatory prepayment event occurs. The Company was in compliance with all covenants atSeptember 30, 2022 , except for the condition disclosed in Note 15 "Long-term Debt", where the Company was not in compliance with a covenant related to the issuance of the 2021 financial statements with an audit opinion free of a "going concern" qualification or timely filing of the 2021 financial statements. The Term Loan lenders granted (i) a waiver of the covenant under the Facility related to the existence of a "going concern" qualification in the audit opinion for our audited financial 57
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statements for the fiscal year endedDecember 31, 2021 and (ii) a consent to extend the deadline to provide audited financial statements for the year endedDecember 31, 2021 toOctober 21, 2022 .
Unsecured Debt
As ofSeptember 30, 2022 , we have a$15.0 million unsecured note with a former equity investor. The note carries interest of 11.0% per year. The principal balance plus accrued interest is due at maturity, which is the earlier ofJune 30, 2026 or a change in control transaction. The transaction pertaining to P3's merger with Foresight did not constitute a change in control. As ofSeptember 30, 2022 , accrued interest totaled$8.3 million on this note. For additional discussion of our unpaid claims, term loan, unsecured debt and lease obligation, see Note 3 "Going Concern and Liquidity," Note 14 "Claims Payable," Note 15 "Long-term Debt," and Note 21 "Leases" in our condensed consolidated financial statements as of and for the period endedSeptember 30, 2022 , included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act
We qualify as an "Emerging Growth Company" pursuant to the provisions of the JOBS Act. For as long as we are an "Emerging Growth Company," we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation. In addition, under the JOBS Act, Emerging Growth Companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We intend to take advantage of the longer phase-in periods for the adoption of new or revised financial accounting standards under the JOBS Act until we are no longer anEmerging Growth Company . Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-Emerging Growth Companies and other Emerging Growth Companies that have opted out of the longer phase-in periods permitted under the JOBS Act andwho will comply with new or revised financial accounting standards. If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance withU.S. GAAP. Preparation of the financial statements requires management to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Accounting policies, including those requiring the application of significant judgement by management, are described in Note 4 "Significant Accounting Policies" to our condensed consolidated financial statements included elsewhere in this Form 10-Q and in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K. There were no material changes to these policies and estimates as compared to those described in our 2021 Form 10-K.
Recent Accounting Pronouncements
See Note 5 "Recent Accounting Pronouncements Adopted" to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting standards issued and the anticipated effects on our consolidated financial statements.
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