P3 Health Partners Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; Las Vegas, Nevada; PCAOB ID# 243 ) 76 Consolidated Balance Sheets 79 Consolidated Statements of Operations 80 Consolidated Statements of Stockholders’ Equity and Mezzanine Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 84 P3 Health Partners Inc. | 2024 Form 10-K | 75 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors P3 Health Partners Inc. Henderson, Nevada Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of P3 Health Partners Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity and mezzanine equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has working capital deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Estimate of the Premium Deficiency Reserve Liabilities As described in Note 3 to the consolidated financial statements, the Company’s consolidated premium deficiency reserve liabilities (“PDR”) balance was approximately $67.4 million on December 31, 2024. PDR is established when it is probable that expected future health care costs and maintenance costs under a group of contracts will exceed future premium and stop-loss insurance recoveries on those contracts. The Company assesses if a PDR is needed through review of current results and forecasts. For purposes of determining premium deficiency losses, contracts are grouped consistent P3 Health Partners Inc. | 2024 Form 10-K | 76 Table of Contents with the Company’s method of acquiring, servicing, and measuring the profitability of such contracts based on the expected medical loss ratio (“MLR”). We identified the estimate of PDR as a critical audit matter. The principal consideration for this determination was the significant judgment used in developing certain assumptions in the expected MLR. Auditing these elements involved subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed. The primary procedures we performed to address this critical audit matter included: • Assessing the reasonableness of certain assumptions used in the expected MLR by comparing them to historical performance of the Company and its peers to determine if contradictory evidence existed. • Utilizing personnel with specialized knowledge and skills in actuarial methods to assess the reasonableness of the healthcare claims trend assumption in the expected MLR. Valuation of Incurred but Not Reported Claims As described in Notes 3 and 8 to the consolidated financial statements, the Company’s claims payable balance was approximately $255.1 million on December 31, 2024. The Company’s claims payables primarily consist of the Company’s estimate for claims that have been incurred but have either not yet been received, processed, or paid and as such, not reported (“IBNR”). Management develops its IBNR liability estimate using standard actuarial methodologies, which utilize historical data, including the period between the date services are rendered and the date claims are received and paid (the completion factor), per member per month healthcare cost trends, denied claims activity, expected medical cost inflation, seasonality patterns, changes in membership mix, and a provision for adverse deviation (“PAD”). We identified the valuation of IBNR liability as a critical audit matter. The principal considerations for this determination were the significant judgments involved in: (i) evaluating the actuarial methodologies used, (ii) estimating the completion factors and per member per month cost based on historical payment patterns and consideration of health care cost trend factors, and (iii) determining the appropriate level of PAD. Auditing these elements involved subjective auditor judgments due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed. The primary procedures we performed to address this critical audit matter included: • Testing the completeness and accuracy of the underlying reports used in estimating: (i) the completion factors by agreeing to underlying claims data and repricing certain claims, and (ii) the per member per month cost by agreeing to underlying claims data and confirming member information with health plans. • Utilizing personnel with specialized knowledge and skills in actuarial methods to assist in: (i) evaluating the appropriateness and consistency of the actuarial methodologies used, (ii) evaluating the reasonableness of the completion factors, per member per month healthcare cost trends factors, and the PAD used by the Company’s management and its actuarial specialist by comparing our independently determined IBNR estimate to management’s recorded IBNR liability, and (iii) evaluating the reasonableness of management’s prior period estimates using subsequent claims development. Determination of the Premium Risk Adjustment Revenue As described in Note 3 to the consolidated financial statements, the Company’s consolidated capitated revenue included approximately $33.5 million of estimated premium risk adjustment revenue during the year ended December 31, 2024. Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual patient, also known as the hierarchal condition categories (“HCC”). 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 (using a Risk Adjustment Factor or “RAF”). We identified the determination of Medicare Advantage premium risk adjustment revenue as a critical audit matter. The principal considerations for this determination were the significant complexities involved in determining the HCC and the corresponding RAF. Auditing these elements involved especially challenging and complex calculations due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed. The primary procedures we performed to address this critical audit matter included: • Assessing the accuracy of the underlying data used in the determination of the HCC by vouching a selection of encounter data to underlying support. P3 Health Partners Inc. | 2024 Form 10-K | 77 Table of Contents • Utilizing personnel with specialized knowledge and skills in actuarial methods to assist in determining the HCC and the corresponding risk adjustment revenue. /s/ BDO USA, P.C. We have served as the Company’s auditor since 2021. Las Vegas, Nevada March 27, 2025 P3 Health Partners Inc. | 2024 Form 10-K | 78 Table of Contents P3 HEALTH PARTNERS INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) December 31, 2024 2023 ASSETS CURRENT ASSETS: Cash $ 38,816 $ 36,320 Restricted cash 5,286 4,614 Health plan receivable, net of allowance for credit losses of $ 150 121,266 118,497 Clinic fees, insurance and other receivable 3,947 2,973 Prepaid expenses and other current assets 14,422 3,613 Assets held for sale 403 — TOTAL CURRENT ASSETS 184,140 166,017 Property and equipment, net 5,734 8,686 Intangible assets, net 574,350 666,733 Other long-term assets 19,196 19,531 TOTAL ASSETS (1) $ 783,420 $ 860,967 LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 8,442 $ 8,663 Accrued expenses and other current liabilities 29,416 36,884 Accrued payroll 2,722 3,506 Health plan settlements payable 55,565 34,992 Claims payable 255,089 178,009 Premium deficiency reserve 67,368 13,670 Accrued interest 12,460 23,648 Current portion of long-term debt 65,000 — Liabilities held for sale 353 — TOTAL CURRENT LIABILITIES 496,415 299,372 Operating lease liability 11,339 13,622 Warrant liabilities 10,312 1,085 Contingent consideration — 4,907 Long-term debt, net 89,824 108,319 Other Long-Term Liabilities 26,001 — TOTAL LIABILITIES (1) 633,891 427,305 COMMITMENTS AND CONTINGENCIES (Note 13) MEZZANINE EQUITY: Redeemable non-controlling interest 73,593 291,532 STOCKHOLDERS’ EQUITY: Class A common stock, $ 0.0001 par value; 800,000 shares authorized; 162,870 and 116,588 shares issued and outstanding as of December 31, 2024 and 2023, respectively 16 12 Class V common stock, $ 0.0001 par value; 205,000 shares authorized; 195,957 and 196,569 shares issued and outstanding as of December 31, 2024 and 2023, respectively 20 20 Additional paid in capital 579,093 509,442 Accumulated deficit ( 503,193 ) ( 367,344 ) TOTAL STOCKHOLDERS’ EQUITY 75,936 142,130 TOTAL LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’ EQUITY $ 783,420 $ 860,967 _____________________________________________ (1) The Company’s consolidated balance sheets include the assets and liabilities of its consolidated variable interest entities (“VIEs”). As discussed in Note 20 “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 consolidated balance sheets include total assets that can be used only to settle obligations of P3 LLC’s consolidated VIEs totaling $ 9.3 million and $ 8.6 million as of December 31, 2024 and 2023, respectively, and total liabilities of P3 LLC’s consolidated VIEs for which creditors do not have recourse to the general credit of the Company totaled $ 14.9 million and $ 13.6 million as of December 31, 2024 and 2023, respectively. These VIE assets and liabilities do not include $ 40.3 million and $ 44.2 million of net amounts due to affiliates as of December 31, 2024 and 2023, respectively, as these are eliminated in consolidation and not presented within the consolidated balance sheets. See accompanying notes to consolidated financial statements. P3 Health Partners Inc. | 2024 Form 10-K | 79 Table of Contents P3 HEALTH PARTNERS INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2024 2023 OPERATING REVENUE: Capitated revenue $ 1,483,602 $ 1,252,309 Other patient service revenue 16,853 14,066 TOTAL OPERATING REVENUE 1,500,455 1,266,375 OPERATING EXPENSE: Medical expense 1,559,372 1,234,740 Premium deficiency reserve 53,698 ( 12,705 ) Corporate, general and administrative expense 112,596 122,362 Sales and marketing expense 1,331 3,233 Depreciation and amortization 86,058 86,675 Impairment of assets held for sale 8,058 — TOTAL OPERATING EXPENSE 1,821,113 1,434,305 OPERATING LOSS ( 320,658 ) ( 167,930 ) OTHER INCOME (EXPENSE): Interest expense, net ( 22,173 ) ( 15,985 ) Mark-to-market of stock warrants 22,114 433 Gain on asset sale, net 13,269 — Other 1,457 ( 249 ) TOTAL OTHER INCOME (EXPENSE) 14,667 ( 15,801 ) LOSS BEFORE INCOME TAXES ( 305,991 ) ( 183,731 ) INCOME TAX PROVISION ( 4,387 ) ( 2,695 ) NET LOSS ( 310,378 ) ( 186,426 ) LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTEREST ( 174,529 ) ( 128,653 ) NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST $ ( 135,849 ) $ ( 57,773 ) NET LOSS PER SHARE (Note 16): Basic $ ( 0.94 ) $ ( 0.61 ) Diluted $ ( 1.08 ) $ ( 0.63 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 16): Basic 145,175 94,889 Diluted 146,998 294,590 See accompanying notes to consolidated financial statements. P3 Health Partners Inc. | 2024 Form 10-K | 80 Table of Contents P3 HEALTH PARTNERS INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY (in thousands) Redeemable Non-controlling Interest Class A Common Stock Class V Common Stock Additional Paid in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Shares Amount STOCKHOLDERS’ EQUITY, December 31, 2022 $ 516,805 41,579 $ 4 201,592 $ 20 $ 315,375 $ ( 309,545 ) $ 5,854 Cumulative adjustment due to adoption of new credit loss standard ( 124 ) — — — — — ( 26 ) ( 26 ) Exchanges of redeemable non-controlling interest for Class A common stock — 5,371 1 ( 5,371 ) ( 1 ) — — — Vesting of Class V common stock awards — — — 348 1 ( 1 ) — — Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax — 204 — — — ( 16 ) — ( 16 ) Issuance of restricted stock awards — 250 — — — — — — At-the-market sales, net of offering costs — 27 — — — 33 — 33 Equity-based compensation 785 — — — — 5,194 — 5,194 Restricted stock unit awards issued in satisfaction of executive transaction bonuses — — — — — 5,000 — 5,000 Fair value adjustment to redeemable non-controlling interest 20,579 — — — — ( 20,579 ) — ( 20,579 ) Remeasurement adjustment to redeemable non-controlling interest resulting from ownership changes ( 117,860 ) — — — — 117,860 — 117,860 Private placement, net of offering costs — 69,157 7 — — 86,576 — 86,583 Net loss ( 128,653 ) — — — — — ( 57,773 ) ( 57,773 ) STOCKHOLDERS’ EQUITY, December 31, 2023 291,532 116,588 12 196,569 20 509,442 ( 367,344 ) 142,130 Exchanges of redeemable non-controlling interest for Class A common stock — 612 — ( 612 ) — — — — Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax — 4,066 — — — ( 103 ) — ( 103 ) Equity-based compensation — — — — — 5,752 — 5,752 Fair value adjustment to redeemable non-controlling interest ( 20,579 ) — — — — 20,579 — 20,579 Remeasurement adjustment to redeemable non-controlling interest resulting from ownership changes ( 22,831 ) — — — — 22,831 — 22,831 Private placement, net of offering costs — 41,604 4 — — 8,465 — 8,469 Class A common stock warrants issued — — — — — 12,127 — 12,127 Net loss ( 174,529 ) — — — — — ( 135,849 ) ( 135,849 ) STOCKHOLDERS’ EQUITY, December 31, 2024 $ 73,593 162,870 $ 16 195,957 $ 20 $ 579,093 $ ( 503,193 ) $ 75,936 See accompanying notes to consolidated financial statements. P3 Health Partners Inc. | 2024 Form 10-K | 81 Table of Contents P3 HEALTH PARTNERS INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 310,378 ) $ ( 186,426 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 86,058 86,675 Equity-based compensation 5,752 5,979 Amortization of original issue discount and debt issuance costs 87 472 Accretion of contingent consideration — 113 Gain on write off of contingent consideration ( 4,907 ) — Gain on asset sale ( 13,269 ) — Deferred income taxes ( 1,090 ) — Impairment of assets held for sale 8,058 — Mark-to-market adjustment of stock warrants ( 22,114 ) ( 433 ) Premium deficiency reserve 53,698 ( 12,705 ) Changes in operating assets and liabilities: Health plan receivable ( 2,769 ) ( 46,555 ) Clinic fees, insurance, and other receivable ( 990 ) 4,560 Prepaid expenses and other current assets ( 10,834 ) ( 1,243 ) Other long-term assets ( 43 ) ( 58 ) Accounts payable, accrued expenses, and other current liabilities ( 8,101 ) 15,988 Accrued payroll ( 784 ) 282 Health plan settlements payable 20,573 21,384 Claims payable 77,080 26,802 Accrued interest 7,895 9,587 Other long-term liabilities 5,897 — Operating lease liability 53 ( 450 ) Net cash used in operating activities ( 110,128 ) ( 76,028 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment — ( 1,827 ) Proceeds from asset sale 14,525 — Net cash provided by (used in) investing activities 14,525 ( 1,827 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt, net of original issue discount 88,057 14,101 Payment of debt issuance costs ( 103 ) ( 173 ) Proceeds from liability-classified warrants and private placement offering, net of offering costs paid 40,496 86,595 Proceeds from at-the-market sales, net of offering costs paid 33 — Deferred offering costs paid ( 507 ) ( 175 ) Payment of tax withholdings upon settlement of restricted stock unit awards ( 103 ) ( 16 ) Repayment of short-term and long-term debt ( 30,973 ) — Proceeds from short-term debt 1,871 — Net cash provided by financing activities 98,771 100,332 Net change in cash and restricted cash 3,168 22,477 Cash and restricted cash, beginning of year 40,934 18,457 Cash and restricted cash, end of year $ 44,102 $ 40,934 P3 Health Partners Inc. | 2024 Form 10-K | 82 Table of Contents P3 HEALTH PARTNERS INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands) Year Ended December 31, 2024 2023 Supplemental disclosures of cash flow information: Cash paid for interest $ 14,191 $ 5,813 Cash paid for income taxes $ 5,477 $ 567 Supplemental disclosures of non-cash investing and financing information: Operating lease liabilities arising from obtaining new right-of-use assets $ 617 $ 7,222 Operating lease liabilities and right-of-use assets reduced due to lease modification or termination $ ( 92 ) $ — Increase in accrued expenses related to debt issuance costs and original issue discount $ 307 $ 212 Increase in accounts payable related to private placement offering costs $ 686 $ 12 Increase in accounts payable related to at-the-market offering costs $ — $ 19 Increase in accrued expenses related to at-the-market offering costs $ — $ 206 Increase in other receivable related to at-the-market sales proceeds $ — $ 33 Restricted stock unit awards issued in satisfaction of executive transaction bonuses $ — $ 5,000 Remeasurement adjustment to redeemable noncontrolling interest resulting from ownership changes $ ( 22,831 ) $ ( 117,860 ) Fair value adjustment to redeemable noncontrolling interest $ ( 20,579 ) $ 20,579 Warrants issued in connection with new debt $ 12,127 $ — Reconciliation of cash and restricted cash: Cash $ 38,816 $ 36,320 Restricted cash 5,286 4,614 Total cash and restricted cash $ 44,102 $ 40,934 See accompanying notes to consolidated financial statements. P3 Health Partners Inc. | 2024 Form 10-K | 83 Table of Contents P3 HEALTH PARTNERS INC. and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Organization 85 Note 2: Going Concern and Liquidity 85 Note 3: Significant Accounting Policies 86 Note 4: Recent Accounting Pronouncements 93 Note 5: Fair Value Measurements and Hierarchy 95 Note 6: Property and Equipment 96 Note 7: Intangible Assets 97 Note 8: Claims Payable 98 Note 9: Retirement Plan 98 Note 10: Debt 98 Note 11: Income Taxes 101 Note 12: Warrants 105 Note 13: Commitments and Contingencies 107 Note 14: Capitalization 108 Note 15: Equity-Based Compensation 110 Note 16: Net Loss per Share 115 Note 17: Redeemable Non-controlling Interest 115 Note 18: Segment Reporting 116 Note 19: Related Parties 117 Note 20: Variable Interest Entities 118 Note 21: Subsequent Events 119 P3 Health Partners Inc. | 2024 Form 10-K | 84 Table of Contents Note 1: Organization P3 Health Partners Inc. (“P3”) is a patient-centered and physician-led population health management company and, for accounting purposes, the successor to P3 Health Group Holdings, LLC and its subsidiaries (collectively, “P3 LLC,” and together with P3, the “Company”) after the consummation of a series of business combinations in December 2021 with Foresight Acquisition Corp. (the “Business Combinations”). As the sole manager of P3 LLC, P3 operates and controls all of the business and affairs of P3 LLC and P3’s only assets are equity interests in P3 LLC. P3 LLC was founded on April 12, 2017 and began commercial operations on April 20, 2017 to provide population health management services on an at-risk basis to insurance plans offering medical coverage to Medicare beneficiaries under Medicare Advantage programs. Medicare Advantage (“MA”) programs are insurance products created solely for Medicare beneficiaries. Insurance plans contract directly with the Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare beneficiaries benefits that replace traditional Medicare fee-for-service (“FFS”) coverage. The Company’s contracts with health plans are based on an at-risk shared savings model. Under this model, the Company is financially responsible for the cost of all contractually-covered services provided to members assigned to the Company by health plans in exchange for a fixed monthly “capitation” payment, which is generally a percentage of the payment health plans receive from CMS. Under this arrangement, Medicare beneficiaries generally receive all their healthcare coverage through the Company’s network of employed and affiliated physicians and specialists. The services provided to health plans’ members vary by contract. These may include utilization management, care management, disease education, and maintenance of a quality improvement and quality management program for members assigned to the Company. The Company is also responsible for the credentialing of its providers, processing and payment of claims, and the establishment of a provider network for certain health plans. In addition to the Company’s contracts with health plans, the Company provides primary healthcare services through its employed physician clinic locations. These primary care clinics are reimbursed for services provided under FFS contracts with various payers and through capitated – per member, per month (“PMPM”) arrangements. Note 2: Going Concern and Liquidity The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced losses since its inception and had net losses of $ 310.4 million and $ 186.4 million for the years ended December 31, 2024 and 2023, respectively. Such losses were primarily the result of costs incurred in adding new members and adverse claims experience, partly driven by general market conditions for MA plans. The Company anticipates operating losses and negative cash flows to continue for the foreseeable future as it continues to grow membership. As of December 31, 2024 and 2023, the Company had $ 38.8 million and $ 36.3 million, respectively, in unrestricted cash and cash equivalents available to fund future operations. The Company has a working capital deficit of $ 312.3 million as of December 31, 2024. The Company’s capital requirements will depend on many factors, including the pace of the Company’s growth, ability to manage medical costs, the maturity of its members, its ability to complete the sale of its remaining Florida operations, and its ability to raise capital. The Company continues to explore raising additional capital through a combination of debt financing and equity issuances and sales of assets. When the Company pursues additional debt and/or equity financing, there can be no assurance that such financing will be available on terms commercially acceptable to the Company or at all. If the Company is unable to raise additional capital or generate cash flows necessary to fund its operations or refinance its indebtedness, it will need to curtail planned activities, discontinue certain operations, or sell certain assets, which could materially and adversely affect its business, financial condition, results of operations, and prospects. As a result of these matters, substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. P3 Health Partners Inc. | 2024 Form 10-K | 85 Table of Contents Note 3: Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company. All intercompany transactions and balances have been eliminated. The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. This evaluation includes a qualitative review of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review. The Company consolidates a VIE when it has a variable interest that provides it with a controlling financial interest in the VIE, referred to as the primary beneficiary of the VIE. As the sole managing member of P3 LLC, P3 has the right to direct the most significant activities of P3 LLC and the obligation to absorb losses and receive benefits. The rights of the non-managing members of P3 LLC are limited and protective in nature and do not give substantive participation rights over the sole managing member. Accordingly, P3 identifies itself as the primary beneficiary of P3 LLC and began consolidating P3 LLC as of December 3, 2021, the closing date of the Business Combinations (the “Closing Date”), resulting in a non-controlling interest related to the common units of P3 LLC (“Common Units”) held by members other than P3. Additionally, as more fully described in Note 20 “Variable Interest Entities,” P3 LLC is the primary beneficiary of the following physician practices (collectively, the “Network VIEs”): • Kahan, Wakefield, Abdou, PLLC • Bacchus, Wakefield, Kahan, PC • P3 Health Partners Professional Services, P.C. • P3 Medical Group, P.C. • P3 Health Partners California, P.C. (f/k/a Omni IPA Medical Group, Inc.) Comprehensive Loss Comprehensive loss includes net loss to common stockholders as well as other changes in equity that result from transactions and economic events other than those with stockholders. There was no difference between comprehensive loss and net loss to common stockholders for the periods presented. Use of Estimates The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to allowance for credit losses, revenue recognition, the liability for unpaid claims, equity-based compensation, premium deficiency reserves (“PDR”), fair value and impairment recognition of long-lived assets (including intangibles), fair value of liability classified instruments, and judgments related to deferred income taxes. The Company bases its estimates on the best information available at the time, its experiences, and various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. Commitments and Contingencies An accrual is established for commitments and contingencies when management, after considering the facts and circumstances of each matter as then known to management, has determined a specific contingency is probable and estimable. The Company also faces contingencies that are reasonably possible to occur that cannot currently be estimated. When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded. The Company expenses costs associated with loss contingencies, including any related legal fees, as they are incurred. Due to the inherent uncertainties surrounding gain contingencies, the Company does not recognize potential gains until realized. P3 Health Partners Inc. | 2024 Form 10-K | 86 Table of Contents Net Loss per Share Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of warrants, stock options, restricted stock units, restricted stock awards, and Common Units convertible into shares of Class A common stock during the period by applying the treasury stock method or if-converted method, as applicable. Cash and Restricted Cash Cash includes all cash and liquid investments with an initial maturity of three months or less. Cash deposits held in accounts at each financial institution are insured up to $250,000 by the Federal Deposit Insurance Corporation (“FDIC”). The Company maintains its cash in bank deposit accounts that, at times, may exceed FDIC insured limits. Management does not expect any losses to occur on such accounts. As of December 31, 2024 and 2023, the Company had cash of $ 38.8 million and $ 36.3 million, respectively, deposited at banking institutions which are subject to the FDIC insured limit. Restricted cash is held for a specific purpose (such as payment of healthcare claims) and is thus not available to the Company for immediate or general business use. As of December 31, 2024 and 2023, the Company had restricted cash of $ 5.3 million and $ 4.6 million, respectively. Revenue Recognition The Company categorizes revenue based on various factors, such as the nature of contracts, as follows: Revenue Type Year Ended December 31, 2024 % of Total Year Ended December 31, 2023 % of Total (dollars in thousands) Capitated revenue $ 1,483,602 98.9 % $ 1,252,309 98.9 % Other patient service revenue: Clinical fees & insurance revenue 5,934 0.4 5,192 0.3 Care coordination / management fees 10,563 0.7 8,301 0.7 Incentive fees 356 0.0 573 0.1 Total other patient service revenue 16,853 1.1 14,066 1.1 Total revenue $ 1,500,455 100.0 % $ 1,266,375 100.0 % During the years ended December 31, 2024 and 2023, four and four health plan customers each accounted for 10% or more of total revenue and collectively comprised 59 % and 60 % of the Company’s total revenue, respectively. Capitated Revenue The Company contracts with health plans using an at-risk model. Under the at-risk model, the Company is responsible for the cost of all covered services provided to members assigned by the health plans to the Company in exchange for a fixed premium payment, which generally is a percentage of the health plans’ premiums (“POP”) paid by CMS. Through this capitation arrangement, the Company stands ready to provide assigned Medicare Advantage beneficiaries all their medical care via the Company’s directly employed and affiliated physician/provider network. Since the Company controls and provides medical care to its assigned members, the Company acts as a principal in these capitation arrangements. As of December 31, 2024 and 2023, the Company had at-risk contracts in effect with 23 health plans across five states. The capitated revenue the Company receives is determined via a competitive bidding process with CMS and is 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, also known as hierarchal condition categories (“HCC”). Medicare Advantage plans with higher acuity P3 Health Partners Inc. | 2024 Form 10-K | 87 Table of Contents 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 (using a Risk Adjustment Factor or “RAF”). The Company generally estimates transaction prices 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 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 revenue is recognized based on a PMPM transaction price to transfer the service for a distinct increment of the series (e.g., month), net of projected acuity adjustments and performance incentives or penalties. The Company recognizes revenue in the month in which eligible members are entitled to receive healthcare benefits during the contract term. The capitation amount is subject to possible retroactive premium risk adjustments based on the member’s individual acuity. Premium risk adjustments recorded in 2024 and 2023, which increased capitation revenue, were $33.5 million and $27.7 million, respectively. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient not to adjust for the effects of a significant financing component. The Company’s contracts with health plans may include core functions and services for managing assigned patients’ medical care, the combination of which is offered as a single solution. Capitation contracts have a single performance obligation that is a stand ready obligation to perform healthcare services to the population of enrolled members and constitutes a series for the provision of managed healthcare services for the term of the contract, which is deemed to be one month since the mix of patients-customers can change month over month. The Company does not offer nor price each individual function as a standalone service to health plans. Monthly, each plan is contractually obligated to reserve for payment of medical claims equal to a defined POP attributable to members assigned to the Company. In turn, the Company administers medical claims for contractually covered services for assigned health plan members from that health plan’s reserve. On a quarterly or monthly basis, health plans conduct a settlement of the reserve to determine any surplus or deficit amount. The reconciliation and distribution of the reserve occur within 120 days following the end of each quarter. An annual settlement reconciliation and distribution occur within the period specified by the individual health plan’s contract (which can be up to 21 months following each year-end). Revenue recognized from the balance of deferred revenue as of December 31, 2023 was $ 12.7 million during the year ended December 31, 2024. Three health plan customers accounted for 10% or more of total health plan receivable each as of December 31, 2024 and 2023. As of December 31, 2024 and 2023, Management has deemed the Company’s settlement receivables to be fully collectible from those health plans where the Company is not delegated for claims processing. Accordingly, a constraint on the variable consideration associated with settlement receivables was not recorded. Other Patient Service Revenue – Clinical Fees and Insurance Revenue Clinical fees and insurance revenue relates to net patient fees received from various payors and direct patients under contracts in which the Company’s sole performance obligation is to provide healthcare services through the operation of medical clinics. The Company recognizes clinic fees and insurance revenue in the period in which services are provided. Under FFS payment arrangements, revenue is recognized on the date of service using a portfolio approach. The Company’s performance obligations are typically satisfied in the same day services are provided. All the Company’s contracts with its customers under these arrangements include a single performance obligation. The Company’s contractual relationships with patients, in most cases, also involve third-party payors (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through state-sponsored health insurance exchanges). Transaction prices for services provided are dependent upon specific rules in place with third party payors–specifically, Medicare/Medicaid and pre-negotiated rates with managed care health plans and commercial insurance companies. Contractual arrangements with third parties typically include payments at amounts which are less than standard charges. These charges generally have predetermined rates for diagnostic service codes or discounted FFS rates. The Company perpetually reviews its contractual estimation processes to consider and incorporate updates to P3 Health Partners Inc. | 2024 Form 10-K | 88 Table of Contents laws, regulations, and frequent changes in the managed care system. Contractual terms are negotiated and updated accordingly upon renewal. Clinical fees and insurance revenue is based upon the estimated amounts the Company expects to receive from patients and third-party payors. Estimates of explicit price concessions under managed care and commercial insurance plans are tied to payment terms specified in related contractual agreements. Retroactively calculated explicit price concessions tied to reimbursement agreements with third-party payers are recognized on an estimated basis in the period related services are rendered and adjusted in future periods as final payments are received. Revenue related to uninsured patients, uninsured co-payments, and deductibles (for patients with healthcare coverage) may also be discounted. The Company records implicit price concessions (based on historical collection experience) related to uninsured accounts to recognize self-pay revenue at their most likely amounts to be collected. The Company deems FFS revenue to be variable consideration and its estimates of associated transaction prices will not result in a significant revenue reversal in the future. The Company has elected the practical expedient not to adjust the transaction price for any financing components as those were deemed to be insignificant and to expense all incremental customer contract acquisition costs as incurred as such costs are not material and would be amortized over a period less than one year. Health Plan Receivables/Payables Receivables or payables primarily consist of amounts the Company expects to receive or pay under at-risk capitation contracts with various health plans. These contracts involve a payment model where contracted health plans receive a fixed capitation amount per patient, per service year, regardless of service usage, from CMS. Whereas a portion of the payment is then allocated to the Company if capitation payments surpass the health plan's incurred medical expenses. A receivable is recorded for contracts in a surplus, while payable is recognized for contracts in a deficit position. Final amounts due to/from health plans are based upon settlement reports from the health plans, which outline covered lives, capitation rates, and medical costs. As such, these amounts are updated as the company receives revised information from the health plans. Receivables are recorded at the anticipated collection amount as reported by the health plans. The total health plan receivable for December 31, 2024 and 2023 respectively are $ 121.3 million and $ 118.5 million. The total health plan playable for December 31, 2024 and 2023 respectively are $ 55.6 million and $ 35.0 million. Other Patient Service Revenue – Care Coordination Fees and Management Fees The Company’s delegated health plans may also pay a Care Coordination Fee (“CCF”) or management fee to the Company. CCFs and management fees are intended to fund the costs of delegated services provided to certain health plans. CCFs are specifically identified and separated in each monthly capitation payment the Company receives from these parties. None of the Company’s other health plans bifurcate CCFs nor are any of them contractually required to do so. Based on similarities of the terms of the care coordination and administrative services, the Company uses a portfolio approach to record revenue from CCFs and management fees. Patient Fees Receivable Substantially all client fees and insurance receivables are due under FFS contracts with third party payors, such as commercial insurance companies, government-sponsored healthcare programs, or directly from patients. The Company has agreements with third-party payors that provide for payments at amounts different from the established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Patient fees receivable, where a third-party payor is responsible for the amount due, are recorded at the invoiced amount, net of any expected contractual adjustments and implicit price concessions, and do not bear interest. Contractual adjustments arising under reimbursement arrangements with third-party payors are accrued on an estimated basis in the period the related services are rendered and are adjusted in future periods as final settlements are determined. The Company continuously monitors activities from payors (including patients) and records an implicit price concession as a reduction of revenue based on specific contracts and actual historical collection patterns to reflect the estimated amounts the Company expects to collect. Patient fees receivable of $ 2.8 million and $ 0.7 million are included in clinic fees, insurance and other receivable in the Company’s consolidated balance sheets as of December 31, 2024 and 2023, respectively, and are recorded net of contractual allowances. P3 Health Partners Inc. | 2024 Form 10-K | 89 Table of Contents Property and Equipment Property and equipment is carried at acquisition cost, net of accumulated depreciation. Costs for repairs and maintenance of property and equipment, after such property and equipment has been placed in service, are expensed as incurred. Costs and related accumulated depreciation are eliminated when property and equipment is sold or otherwise disposed. Sales and disposals may result in asset-specific gains or losses. Any such gains or losses are included as a component of operations. The Company records depreciation using the straight-line method over the estimated useful lives of the respective assets. The following table summarizes the estimated useful lives of the Company’s property and equipment: Classification Depreciation Cycle Leasehold improvements (cycle: lease term) 1 to 10 years Furniture and fixtures 2 to 7 years Vehicles 5 years Computer equipment 3 years Medical equipment 7 years Software 3 years The Company capitalizes certain costs incurred in connection with developing its own proprietary technology to serve core functions of its business operations such as revenue and medical cost analysis, care management and various facets that promote impactful utilization. As of December 31, 2024 and 2023, the Company has capitalized $ 0.3 million and $ 3.9 million, respectively, to property and equipment for these software costs (specifically to work in progress). In 2024, $ 3.5 million of capitalized costs were placed into service. No capitalized costs were placed into service in 2023. All costs associated with internally developed technology following deployment, or that otherwise do not meet capitalization criteria, are expensed as incurred. Assets Held for Sale The Company classifies assets and related liabilities as held for sale when: (i) management has committed to a plan to sell the net assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer, (iv) the sale and transfer of the net assets is probable within one year, (v) the net assets are being actively marketed for sale at price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes will be made to the plan to sell the net assets. Assets and liabilities held for sale are presented separately on our consolidated balance sheets at the lower of cost or fair value, less costs to sell. Depreciation and amortization expense for long-lived assets are not recorded while these assets are classified as held for sale. For each period that assets are classified as being held for sale, they are tested for recoverability. Fair Value Measurements The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels (see Note 5 “Fair Value Measurements and Hierarchy” for further discussion): Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. P3 Health Partners Inc. | 2024 Form 10-K | 90 Table of Contents Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. Recoverability of an asset or asset group is measured by comparing its carrying amount to the future undiscounted net cash flows the asset or asset group is expected to generate. If such assets are considered impaired (e.g., future undiscounted cash flows are less than net book value), an impairment charge is recognized, measured by the difference between the carrying value and the estimated fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Intangible Assets Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. In determining the estimated useful lives of definite-lived intangibles, the Company considers the nature, competitive position, life cycle position and historical and expected future operating cash flows of each acquired asset, as well as its commitment to support these assets through continued investment and legal infringement protection. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the assets or a situation in which it is more likely than not that the Company will dispose of such assets. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the asset exceeds its fair value and the impaired asset is written down to its fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows. Leases The Company determines whether a contract is or contains a lease at the inception of the contract. For leases with terms greater than 12 months, the Company records the related operating or finance right-of-use asset and lease liability at the present value of lease payments over the lease term. The Company is generally not able to readily determine the implicit rate in the lease and therefore uses the determined incremental borrowing rate at lease commencement to compute the present value of lease payments. The incremental borrowing rate represents an estimate of the market interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. Renewal options are not included in the measurement of the right-of-use assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, certain leases contain incentives, such as construction allowances from landlords, which reduce the right-of-use asset related to the lease. Certain of the Company’s leases contain rent escalations over the lease term. The Company recognizes expense for operating leases on a straight-line basis over the lease term. The Company’s lease agreements contain variable payments for common area maintenance and utilities. The Company has elected the practical expedient to combine lease and non-lease components for all asset categories; therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed non-lease component charges. Variable lease payments are excluded from the measurement of right-of-use assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company does not have significant residual value guarantees or restrictive covenants in its lease portfolio. Equity-Based Compensation Equity-based compensation cost is measured at the grant date for all equity-based awards based on the fair value of the awards. For equity awards that vest subject to the satisfaction of service-based conditions, compensation cost is recognized on a straight-line basis over the requisite service period, which varies by award. For equity awards that vest subject to the satisfaction of performance-based conditions, the Company evaluates the probability of achieving each performance-based condition at each reporting date and recognizes compensation cost when it is deemed probable that the performance-based condition will be met on an accelerated basis over the requisite service period, which varies by award. Equity-based compensation is recorded within corporate, general and administrative expense in the accompanying consolidated statements of operations. The Company accounts for forfeitures as they occur. P3 Health Partners Inc. | 2024 Form 10-K | 91 Table of Contents The Company uses the Black-Scholes option-pricing model to determine the fair value of the Company’s stock option awards. The risk-free interest rate estimate was based on constant maturity, which is the theoretical value of a U.S. Treasury that is based on recent values of auctioned U.S. Treasuries with remaining terms similar to the expected term of the stock option awards. The expected dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The expected term was calculated using the “simplified” method; whereby, the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock option due to P3’s lack of sufficient historical data. The expected volatility was estimated using an average of the historical volatilities of a peer group comprised of publicly traded companies in the same industry. The Company assesses the impact of material nonpublic information on its share price or expected volatility, as applicable, at the time of grant. The Company’s restricted stock and restricted stock unit awards are measured based on the fair market value of the underlying shares of Class A common stock on the date of grant. Warrant Liability The Company has public and private placement warrants of Class A common stock classified as liabilities as well as warrants of Class A common stock issued to a lender classified as equity. The Company classifies as equity any equity-linked contracts that (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement). Warrants classified as equity are initially measured at fair value. Subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. The Company classifies as assets or liabilities any equity-linked contracts that (1) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the Company’s control) or (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). For equity-linked contracts that are classified as liabilities, the Company records the fair value of the equity-linked contracts at each balance sheet date and records the change in the statements of operations as a gain (loss) from change in fair value of warrant liability. The Company’s public warrant liability is valued using observable market prices for those public warrants. The Company’s private placement warrants are valued using a binomial lattice pricing model when the warrants are subject to the make-whole table, or otherwise are valued using a Black-Scholes pricing model. The Company’s warrants issued to a capital provider are valued using a Black-Scholes-Merton pricing model based on observable market prices for public shares and warrants. The assumptions used in preparing these models include estimates such as volatility, contractual terms, discount rates, dividend yield, expiration dates and risk-free rates. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability, and whether the warrants meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. Premium Deficiency Reserve PDR liabilities are established when it is probable that expected future health care costs and maintenance costs under a group of existing contracts will exceed anticipated future premiums and stop-loss insurance recoveries on those contracts. The Company assesses if a PDR liability is needed through review of current results and forecasts. For purposes of determining premium deficiency losses, contracts are grouped consistent with our method of acquiring, servicing, and measuring the profitability of such contracts based on the expected medical loss ratio. The Company grouped its Medicare Advantage health plan contracts together as a single group as it operates in one line of business. The Company further concluded that the costs to administer these contracts are based on centralized and shared service functions. As of December 31, 2024 and 2023, the PDR liability was $ 67.4 million and $ 13.7 million, respectively, which represented an estimate of probable contract losses expected to be generated by the Company’s health plans. Medical Expense and Claims Payable The cost of healthcare services is recognized in the period services are provided. This also includes an estimate of the cost of services that have been incurred, but not yet reported (“IBNR”). Medical expense also includes costs for overseeing the quality of care and programs, which focus on patient wellness. Additionally, medical expense can include, P3 Health Partners Inc. | 2024 Form 10-K | 92 Table of Contents from time to time, remediation of certain claims that might result from periodic reviews conducted by various regulatory agencies. Management estimates the Company’s IBNR by applying standard actuarial methodologies, which utilize historical data, including the period between the date services are rendered and the date claims are received and paid, the completion factor, per member per month healthcare trends, denied claims activity, expected medical cost inflation, seasonality patterns, changes in membership mix, and a provision for adverse deviation. IBNR estimates are subject to the impact from changes in both the regulatory and economic environments. Such estimates are made on an accrual basis and adjusted in future periods as required. 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. Any adjustments to prior period estimates are included in the current period. The Company’s claims payable represents management’s best estimate of its liability for unpaid medical costs as of December 31, 2024 and 2023. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes it is more likely than not that they will not be realized. The Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under tax law, and results of recent operations. The Company records uncertain tax positions on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company considers many factors when evaluating its uncertain tax positions during the course of the year through a review of policies and procedures, reviews of customary and regular tax filings, and discussions with third party experts. This review can involve significant judgment and may require periodic adjustments. The resolution of these uncertain tax positions in a manner inconsistent with management’s expectations could have a material impact on the Company’s consolidated financial statements. The Company recognizes interest and penalties related to uncertain tax positions as a component of its provision for income taxes. Accrued interest and penalties are included with the related tax liability. See Note 11 “Income Taxes” for further information. Advertising Expense The Company uses advertising primarily to promote the health plans with which it conducts business as well as its physician clinics throughout the geographic areas it serves. Advertising costs are charged directly to operations as incurred. Advertising expense totaled $ 1.3 million and $ 3.2 million for the years ended December 31, 2024 and 2023, respectively. Note 4: Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) Accounting Standards Update (“ASU”) 2023-07 improves the disclosures about a public entity’s reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment’s expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments require retrospective application to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed P3 Health Partners Inc. | 2024 Form 10-K | 93 Table of Contents in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. In the fourth quarter of 2024, the Company adopted ASU 2023-07 effective January 1, 2024 on a retrospective basis, which did not impact the Company’s financial condition and results of operations, but did result in expanded reportable segment disclosures. See Note 18 “Segment Reporting” for further information. ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements (“ASU 2024-02”) ASU 2024-02 removes references to various Financial Accounting Standards Board (“FASB”) Concepts Statements from the FASB accounting standards codification (the “Codification”) to simplify and clarify the accounting guidance. The ASU aims to distinguish between authoritative and nonauthoritative literature and to address unintended applications of guidance. The Company adopted ASU 2024-02 effective January 1, 2024. The guidance will be applied prospectively to all new transactions recognized on or after January 1, 2024. ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) ASU 2020-06 eliminates two of the three models in ASC 470-20 that require issuers to separately account for embedded conversion features and eliminates some of the requirements for equity classification in ASC 815-40-25 for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of potential share settlement for instruments that may be settled in cash or shares. The Company adopted ASU 2020-06 effective January 1, 2024 using the modified retrospective method. The Company’s liability-classified stock warrants remained classified as liabilities under the amended guidance. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. Recent Accounting Pronouncements Not Yet Adopted ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) ASU 2024-03 enhances transparency and decision-usefulness of expense disclosures in response to investors’ requests for more detailed, disaggregated expense information, enabling a clearer understanding of a public business entity’s performance and cost structure. The amendments improve disclosure requirements in financial statement notes for specific expense categories, including inventory purchases, employee compensation, depreciation, amortization, and depletion, as well as qualitative descriptions of other expenses. The amendments are effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted and can be applied prospectively or retrospectively at the option of the Company. The Company is evaluating the effect ASU 2024-03 will have on its consolidated financial statements and related disclosures. ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures, in response to investors’ feedback, indicating the need for improved information to assess an entity’s operations, tax risks, and planning opportunities, particularly in understanding exposure to jurisdictional tax changes and their impact on cash flows. The amendments address these concerns by improving income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for annual periods beginning after December 15, 2024 and should be applied prospectively. Retrospective application is permitted. The Company is evaluating the effect ASU 2023-09 will have on its consolidated financial statements and related disclosures. ASU 2023-06, Disclosure Improvements: Codification Amendments In Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”) ASU 2023-06 clarifies or improves disclosure and presentation requirements on a variety of topics and aligns the requirements in the Codification with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this update should be applied prospectively. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment P3 Health Partners Inc. | 2024 Form 10-K | 94 Table of Contents will be removed from the Codification and will not become effective for any entity. The Company is evaluating the effect ASU 2023-06 will have on its consolidated financial statements and related disclosures. Note 5: Fair Value Measurements and Hierarchy Information about the Company’s financial liabilities measured at fair value on a recurring basis is presented below: Level 1 Level 2 Level 3 Total (in thousands) Warrant liability as of December 31, 2024 $ 127 $ — $ 10,185 $ 10,312 Warrant liability as of December 31, 2023 $ 1,056 $ — $ 29 $ 1,085 The key Level 3 weighted average inputs into the option pricing model related to the private placement warrants to purchase Class A common stock were as follows: December 31, 2024 2023 Volatility 91.7 % 75.0 % Risk-free interest rate 4.4 % 4.0 % Exercise price $ 0.50 $ 11.50 Expected term 6.2 years 2.9 years Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the warrants would each result in a directionally similar change in the estimated fair value of the Company’s warrant liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the warrant liabilities due to the dividend assumption. The following table sets forth a summary of changes in the fair value of the Company’s private placement warrants to purchase Class A common stock, which are considered to be Level 3 fair value measurements: December 31, 2024 2023 (in thousands) Beginning balance $ 29 $ 40 Issuance of May 2024 Common Warrants (see Note 12) 31,341 — Mark-to-market adjustment of stock warrants ( 21,185 ) ( 11 ) Ending balance $ 10,185 $ 29 The Company recorded gains of $ 22.1 million and $ 0.4 million from changes in the fair value of stock warrants for the years ended December 31, 2024 and 2023, respectively. The book value of cash; clinic fees, insurance receivables, and other receivables; accounts payable; and accrued expenses and other current liabilities approximate fair value because of the short maturity and high liquidity of these instruments. During the year ended December 31, 2024, the Company recorded a gain of $ 6.2 million reflecting the write-off and settlement of contingent consideration related to the Company’s 2021 acquisition of Medcore HP, a Level 3 fair value measurement, upon resolution with the sellers of the assumed claims payable and risk adjustment factor. The gain is included in corporate, general, and administrative expense in the consolidated statement of operations. P3 Health Partners Inc. | 2024 Form 10-K | 95 Table of Contents Note 6: Property and Equipment The Company’s property and equipment balances consisted of the following as of: December 31, 2024 2023 (in thousands) Leasehold improvements $ 2,332 $ 2,933 Furniture & fixtures 1,106 1,165 Computer equipment & software 7,060 3,699 Medical equipment 1,082 1,106 Software (development in process) 343 3,877 Vehicles 659 654 Other — 33 12,582 13,467 Less: accumulated depreciation ( 6,848 ) ( 4,781 ) Property and equipment, net $ 5,734 $ 8,686 Total depreciation of property and equipment recognized on the consolidated statements of operations was $ 2.4 million and $ 2.3 million for the years ended December 31, 2024 and 2023, respectively. Asset Sale On November 30, 2024, the Company and certain of its subsidiaries (the “Sellers”) entered into an asset purchase agreement with certain entities affiliated with an entity in which CPF, the Company’s principal stockholder, has an ownership interest (the “Buyers”), which was amended on December 30, 2024, effective as of December 5, 2024 (as amended, the “Florida Asset Purchase Agreement”). Pursuant to the Florida Asset Purchase Agreement, the Sellers sold to the Buyers all of the assets, clinical and non-clinical, exclusively or primarily used by the Company’s MA-related business operated out of Eagle Park, Florida (the “Florida Assets”) on a cash-free, debt-free basis for a purchase price of approximately $ 15.0 million less a $ 0.3 million working capital adjustment, subject to further adjustment, and an adjustment for certain payment obligations totaling $ 0.2 million. The asset sale closed on November 30, 2024 simultaneously with the execution of the asset purchase agreement. The Company recognized a $ 13.3 million net gain on asset sale on the consolidated statement of operations for the year ended December 31, 2024. The major classes of assets and liabilities disposed of as part of the Florida Assets sale are summarized as follows (in thousands): Assets: Prepaid expenses and other current assets $ 25 Property and equipment, net 41 Intangible assets, net 232 Other long-term assets 1,202 Total assets disposed $ 1,500 Liabilities: Operating lease liability $ 243 Total liabilities disposed $ 243 Net assets disposed $ 1,257 The Company expects to close on the sale of the remaining Florida assets during the first half of fiscal year 2025. As of December 31, 2024, the Company determined that the carrying value of the assets was less than the fair value and a loss on impairment of assets held for sale was recognized on the consolidated statement of operations for the year ended December 31, 2024. The fair value was determined based on a quoted market price less costs to sell. Net assets classified as P3 Health Partners Inc. | 2024 Form 10-K | 96 Table of Contents held for sale for the Company’s remaining Florida operations are summarized as follows as of December 31, 2024 (in thousands): Assets: Property and equipment, net $ 571 Intangible assets, net 7,576 Other long-term assets 314 Impairment ( 8,058 ) Total assets $ 403 Liabilities: Accrued expenses and other current liabilities $ 56 Operating lease liability 297 Total liabilities $ 353 Net assets $ 50 Note 7: Intangible Assets Intangible assets, net consisted of the following as of: December 31, 2024 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) Indefinite lived intangible assets: Medical licenses $ 700 $ — $ 700 $ 700 $ — $ 700 Definite lived intangible assets: Customer relationships 671,819 ( 206,951 ) 464,868 684,000 ( 142,500 ) 541,500 Trademarks 148,635 ( 46,427 ) 102,208 148,635 ( 31,671 ) 116,964 Payor contracts 4,700 ( 1,410 ) 3,290 4,700 ( 940 ) 3,760 Provider network 4,734 ( 1,450 ) 3,284 4,800 ( 991 ) 3,809 Total $ 830,588 $ ( 256,238 ) $ 574,350 $ 842,835 $ ( 176,102 ) $ 666,733 Amortization of intangible assets was $ 83.7 million and $ 84.3 million during the years ended December 31, 2024 and 2023, respectively . Estimated future amortization of intangible assets is $ 82.0 million for each of the years 2025 through 2029. P3 Health Partners Inc. | 2024 Form 10-K | 97 Table of Contents Note 8: Claims Payable Activity in the liability for claims payable was as follows: December 31, 2024 2023 (in thousands) Claims unpaid, beginning of period $ 178,009 $ 151,207 Incurred, related to: Current period 1,341,031 1,064,341 Prior period(s) ( 1,588 ) ( 2,617 ) Total incurred 1,339,443 1,061,724 Paid, related to: Current period 1,093,866 893,092 Prior period(s) 168,497 141,830 Total paid 1,262,363 1,034,922 Claims unpaid, end of period $ 255,089 $ 178,009 Note 9: Retirement Plan The Company maintains a retirement savings 401(k) Plan (the “401(k) Plan”) for full-time employees. Participants may elect to contribute to the 401(k) Plan, through payroll deductions, subject to Internal Revenue Service limitations. At its discretion, the Company can make a matching contribution to the 401(k) Plan. The Company recognized expense related to its contributions to the 401(k) Plan of $ 1.1 million and $ 1.2 million during the years ended December 31, 2024 and 2023, respectively. Note 10: Debt Long-term Debt Long-term debt consisted of the following: December 31, 2024 2023 (in thousands) Repurchase Promissory Note $ 15,000 $ 15,000 Term Loan Facility 65,000 65,000 VGS 1 2024 Loan (2024) / VGS Promissory Note (2023) 38,057 29,102 VGS 2 Promissory Note 25,375 — VGS 3 Promissory Note 25,375 — Long-term debt, gross 168,807 109,102 Less: unamortized debt issuance costs and original issue discount ( 13,983 ) ( 783 ) 154,824 108,319 Less: current portion of long-term debt ( 65,000 ) — Long-term debt, net $ 89,824 $ 108,319 Repurchase Promissory Note In June 2019, the Company issued a share repurchase promissory note to a former equity investor for $ 15.0 million, which was subsequently amended in November 2020 (as amended, the “Repurchase Promissory Note”). The Repurchase Promissory Note automatically matures and is due and payable on the earlier of June 30, 2026, a change in control transaction, or an underwritten primary public offering, each as defined in the agreement. The Repurchase P3 Health Partners Inc. | 2024 Form 10-K | 98 Table of Contents Promissory Note accrues paid-in-kind (“PIK”) interest of 11.0 % per year. The principal balance, accrued interest, and an exit fee of $ 0.6 million are due at maturity. Accrued interest was $ 15.1 million and $ 11.7 million as of December 31, 2024 and 2023, respectively. Term Loan Facility In November 2020, the Company entered into a Term Loan Agreement and Security Agreement with a commercial lender (as amended, the “Term Loan Agreement”), which provided funding up to $ 100.0 million (the “Term Loan Facility”), of which $ 65.0 million was drawn as of December 31, 2024 and 2023. The Company’s access to additional borrowings under the Term Loan Facility ended upon termination of the commitment period on February 28, 2022. The Term Loan Agreement was amended on November 16, 2021 to provide for certain modifications and to obtain consent from the lenders to consummate the Business Combinations. The Term Loan Agreement was amended on December 21, 2021 to provide for certain modifications and to permit the consummation of an acquisition in a prior year and related transactions. The Term Loan Agreement was amended on December 13, 2022 to provide for certain modifications and to permit the issuance of the VGS Promissory Note (defined below) and related transactions. The Term Loan Agreement was amended on March 22, 2024 to provide for certain modifications and to permit the issuance of the VGS 2 Promissory Note (defined below) and related transactions. The Term Loan Agreement was amended on November 30, 2024 to permit the Company’s sale of the Florida Assets (the “Permitted Florida Disposition”), provide that the mandatory prepayment covenant does not apply to the proceeds of the Permitted Florida Disposition, and remove the ability to elect to pay a portion of the interest in-kind. The Term Loan Agreement was amended on December 12, 2024 to provide for certain modifications and to permit the issuance of the VGS 3 Promissory Note (defined below) and related transactions. The Security Agreement provides the lenders collateral in 100 % of the Company’s pledged stock, its subsidiaries (including tangible and intangible personal property), and bank accounts. The principal balance is due in full on the maturity date, which is December 31, 2025. This maturity date may be accelerated as a remedy under certain default provisions in the agreement or in the event a mandatory prepayment trigger occurs. Effective November 30, 2024, interest is payable at 12.0 % per annum on a quarterly cycle (in arrears). PIK interest is subject to acceleration in the event certain occurrences in the Term Loan Facility’s agreement are triggered. Accrued interest was $ 12.5 million and $ 7.9 million as of December 31, 2024 and 2023, respectively. The Term Loan Facility includes certain restrictive covenants, including restrictions on the payment of cash dividends. The Company must remain in compliance with financial covenants such as minimum liquidity of $ 5.0 million and annual minimum revenue levels. On an annual basis, the Company must post a minimum amount of annual revenue equal to or greater than $ 585.0 million in 2024 and $ 650.0 million in 2025. The Company is also subject to certain restrictions that include indebtedness and liens. As of December 31, 2024, the Company was not in compliance with its Term Loan Facility covenants related to issuance of the 2024 financial statements with an audit opinion free of a “going concern” explanatory paragraph. The Term Loan Facility lenders granted a waiver of the covenant under the Term Loan Facility related to the existence of a “going concern” explanatory paragraph in the audit opinion for the Company’s audited financial statements for the fiscal year ended December 31, 2024. The Company was in material compliance with all other covenants under the Term Loan Facility as of December 31, 2024; however, there can be no assurance that the Company will be able to maintain compliance with these covenants in the future or that the lenders under the Term Loan Facility or the lenders of any future indebtedness the Company may incur will grant any such waiver or forbearance in the future. VGS 1 2024 Loan (2024) and VGS Promissory Note (2023) In December 2022, P3 LLC entered into a related party financing transaction (see Note 19 “Related Parties”) with VBC Growth SPV LLC (“VGS”) which included the issuance of an unsecured promissory note (the “VGS Promissory Note”) to VGS; warrant agreement, pursuant to which the Company issued warrants to purchase 0.4 million shares of Class A common stock at an exercise price of $ 4.26 per share to VGS (see Note 12 “Warrants”); and a subordination agreement, pursuant to which VGS agreed to subordinate its right of payment under the VGS Promissory Note to the right of payment and security interests of the lenders under the Term Loan Facility. The VGS Promissory Note provided for funding of up to $ 40.0 million. The Company paid VGS an up-front fee of 1.5 %. Interest was payable at 14.0 % per annum on a quarterly cycle (in arrears) beginning March 31, 2023. The Company had the option to pay interest of 6.0 % in-kind and 8.0 % in cash, subject to certain limitations. The VGS Promissory Note had a maturity date of May 19, 2026. As of December 31, P3 Health Partners Inc. | 2024 Form 10-K | 99 Table of Contents 2023, $ 29.1 million had been drawn on the VGS Promissory Note and the Company had recorded debt issuance costs and original issue discount of $ 0.8 million. Accrued interest was $ 4.0 million as of December 31, 2023. On December 12, 2024, the Company entered into an unsecured promissory note (the “VGS 1 2024 Loan”) with VGS providing for funding of up to approximately $ 38.1 million, the proceeds from which were used to repay in full all principal, interest, and other amounts owing under the VGS Promissory Note. In connection with the replacement of the VGS Promissory Note with the VGS 1 2024 Loan, VGS waived the 9.0 % back-end facility fee that otherwise would have been payable under the VGS Promissory Note. The VGS 1 2024 Loan has a maturity date of June 30, 2028 and an interest rate that is lower than the VGS Promissory Note by 50 basis points, among other things. The VGS 1 2024 Loan did not include the issuance of warrants. All other terms of the VGS 1 2024 Loan are the same as the terms of the VGS Promissory Note. The Company accounted for this transaction as a troubled debt restructuring as the Company was experiencing financial difficulty, and the amended terms resulted in a concession to the Company. As the future undiscounted cash flows under the modified terms exceeded the carrying amount on the date of modification, the modification was accounted for prospectively. As of December 31, 2024, the Company had $ 38.1 million of borrowings outstanding under the VGS 1 2024 Loan and recorded debt issuance costs and original issuance discount of $ 0.7 million. Accrued interest was $ 0.3 million as of December 31, 2024. The Company will pay VGS a back-end fee of 9.0 % at the time the VGS 1 2024 Loan is redeemed. The VGS 1 2024 Loan may be prepaid, at the Company’s option, either in whole or in part, without penalty or premium, at any time and from time to time, subject to the payment of the back-end fee; provided that prepayments must be in increments of at least 5% of the total loan amount. The VGS 1 2024 Loan provides for mandatory prepayments with the proceeds of certain asset sales, and the lender 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 1 2024 Loan). The VGS 1 2024 Loan restricts the Company’s ability to, among other things, incur indebtedness and liens, and make investments and restricted payments. 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. In connection with the issuance of the VGS 1 2024 Loan, the Company also entered into a subordination agreement, dated as of December 12, 2024 (the “VGS 1 2024 Subordination Agreement”) with VGS which subordinates VGS’s right of payment under the VGS 1 2024 Loan to the right of payment and security interests of the lenders under the Term Loan Facility. Under the terms of the VGS 1 2024 Subordination Agreement, the Company is effectively required to pay all interest under the VGS 1 2024 Loan in-kind. VGS 2 Promissory Note On March 22, 2024, P3 LLC entered into a related party financing transaction (see Note 19 “Related Parties”) with VBC Growth SPV 2, LLC (“VGS 2”), consisting of the issuance of an unsecured promissory note (the “VGS 2 Promissory Note”) to VGS 2 and a subordination agreement (“VGS 2 Subordination Agreement”), pursuant to which VGS 2 agreed to subordinate its 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. The VGS 2 Promissory Note provided for funding of up to $ 25.0 million. The Company paid VGS 2 an up-front fee of 1.5 % of the aggregate principal amount of the loan in-kind. As of December 31, 2024, $ 25.4 million had been drawn on the VGS 2 Promissory Note and the Company had recorded debt issuance costs and original issue discount of $ 0.5 million. 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. The Company may elect to pay interest 8.0 % in cash and 9.5 % in-kind, but if the terms of the VGS 2 Subordination Agreement do not permit the Company to pay interest in cash, interest will be paid entirely in-kind. Accrued interest was $ 3.6 million as of December 31, 2024. The Company will pay VGS 2 a back-end fee of 9.0 % at the time the VGS 2 Promissory Note is redeemed. The VGS Promissory Note may be prepaid, at the Company’s option, either in whole or in part, without penalty or premium, at any time and from time to time, subject to the payment of the back-end fee; provided that prepayments must be in increments of at least $ 1.25 million. The VGS 2 Promissory Note restricts the Company’s ability and the ability of its subsidiaries to, among other things, incur indebtedness and liens, and make investments and restricted payments. 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. P3 Health Partners Inc. | 2024 Form 10-K | 100 Table of Contents 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). In connection with the sale of the Florida Assets, on November 30, 2024, the VGS Promissory Note and VGS 2 Promissory Note were amended to permit the Permitted Florida Disposition and provide that the Company was not obligated to use the proceeds of the Permitted Florida Disposition to prepay the loans under the VGS Promissory Note and the VGS 2 Promissory Note. VGS 3 Promissory Note On December 12, 2024, P3 LLC entered into a related party financing transaction (see Note 19 “Related Parties”) with VBC Growth SPV 3, LLC (“VGS 3”), consisting of the issuance of an unsecured promissory note (the “VGS 3 Promissory Note”) to VGS 3; warrant agreement, pursuant to which the Company issued warrants to purchase 71.4 million shares of Class A common stock at an exercise price of $ 0.21 per share to VGS 3 (see Note 12 “Warrants”); and a subordination agreement (the “VGS 3 Subordination Agreement”), pursuant to which VGS 3 agreed to subordinate its right of payment under the VGS 3 Promissory Note to the right of payment and security interests of the lenders under the Term Loan Facility. The VGS 3 Promissory Note provides for funding of up to $ 25.0 million. The Company paid VGS 3 an up-front fee of 1.5 % of the aggregate principal amount of the loan in-kind. As of December 31, 2024, $ 25.4 million had been drawn on the VGS 3 Promissory Note and the Company had recorded debt issuance costs, comprising the fair value of the warrants issued to VGS 3 and other costs incurred related to this financing, and original issue discount of $ 12.8 million. The VGS 3 Promissory Note matures on June 30, 2028. Interest is payable at 19.5 % per annum on a quarterly cycle (in arrears) beginning June 30, 2025. The Company may elect to pay either interest 8.0 % in cash or 11.5 % in-kind, but if the terms of the VGS 3 Subordination Agreement do not permit the Company to pay interest in cash, interest will be paid entirely in-kind. Accrued interest was $ 0.1 million as of December 31, 2024. The Company will pay VGS 3 a back-end fee at the time the VGS 3 Promissory Note is redeemed as follows: (i) if paid after January 31, 2025 and on or before April 30, 2025, 4.5 %; (ii) if paid after April 30, 2025 and on or before July 31, 2025, 6.75 % and (iii) if paid after July 31, 2025, 9.0 %. The VGS Promissory Note may be prepaid, at the Company’s option, either in whole or in part, without penalty or premium, at any time and from time to time, subject to the payment of the back-end fee; provided that prepayments must be in increments of at least $ 1.25 million. The VGS 3 Promissory Note restricts the Company’s ability and the ability of its subsidiaries to, among other things, incur indebtedness and liens, and make investments and restricted payments. 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 VGS 3 Promissory Note provides for mandatory prepayments with the proceeds of certain asset sales, and VGS 3 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 3 Promissory Note). As of December 31, 2024, long-term debt maturities are as follows (in thousands): 2025 $ 65,000 2026 15,000 2027 25,375 2028 63,432 168,807 Less: unamortized debt issuance costs and original issue discount ( 13,983 ) $ 154,824 Note 11: Income Taxes As a result of the Business Combinations, substantially all the Company’s assets and operations are held and conducted by P3 LLC and its subsidiaries, and the Company’s only assets are equity interests in P3 LLC. P3 LLC is treated as a partnership for U.S. federal and most applicable state and local income tax jurisdictions. As a partnership, P3 LLC is generally not subject to taxes, other than entity level state income taxes. Any taxable income or loss generated by P3 LLC P3 Health Partners Inc. | 2024 Form 10-K | 101 Table of Contents is passed through to and included within the taxable income or loss of its members in accordance with the terms of the P3 LLC Amended & Restated Limited Liability Agreement dated as of the Closing Date (“P3 LLC A&R LLC Agreement”). Prior to the Business Combinations, the income and losses of P3 LLC were passed through to its members and nontaxable to P3 LLC. The Company is taxed as a corporation and pays corporate federal, state, and local taxes on income allocated to it from P3 LLC based on the Company’s economic interest held in P3 LLC. While the Company consolidates P3 LLC for financial purposes as a VIE, the Company will not be taxed on the earnings attributed to the non-controlling interests. As a result, the income tax burden on the earnings taxed on the non-controlling interests is not reported by the Company in its consolidated financial statements. The components of loss before income taxes were as follows: Year Ended December 31, 2024 2023 (in thousands) Domestic $ ( 305,991 ) $ ( 183,731 ) Foreign — — Total $ ( 305,991 ) $ ( 183,731 ) The components of income tax expense were as follows: Year Ended December 31, 2024 2023 (in thousands) Current income taxes: Federal $ 1,217 $ 170 State 4,260 2,525 Total current income taxes 5,477 2,695 Deferred income taxes: Federal ( 835 ) — State ( 255 ) — Total deferred income taxes ( 1,090 ) — Total income tax expense $ 4,387 $ 2,695 A reconciliation of the statutory federal income tax to the Company’s provision for income taxes is as follows: Year Ended December 31, 2024 2023 (dollars in thousands) Tax at federal statutory rate $ ( 64,258 ) $ ( 38,584 ) Non-controlling interest and nontaxable income 36,984 24,486 Change in valuation allowance 29,929 29,781 Investment in P3 LLC ( 796 ) ( 20,420 ) Return to provision 2,006 4,134 Deferred tax adjustments ( 21 ) 1,754 Other reconciling items 543 1,544 Total $ 4,387 $ 2,695 Effective tax rate ( 1.4 ) % ( 1.5 ) % P3 Health Partners Inc. | 2024 Form 10-K | 102 Table of Contents The Company’s tax rate is affected primarily by the recognition of a valuation allowance and the portion of income and expense allocated to the non-controlling interest. Deferred Income Taxes Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards. Significant components of the Company’s deferred income tax assets and liabilities are as follows: December 31, 2024 2023 (in thousands) Deferred tax assets: Investment in P3 LLC $ 32,438 $ 19,709 Net operating loss carryforwards 33,087 21,525 Accrued liabilities 181 221 Goodwill and identifiable intangible assets 1,712 1,923 Section 163j interest limitation 5,104 3,031 Other deferred tax assets 459 632 Total deferred tax assets 72,981 47,041 Less: valuation allowance ( 71,457 ) ( 46,370 ) Net deferred tax assets 1,524 671 Deferred tax liabilities: Operating lease, right-of-use assets ( 410 ) ( 338 ) Other deferred tax liabilities ( 24 ) ( 333 ) Total deferred tax liabilities ( 434 ) ( 671 ) Net deferred tax asset $ 1,090 $ — The Company recognizes deferred tax assets to the extent it believes that these assets are more likely than not to be realized. The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available evidence as of December 31, 2024, the Company believes that it is more likely than not that the tax benefits of the U.S. losses incurred will not be realized. Accordingly, the Company has recorded a valuation allowance against the tax benefits of the U.S. losses incurred. The Company intends to maintain the valuation allowance on the U.S. net deferred tax assets until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. As of December 31, 2024, the Company has recognized a net deferred tax liability of $ 1.1 million in connection with its subsidiary, Medcore HP (“MHP”). Because MHP does not file a consolidated corporate income tax return with the Company, the deferred tax assets of MHP are separately assessed for realizability. Based on the weight of all available evidence as of December 31, 2024, the Company believes that it is more likely than not that the tax benefits of the deferred tax assets of MHP will be realized. As of December 31, 2024, the Company has recognized a net deferred tax asset of $ 2.0 million in connection with certain of the Network VIEs. Because the Network VIEs do not file a consolidated corporate income tax return with the Company, the deferred tax assets are separately assessed for realizability. Based on the weight of all available evidence as of December 31, 2024, including cumulative losses in recent years, the Company believes that it is more likely than not that the tax benefits of the deferred tax assets of certain of the Network VIEs will not be realized. Accordingly, the Company has recorded a valuation allowance against the tax benefits of the related deferred tax assets. As of December 31, 2024, the Company has U.S. federal income tax net operating loss carryforwards of $ 88.4 million available to offset future taxable income, all of which will be carried forward indefinitely, but utilization is limited to 80% of taxable income in any given year. The Company also has state net operating loss carryforwards of $ 36.1 million, of which $ 1.5 million will expire in 2033, $ 4.5 million will expire in 2034, $ 7.6 million will expire in 2035, $ 5.5 million will expire in 2039, $ 4.5 million will expire in 2043, and $ 12.5 million will be carried forward indefinitely. P3 Health Partners Inc. | 2024 Form 10-K | 103 Table of Contents The federal and state net operating loss carryforwards may be subject to limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 (the “Code”) and similar provisions under state law. The Tax Reform Act of 1986 contains provisions that limit the federal net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes. The Company has completed a Section 382 analysis covering the period January 1, 2018 through September 30, 2023. The Section 382 analysis tested the Company’s stock for each occurrence of stock issuance during the covered period. Through the analysis period, ownership changes were identified resulting in annual limitations to tax attributes; however, due to the indefinite carryforward of U.S. federal income tax net operating losses, no such carryforwards have been derecognized. Uncertain Tax Positions The Company is subject to examination for tax years beginning with the year ended December 31, 2020. The Company is not currently under any U.S. federal or state income tax audits for any tax year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2024 2023 (in thousands) Balance at January 1 $ — $ — Additions based on tax positions related to the current year 4,285 — Balance at December 31 $ 4,285 $ — As of December 31, 2024, there are $ 4.3 million unrecognized tax benefits related to state tax filing positions that if recognized would affect the annual effective tax rate. Events that could impact the liability include expiration of the statute of limitations or settlement with the state tax authority. Over the next 12 months, the Company does not expect a significant increase or decrease in the unrecognized tax benefits recorded at December 31, 2024. The Company recorded interest and penalties of $ 1.6 million related to uncertain tax positions within the income tax provision on the consolidated statement of comprehensive loss during the year ended December 31, 2024. As of December 31, 2024, accrued interest and penalties related to uncertain tax positions of $ 1.6 million were recorded within other long-term liabilities on the consolidated balance sheet. No such amounts were recorded during the year ended or as of December 31, 2023. Tax Receivable Agreement In connection with the Business Combinations, the Company entered into a TRA that provides for the payment by the Company of 85 % of the amount of any tax benefits that are realized, or in some cases are deemed to realize, as a result of (i) increases in the Company’s share of the tax basis in the net assets of P3 LLC resulting from any redemptions or exchanges of P3 LLC, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA. The Company expects to benefit from the remaining 15 % of any tax benefits that are realized. Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of P3 LLC when Common Units are redeemed or exchanged. The Company intends to treat any redemptions and exchanges of Common Units as direct purchases of the units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company 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. The estimation of liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors. Actual tax benefits realized by the Company may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. The payment obligation under the TRA is an obligation of the Company and not of P3 LLC. The payments that the Company will be required to make will generally reduce the amount of the overall cash flow that might have otherwise P3 Health Partners Inc. | 2024 Form 10-K | 104 Table of Contents been available, but the Company expects the cash tax savings realized from the utilization of the related tax benefits will exceed the amount of any required payments. As of December 31, 2024 and 2023, the TRA liability is estimated to be $ 11.5 million and $ 11.0 million, respectively; however, due to the full valuation allowance recorded by the Company, which results in no tax benefits that are to be realized related to the amortization of the step-up, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of December 31, 2024 and 2023. As non-controlling interest holders exercise their right to exchange their Common 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 its tax basis of P3 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 a share of the Company’s Class A common stock at the time of the relevant redemption or exchange. Note 12: Warrants As of December 31, 2024 and 2023, there were an aggregate of 246.5 million and 81.9 million warrants outstanding, respectively, which include the 2021 Public Warrants, 2021 Private Placement Warrants, VGS Warrants, VGS 3 Warrants, March 2023 Warrants, May 2024 Common Warrants, and May 2024 Pre-Funded Warrants (each as defined below). No warrants were exercised during the years ended December 31, 2024 and 2023. Liability-classified Public Offering and Private Placement The 2021 Public Warrants and 2021 Private Placement Warrants entitle the holders to purchase an aggregate of 10.8 million shares of Class A common stock at a price of $ 11.50 per share. The 2021 Public Warrants will expire five years after the completion of the Business Combinations. The Company has the right to redeem the 2021 Public Warrants when the price per share of Class A common stock equals or exceeds $ 18.00 for 20 days within a 30-day trading period. The 2021 Private Placement Warrants are identical to the 2021 Public Warrants, except that the 2021 Private Placement Warrants are subject to certain transfer restrictions, are not redeemable by the Company if they are held by sponsors, and are exercisable on a cashless basis. May 2024 Common Warrants In connection with the May 2024 Private Placement (see Note 14 “Capitalization”), the Company issued warrants to purchase an aggregate of 67.4 million shares of Class A common stock at a price of $ 0.5020 per share (the “May 2024 Common Warrants”). Pursuant to the warrant agreements, the May 2024 Common Warrants and the right to purchase securities upon the exercise of the May 2024 Warrants will terminate upon the earliest to occur of the following: (a) May 22, 2031; and (b) the consummation of (i) a sale, conveyance, disposal, or encumbrance of all or substantially all of the Company’s property or business or the Company’s merger into or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (ii) any other transaction or series of related transactions in which more than 50% of the voting power of which the Company is disposed and the proceeds thereof are paid to the then-existing stockholders of the Company. The May 2024 Common Warrants were recorded as liability-classified financial instruments for an initial amount of $ 31.3 million. The key Level 3 inputs into the option pricing model related to the May 2024 Warrants at inception were as follows: Volatility 95.0 % Risk-free interest rate 4.5 % Exercise price $ 0.50 Expected term 7.0 years The 2021 Public Warrants, 2021 Private Placement Warrants, and May 2024 Warrants are recorded as liabilities on the consolidated balance sheets with a balance of $ 10.3 million and $ 1.1 million as of December 31, 2024 and 2023, respectively. P3 Health Partners Inc. | 2024 Form 10-K | 105 Table of Contents Equity-classified VGS Warrants In connection with the VGS Promissory Note issued in December 2022 (see Note 10 “Debt”), the Company and VGS entered into a warrant agreement (the “VGS Warrant Agreement”) pursuant to which the Company issued warrants to purchase 0.4 million shares of Class A common stock of the Company at an exercise price of $ 4.26 per share to VGS (the “VGS Warrants”). The number of shares of common stock for which the VGS Warrants is exercisable and the exercise price may be adjusted upon any event involving subdivisions, combinations, distributions, recapitalizations, and similar transactions. Pursuant to the VGS Warrant Agreement, the warrants and the right to purchase securities upon the exercise of the warrants will terminate upon the earliest to occur of the following: (a) December 13, 2027; and (b) the consummation of (i) a sale, conveyance, consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (ii) any other transaction or series of related transactions in which more than 50 % of the voting power of which the Company or P3 LLC is disposed. VGS 3 Warrants In connection with the VGS 3 Promissory Note issued in December 2024 (see Note 10 “Debt”), the Company and VGS 3 entered into a warrant agreement (the “VGS 3 Warrant Agreement”) pursuant to which the Company issued warrants to purchase 71.4 million shares of Class A common stock of the Company at an exercise price of $ 0.21 per share to VGS 3 (the “VGS 3 Warrants”). The number of shares of common stock for which the VGS 3 Warrants is exercisable and the exercise price may be adjusted upon any event involving subdivisions, combinations, distributions, recapitalizations, and similar transactions. Pursuant to the VGS 3 Warrant Agreement, the warrants and the right to purchase securities upon the exercise of the warrants will terminate upon the earliest to occur of the following: (a) December 12, 2031; and (b) the consummation of (i) a sale, conveyance, consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (ii) any other transaction or series of related transactions in which more than 50 % of the voting power of which the Company or P3 LLC is disposed. The Company recorded the fair value of the VGS 3 Warrants of $ 12.1 million as an increase to additional paid in capital during the year ended December 31, 2024. The key Level 3 inputs into the option pricing model related to the VGS 3 Warrants were as follows: Volatility 91.6 % Risk-free interest rate 4.2 % Exercise price $ 0.21 Expected term 6.8 years May 2024 Pre-Funded Warrants In connection with the May 2024 Private Placement (see Note 14 “Capitalization”), the Company issued pre-funded warrants to purchase an aggregate of 25.8 million shares of Class A common stock at a price of $ 0.0001 per share (the “May 2024 Pre-Funded Warrants”). Pursuant to the warrant agreements, the May 2024 Pre-Funded Warrants and the right to purchase securities upon the exercise of the May 2024 Pre-Funded Warrants will terminate upon the consummation of (i) a sale, conveyance, disposal, or encumbrance of all or substantially all of the Company’s property or business or the Company’s merger into or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (ii) any other transaction or series of related transactions in which more than 50% of the voting power of which the Company is disposed and the proceeds thereof are paid to the then-existing stockholders of the Company. The May 2024 Pre-Funded Warrants were recorded as equity-classified financial instruments totaling $ 6.6 million. March 2023 Warrants In connection with the March 2023 Private Placement (see Note 14 “Capitalization”), the Company issued warrants to purchase an aggregate of 59.9 million shares of Class A common stock at a price of $ 1.13 per share (the “March 2023 Common Warrants”), and pre-funded warrants to purchase an aggregate of 10.8 million shares of Class A common stock at a price of $ 0.0001 per share (the “March 2023 Pre-Funded Warrants” and, together with the March 2023 Common Warrants, the “March 2023 Warrants”). Pursuant to the warrant agreements, the March 2023 Warrants and the right to purchase securities upon the exercise of the March 2023 Warrants will terminate upon the earliest to occur of the following: (a) April 5, 2028, with respect to the March 2023 Common Warrants only; and (b) the consummation of (i) a P3 Health Partners Inc. | 2024 Form 10-K | 106 Table of Contents sale, conveyance, disposal, or encumbrance of all or substantially all of the Company’s property or business or the Company’s merger into or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or (ii) any other transaction or series of related transactions in which more than 50 % of the voting power of which the Company is disposed and the proceeds thereof are paid to the then-existing stockholders of the Company. Note 13: Commitments and Contingencies The Company is a party to various claims, legal and regulatory proceedings, lawsuits, and administrative actions arising in the ordinary course of business. The Company carries general and professional liability insurance coverage to mitigate the Company’s risk of potential loss in such cases. The Company believes that disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, net loss or cash flows. In June 2024, we received a CID from the DOJ pursuant to the False Claims Act in the course of the government’s investigation concerning our arrangements with insurance agents and brokers. The CID requests documentation and information relating to the marketing of our broker programs and our arrangements with, and remuneration paid to, MA brokers, agents and agencies, as well as our arrangements with third parties relating to these programs. We are cooperating with the investigation and providing the requested information. No assurance can be given as to the timing or outcome of the government’s investigation. Uncertainties The healthcare industry is subject to numerous laws and regulations of Federal, state, and local governments. These laws and regulations include, but are not limited to, matters of licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare / Medicaid Fraud, Waste and Abuse Prevention. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of Fraud, Waste and Abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with imposition of significant fines and penalties as well as significant repayment for patient services billed. Management believes the Company is compliant with Fraud, Waste and Abuse regulations as well as other applicable government laws. While no regulatory inquiries have been made, compliance with such laws and regulations is subject to government review and interpretation, as well as other regulatory actions which might be unknown at this time. Healthcare reform legislation at both the Federal and state levels continues to evolve. Changes continue to impact existing and future laws and rules. Such changes may impact the manner in which the Company conducts business, restrict the Company’s revenue growth in certain eligibility categories, slow down revenue growth rates for certain eligibility categories, increase certain medical, administrative and capital costs, and expose the Company to increased risk of loss or further liabilities. As a result, the Company’s consolidated financial position could be impacted by such changes. Leases The Company leases real estate in the form of corporate office space and operating facilities. The Company’s real estate leases have noncancelable terms expiring in 2025 to 2033, certain of which have one to two renewal options of five to 10 years. Operating lease right-of-use assets of $ 12.9 million and $ 15.3 million were included within other long-term assets on the Company’s consolidated balance sheets as of December 31, 2024 and 2023, respectively. Operating lease costs are included within operating expenses on the consolidated statements of operations and were $ 4.6 million and $ 4.5 million for the years ended December 31, 2024 and 2023, respectively. Lease terms and discount rates consisted of the following as of: December 31, 2024 2023 Weighted average remaining lease term (years) 4.8 5.8 Weighted average discount rate 12.4 % 11.4 % P3 Health Partners Inc. | 2024 Form 10-K | 107 Table of Contents Maturities of operating lease liabilities as of December 31, 2024 are as follows (in thousands): Year Ending December 31, 2025 $ 3,996 2026 3,565 2027 3,297 2028 3,144 2029 2,817 Thereafter 2,793 Total undiscounted future cash flows 19,612 Less: interest ( 5,781 ) Present value of operating lease liabilities $ 13,831 The current portions of operating right-of-use liabilities of $ 2.5 million and $ 2.7 million are included in accrued expenses and other current liabilities in the Company’s consolidated balance sheets as of December 31, 2024 and 2023, respectively. Supplemental cash flows and other information related to leases are as follows: Year Ended December 31, 2024 2023 (in thousands) Operating cash flows paid for operating leases $ 4,551 $ 4,204 Note 14: Capitalization As of December 31, 2024, under the Company’s amended and restated certificate of incorporation dated August 20, 2020, the Company is authorized to issue: (i) 800 million shares of Class A common stock with a par value of $ 0.0001 per share, (ii) 205 million shares of Class V common stock with a par value of $ 0.0001 per share, and (iii) 10 million shares of preferred stock with a par value of $ 0.0001 per share, of which no shares were issued or outstanding as of December 31, 2024 and 2023. Holders of shares of Class A common stock and Class V common stock are each entitled to one vote on all matters to be voted upon by stockholders. The declaration, amount, and payment of any future dividends on shares of Class A common stock will be at the discretion of the Company’s Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, restrictions in its debt agreements, and other factors that the Company’s Board of Directors deems relevant. Holders of shares of Class A common stock are entitled to receive such dividends declared by the Company’s Board of Directors. Holders of shares of Class V common stock are not entitled to participate in any such dividends declared by the Company’s Board of Directors. The Company’s Board of Directors has not declared any cash dividends during the years ended December 31, 2024 or 2023. May 2024 Private Placement On May 24, 2024, pursuant to a Securities Purchase Agreement (the “May 2024 Purchase Agreement”), dated May 22, 2024 with the purchasers named therein (the “May 2024 Purchasers”), which included certain affiliated entities of Chicago Pacific Founders GP, L.P., a Delaware limited partnership (“CPF GP”), and institutional investors, the Company issued approximately 67.4 million units at a price of approximately $ 0.6270 per unit. Each unit consists of one share of Class A common stock and a warrant to purchase one share of Class A common stock at an exercise price of $ 0.5020 . 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, the Company sold (i) an aggregate of 41.6 million shares of its Class A common stock, (ii) warrants to purchase an aggregate of 67.4 million shares of Class A common stock, and (iii) warrants to purchase an aggregate of 25.8 million shares of Class A common stock for aggregate proceeds of $ 39.8 million, net of $ 2.4 million in offering costs (collectively, the “May 2024 Private Placement”). P3 Health Partners Inc. | 2024 Form 10-K | 108 Table of Contents Registration Rights Agreement On May 24, 2024, in connection with the May 2024 Private Placement, the Company entered into a Registration Rights Agreement (the “May 2024 Registration Rights Agreement”) with the May 2024 Purchasers. Pursuant to the May 2024 Registration Rights Agreement, the Company agreed to prepare and file a registration statement with the SEC for purposes of registering the resale of the shares and shares of common stock issuable upon exercise of the warrants, which was filed with the SEC on June 18, 2024 and declared effective by the SEC on June 27, 2024. The May 2024 Registration Rights Agreement also contains certain shelf takedown and piggyback rights. The Company has also agreed, among other things, to indemnify the May 2024 Purchasers, their officers, directors, members, employees and agents, successors and assigns under the registration statement from certain liabilities and to pay all fees and expenses incident to the Company’s obligations under the May 2024 Registration Rights Agreement. Amended and Restated Letter Agreement with CPF On May 24, 2024, in connection with entry into the Purchase Agreement, the Company entered into an amended and restated letter agreement (the “Amended and Restated Letter Agreement”) with CPF GP, and Chicago Pacific Founders GP III, L.P., a Delaware limited partnership (“CPF GP III,” and together with CPF GP, “CPF”) (on behalf of the funds of which CPF GP is the general partner, certain funds of which CPF GP III is the general partner and/or certain of their affiliated entities and funds (collectively, the “CPF Parties”)). The Amended and Restated Letter Agreement provides that for as long as the CPF Parties own 40 % of the Company’s outstanding common stock, (i) CPF will be entitled to designate one additional independent member of the Company’s board of directors, and (ii) CPF will be entitled to certain information rights and protective provisions. As of the date of the issuance of these financial statements, CPF has not exercised its right to designate a director under the terms of the Amended and Restated Letter Agreement. The CPF Parties also agreed to extend a standstill restriction that limits the ownership of the CPF Parties to 49.99 % of the Company’s Class A common stock and Class V common stock from the date of the closing of the May 2024 Private Placement to July 31, 2025. Shelf Registration On November 9, 2023, the Company filed a shelf Registration Statement on Form S-3 with a capacity of $ 250 million (the “Shelf Registration”), which was declared effective by the SEC on November 20, 2023, and entered into an Open Market Sales Agreement (“Sales Agreement”) pursuant to which the Company may issue and sell, from time to time, through the sales agent, shares of the Company’s Class A common stock, par value $ 0.0001 per share, with an aggregate value of up to $ 75 million. The sales agent will make commercially reasonable efforts, following the Company’s instructions, to sell shares over time, adhering to specified limits. Sales will be conducted through at-the-market offerings as defined by Rule 415(a)(4) under the Securities Act of 1933, as amended. The aggregate value of shares of Class A common stock that may be offered, issued, and sold under the Sales Agreement is included in the aggregate value of securities that may be offered, issued, and sold by the Company under the Shelf Registration. Upon termination of the Sales Agreement, any unused portion will be available for sale in other offerings pursuant to the Shelf Registration. March 2023 Private Placement On April 6, 2023, pursuant to a Securities Purchase Agreement (the “March 2023 Purchase Agreement”), dated March 30, 2023 with the purchasers named therein (the “March 2023 Purchasers”), which included certain affiliated entities of CPF GP, and the Company’s Chief Medical Officer and member of the Company’s board of directors, the Company 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 consists 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, the Company sold (i) an aggregate of 69.2 million shares of its 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 $ 86.6 million, net of $ 2.9 million in offering costs (collectively, the “March 2023 Private Placement”). P3 Health Partners Inc. | 2024 Form 10-K | 109 Table of Contents Registration Rights Agreement On April 6, 2023, in connection with the March 2023 Purchase Agreement, the Company entered into a Registration Rights Agreement (the “April 2023 Registration Rights Agreement”) with the Purchasers. Pursuant to the April 2023 Registration Rights Agreement, the Company agreed to prepare a registration statement for purposes of registering the resale of the shares and shares of common stock issuable upon exercise of the warrants, which was filed with the SEC on May 2, 2023 and declared effective by the SEC on June 14, 2023. The Registration Rights Agreement also contains certain shelf takedown and piggyback rights. The Company has also agreed, among other things, to indemnify the March 2023 Purchasers, their officers, directors, members, employees and agents, successors and assigns under the registration statement from certain liabilities and to pay all fees and expenses incident to the Company’s obligations under the April 2023 Registration Rights Agreement. Letter Agreement with CPF On April 6, 2023, in connection with the March 2023 Purchase Agreement, the Company entered into a letter agreement (the “Letter Agreement”) with the CPF Parties. The Letter Agreement provides, pursuant to certain stipulations, that CPF will be entitled to designate one additional independent member of the Company’s board of directors and that CPF will be entitled to certain information rights and protective provisions. As of the date of the issuance of these consolidated financial statements, CPF has not exercised its right to designate a director under the terms of the Letter Agreement. CPF Parties also agreed to a standstill restriction from the date of the closing of the March 2023 Private Placement to June 30, 2024 that limited the ownership of the CPF Parties to 49.99 % of the Company’s Class A common stock and Class V common stock. Note 15: Equity-Based Compensation Common Unit Awards In connection with the closing of the Business Combinations, unvested incentive unit awards granted under the then-current equity plan were converted into Common Units, which were paired with an equal number of shares of the Company’s Class V common stock, and remained subject to the original vesting conditions. If a forfeiture of unvested Common Units occurred, the associated shares of Class V common stock were also forfeited. During the year ended December 31, 2023, there were no Common Unit awards granted and the total fair value of Common Unit awards vested was $ 0.5 million. As of December 31, 2023, all Common Unit awards had vested. The Common Unit awards vested ratably over a period between one month and two years , so long as the grantee stayed employed. 2021 Incentive Award Plan In connection with the Business Combinations, the Company’s Board of Directors adopted, and its stockholders approved, the 2021 Incentive Award Plan (the “2021 Plan”), effective on its adoption date, in order to facilitate the grant of cash and equity incentives to employees, consultants, and directors of the Company and certain affiliates. The 2021 Plan provides that the initial aggregate number of shares reserved and available for issuance is 14.6 million plus an increase each January 1, beginning on January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (i) 1 % of the aggregate number of shares of Class A common stock and Class V common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of Class A common stock as is determined by the Company’s Board of Directors. Since January 1, 2022, the aggregate number of shares of Class A common stock reserved and available for issuance under the 2021 Plan has increased by a total of 8.0 million pursuant to the automatic annual increase provision under the 2021 Plan. As of December 31, 2024, the number of shares of Class A common stock reserved and available for issuance under the 2021 Plan was 7.0 million. The 2021 Plan allows for the grant of (i) stock options, including incentive stock options, (ii) stock appreciation rights, (iii) restricted stock awards (“RSAs”), (iv) restricted stock unit (“RSU”) awards, or (v) other stock or cash based awards as may be determined by the plan’s administrator from time to time. The term of each option award shall be no more than 10 years from the date of grant. The Company’s policy for issuing shares upon stock option exercise is to issue new shares of Class A common stock. The P3 LLC A&R LLC Agreement states that P3 LLC will maintain at all times a P3 Health Partners Inc. | 2024 Form 10-K | 110 Table of Contents one -to- one ratio between the number of Common Units owned by the Company and the number of outstanding shares of Class A common stock, including, but not limited to, those issued as result of stock option exercises and settlement of RSU awards granted under the 2021 Plan. The 2021 Plan also permits the grant of dividend equivalent units that entitle the holder to an amount based on the value of the dividends per share paid on the Company’s Class A common stock, which are accumulated on RSUs during the vesting period. The following table summarizes time-based stock option activity under the 2021 Plan for the year ended December 31, 2024: Number of Stock Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2023 4,087 $ 4.24 8.77 $ 140 Granted 4,686 $ 0.53 Cancelled ( 249 ) $ 3.12 Forfeited ( 1,957 ) $ 1.86 Outstanding as of December 31, 2024 6,567 $ 2.35 8.57 $ — Fully vested and expected to vest as of December 31, 2024 6,567 $ 2.35 8.57 $ — Exercisable as of December 31, 2024 1,887 $ 5.55 7.07 $ — The following additional disclosures are provided for time-based stock options: Year Ended December 31, 2024 2023 Weighted average grant date fair value $ 0.34 $ 0.81 The following table summarizes performance-based stock option activity under the 2021 Plan for the year ended December 31, 2024: Number of Stock Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2023 1,650 $ 4.60 9.00 $ 51 Granted — $ — Forfeited ( 900 ) $ 4.30 Outstanding as of December 31, 2024 750 $ 4.95 7.95 $ — Fully vested and expected to vest as of December 31, 2024 750 $ 4.95 7.95 $ — Exercisable as of December 31, 2024 — $ — — $ — The following additional disclosures are provided for performance-based stock options: Year Ended December 31, 2024 2023 Weighted average grant date fair value $ — $ 0.77 P3 Health Partners Inc. | 2024 Form 10-K | 111 Table of Contents The vesting criteria for 0.1 million performance-based stock option awards has not yet been achieved; therefore, no expense has been recorded. There were no stock options exercised during the years ended December 31, 2024 and 2023. The weighted average assumptions used in estimating the grant date fair value of stock options are listed in the table below: Year Ended December 31, 2024 2023 Expected volatility 64.7 % 60.2 % Risk-free interest rate 4.2 % 3.8 % Expected term 6.2 years 6.6 years Dividend rate 0.0 % 0.0 % Time-based stock options vest ratably over a period between two and five years , so long as the optionee continues to provide services to the Company. As of December 31, 2024, there was $ 1.9 million and $ 2.1 million of unrecognized equity-based compensation cost related to unvested time-based and performance-based stock options under the 2021 Plan, respectively, which is expected to be recognized over a weighted-average period of 2.0 years and 8.0 years, respectively. The following table summarizes RSU activity under the 2021 Plan for the year ended December 31, 2024: Weighted Average Grant Date Fair Value Number of Units (in thousands) Non-vested as of December 31, 2023 $ 1.60 4,835 Granted $ 0.59 1,210 Vested $ 1.96 ( 1,695 ) Forfeited $ 1.99 ( 663 ) Non-vested as of December 31, 2024 $ 0.95 3,687 The following additional disclosures are provided for RSU awards: Year Ended December 31, 2024 2023 Weighted average grant date fair value $ 0.59 $ 1.80 Total fair value of shares vested (in thousands) $ 2,680 $ 5,826 In August 2023, the Company granted an aggregate of 2.5 million RSUs pursuant to the 2021 Plan to the Company’s then Chief Executive Officer, Dr. Abdou, and Chief Medical Officer, Dr. Bacchus (collectively, the “Executives”), in full satisfaction of the “Second Bonus” earned by each Executive during the year ended December 31, 2022 pursuant to the terms of the transaction bonus agreements, dated May 2022, entered into between each Executive and the Company and P3 Health Group Management, LLC in connection with the consummation of the Business Combinations (together, the “RSU Transaction Bonuses”). The RSUs were fully vested at the time of grant. The fair value of the RSUs granted was $ 5.6 million, $ 0.6 million of which was recorded in equity-based compensation during the year ended December 31, 2023. The RSUs were settled in Class A common stock and the Company timely paid $ 0.7 million in withholding taxes attributable to the vesting of the RSUs to the Internal Revenue Service on behalf of Dr. Abdou on January 10, 2024. Dr. Abdou repaid such sum to the Company on May 2, 2024. RSUs typically vest ratably over a period between two and four years , so long as the grantee continues to provide services to the Company. As of December 31, 2024, total equity-based compensation cost related to all unvested RSUs under the 2021 Plan was $ 3.5 million, which is expected to be recognized over a weighted average period of 2.1 years. P3 Health Partners Inc. | 2024 Form 10-K | 112 Table of Contents 2024 Employee Inducement Incentive Award Plan On May 7, 2024, the Board of Directors adopted the Company’s 2024 Employment Inducement Incentive Award Plan (the “2024 Plan”), effective on its adoption date. The 2024 Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents and other stock or cash-based awards to prospective employees, and contains terms and conditions intended to comply with the inducement award exception under the Nasdaq Listing Rules. The Board of Directors has reserved 16.5 million shares of the Class A common stock for issuance pursuant to awards granted under the 2024 Plan. In accordance with Nasdaq Stock Market Rule 5635(c)(4), awards under the 2024 Plan may only be made to individuals not previously employed by the Company or individuals being rehired following a bona fide period of interruption of employment, as an inducement material to such individuals’ entering into employment with the Company. As of December 31, 2024, there were no shares of Class A common stock reserved and available for issuance under the 2024 Plan. The term of each option award shall be no more than 10 years from the date of grant. The Company’s policy for issuing shares upon stock option exercise is to issue new shares of Class A common stock. The P3 LLC A&R LLC Agreement states that P3 LLC will maintain at all times a one-to-one ratio between the number of Common Units owned by the Company and the number of outstanding shares of Class A common stock, including, but not limited to, those issued as result of stock option exercises and settlement of RSU awards granted under the 2024 Plan. The following table summarizes stock option activity under the 2024 Plan for the year ended December 31, 2024: Number of Stock Options (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2023 — $ — — $ — Granted 12,100 $ 0.73 Outstanding as of December 31, 2024 12,100 $ 0.73 9.36 $ — Fully vested and expected to vest as of December 31, 2024 12,100 $ 0.73 9.36 $ — Exercisable as of December 31, 2024 — $ — — $ — The following additional disclosures are provided for stock options: Year Ended December 31, 2024 Weighted average grant date fair value $ 0.47 The weighted average assumptions used in estimating the grant date fair value of stock options are listed in the table below: Year Ended December 31, 2024 Expected volatility 66.5 % Risk-free interest rate 4.5 % Expected term 6.3 years Dividend rate 0.0 % As of December 31, 2024, there was $ 4.8 million of unrecognized equity-based compensation cost related to unvested stock options under the 2024 Plan, which is expected to be recognized over a weighted-average period of 3.4 years. P3 Health Partners Inc. | 2024 Form 10-K | 113 Table of Contents The following table summarizes RSU activity under the 2024 Plan for the year ended December 31, 2024: Weighted Average Grant Date Fair Value Number of Units (in thousands) Non-vested as of December 31, 2023 $ — — Granted $ 0.73 4,400 Non-vested as of December 31, 2024 $ 0.73 4,400 The following additional disclosures are provided for RSU awards: Year Ended December 31, 2024 Weighted average grant date fair value $ 0.73 The RSU award will be subject to both service-vesting and performance-vesting conditions, such that both conditions must be satisfied for the RSUs to vest. The applicable vesting date will be the later of the date on which the applicable “service-vesting condition” is satisfied and the date on which the “performance-vesting condition” is satisfied. The service-vesting condition will be satisfied (i) with respect to 25% of the underlying shares on the first anniversary of the effective date of employment, and (ii) as to the remaining 75% of the underlying shares, in substantially equal installments on each quarterly anniversary over the three-year period thereafter. The performance-vesting condition will be satisfied upon the closing of the first underwritten offering and sale of the Company’s Class A common stock following the effective date of employment, subject to continued employment through such date. As of December 31, 2024, total equity-based compensation cost related to all unvested RSUs under the 2024 Plan was $ 2.7 million, which is expected to be recognized over a weighted average period of 3.4 years. Compensation Expense Equity-based compensation recorded within corporate, general and administrative expense on the consolidated statements of operations was $ 5.8 million and $ 6.0 million during the years ended December 31, 2024 and 2023, respectively. The Company did not recognize any tax benefits related to equity-based compensation for the years ended December 31, 2024 and 2023. P3 Health Partners Inc. | 2024 Form 10-K | 114 Table of Contents Note 16: Net Loss per Share The following table provides the computation of basic and diluted net loss per share: Year Ended December 31, 2024 2023 (in thousands, except per share data) Numerator–basic: Net loss attributable to Class A common stockholders–basic $ ( 135,849 ) $ ( 57,773 ) Numerator–diluted: Net loss attributable to Class A common stockholders–basic $ ( 135,849 ) $ ( 57,773 ) Effective of dilutive securities: Shares of Class V common stock — ( 128,653 ) Liability-classified warrants ( 23,078 ) — Net loss attributable to Class A common stockholders–diluted $ ( 158,927 ) $ ( 186,426 ) Denominator–basic: Weighted average Class A common shares outstanding–basic 145,175 94,889 Net loss per share attributable to Class A common stockholders–basic $ ( 0.94 ) $ ( 0.61 ) Denominator–diluted: Weighted average Class A common shares outstanding–basic 145,175 94,889 Weighted average effect of dilutive securities: Shares of Class V common stock — 199,701 Liability-classified warrants 1,823 — Weighted average shares outstanding–diluted 146,998 294,590 Net loss per share attributable to Class A common stockholders–diluted $ ( 1.08 ) $ ( 0.63 ) Shares of Class V common stock do not share in the earnings or losses of P3 and are therefore not participating securities. As such, separate presentation of basic and diluted net income per share for Class V common stock under the two-class method is not required. The following table presents potentially dilutive securities excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive. Year Ended December 31, 2024 2023 (in thousands) Stock warrants (1) 179,125 81,938 Stock options (1) 19,517 5,837 Restricted stock units (1) 8,087 4,835 Shares of Class V common stock (2) 195,957 — Total 402,686 92,610 __________________ (1) Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net loss per share (2) Shares of Class V common stock at the end of the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method in 2023 and antidilutive in 2024. Note 17: Redeemable Non-controlling Interest Non-controlling interest represents the portion of P3 LLC that the Company controls and consolidates but does not own (i.e., the Common Units held directly by equity holders other than the Company). P3 Health Partners Inc. | 2024 Form 10-K | 115 Table of Contents The ownership of the Common Units is summarized as follows: December 31, 2024 December 31, 2023 Units (in thousands) Ownership % Units (in thousands) Ownership % P3 Health Partners Inc. ’ s ownership of Common Units 162,870 45.4 % 116,588 37.2 % Non-controlling interest holders ’ ownership of Common Units 195,957 54.6 196,569 62.8 Total Common Units 358,827 100.0 % 313,157 100.0 % Common Units participate in net income or loss allocations and distributions and entitle their holder to the right, subject to the terms set forth in the limited liability company agreement, to require the Company to redeem all or a portion of the Common Units held by such participant, together with a corresponding number of shares of Class V common stock, in exchange for Class A common stock or at the Company’s option, and subject to certain limitations, in cash. As the non-controlling interest holders had an approximate 55 % and 63 % voting interest in the Company through their Class V common stock as of December 31, 2024 and 2023, respectively, and appointed most of the members to the Board of Directors, the ability to elect cash settlement upon redemption is outside of the control of the Company. As a result, the Common Units held by outside shareholders have been classified as redeemable non-controlling interest and presented as temporary equity in the Company’s consolidated balance sheets. The redeemable non-controlling interest was initially measured at its fair value on the Closing Date. Net income or loss is attributed to the redeemable non-controlling interest during each reporting period based on a daily weighted average ownership percentage. In subsequent periods, the redeemable non-controlling interest is measured at its fair value (i.e., based on the five-day volume-weighted average price of a share of Class A common stock) at the end of each reporting period, with the remeasurement amount being no less than the initial value, as adjusted for the redeemable non-controlling interest’s share of net income or loss and ownership changes. The offset of any fair value adjustment is recorded to additional paid in capital, with no impact to net income or loss. As of December 31, 2024, there was a $ 20.6 million remeasurement adjustment recorded as the fair value of redeemable non-controlling interest (i.e., based on the five-day volume-weighted average price of a share of Class A common stock) was less than the carrying value. As of December 31, 2023, there was $ 20.6 million remeasurement adjustment recorded as the fair value of redeemable non-controlling interest was greater than the carrying value. During the years ended December 31, 2024 and 2023, there were an aggregate of 0.6 million shares and 5.4 million shares, respectively, of Class A common stock issued to P3 LLC members in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of Class V common stock. Such retired shares of Class V common stock may not be reissued. The redemptions occurred pursuant to the terms of the P3 LLC Amended and Restated Limited Liability Agreement (the “P3 LLC A&R LLC Agreement”). As the P3 LLC A&R LLC Agreement states that P3 LLC will maintain at all times a one -to- one ratio between the number of Common Units owned by the Company and the number of outstanding shares of Class A common stock, there were an aggregate of 41.6 million and 69.2 million Common Units issued to the Company resulting from the May 2024 Private Placement and March 2023 Private Placement during the years ended December 31, 2024 and 2023, respectively. Note 18: Segment Reporting The Company’s operations are organized under one reportable segment. The Chief Executive Officer, who is the Company’s chief operating decision maker, is responsible for the general supervision, direction, and control of the business and officers of the Company and manages the Company’s operations, reviews financial information on a consolidated basis, and uses net income or loss to assess performance and allocate resources. Decisions regarding resource allocation and assessment of profitability are based on the Company’s responsibility to deliver value-based care coordination and health management to its patient population. The Company’s segment assets relate to health plan receivables. The Company’s segment generates revenue by providing population health management services on an at-risk basis to insurance plans offering medical coverage to Medicare beneficiaries under Medicare Advantage programs. For the periods presented, all of the Company’s revenue was earned in the United States. Likewise, all the Company’s long-lived assets were located in the United States. P3 Health Partners Inc. | 2024 Form 10-K | 116 Table of Contents The following tables present information about the Company’s reportable segment: Year Ended December 31, 2024 2023 (in thousands) Operating revenue $ 1,500,455 $ 1,266,375 Less: Medical claims expense ( 1,398,143 ) ( 1,117,258 ) Other medical expense (1) ( 161,229 ) ( 117,482 ) Depreciation and amortization ( 86,058 ) ( 86,675 ) Other segment items (2) ( 140,532 ) ( 114,069 ) Interest expense, net ( 22,173 ) ( 15,985 ) Interest income 1,689 1,363 Loss before income taxes ( 305,991 ) ( 183,731 ) Income tax provision ( 4,387 ) ( 2,695 ) Net loss $ ( 310,378 ) $ ( 186,426 ) December 31, 2024 2023 (in thousands) Segment assets $ 121,266 $ 118,497 Other assets (3) 662,154 742,470 Total assets $ 783,420 $ 860,967 __________________ (1) Other medical expense includes subcapitation expense, affiliate provider compensation expense, and other non-claim costs. (2) Other segment items include premium deficiency reserve, corporate, general and administrative expense, sales and marketing expense, impairment of asset held for sale, and miscellaneous income and expense. (3) Other assets consists of cash, restricted cash, prepaid expenses and other current assets, other receivables, assets held for sale, and other long-term assets not allocated to the reportable segment. Note 19: Related Parties Atrio Health Plans CPF, a principal equity holder of the Company, has an equity investment in Atrio Health Plans (“Atrio”). The Company has a full-risk capitation agreement in place with Atrio whereby the Company is delegated to perform services on behalf of Atrio’s members assigned to the Company. These delegated services include but are not limited to provider P3 Health Partners Inc. | 2024 Form 10-K | 117 Table of Contents network credentialing, patient authorizations, and medical management (care management, quality management and utilization management). The following tables summarize the Company’s transactions with Atrio: Year Ended December 31, 2024 2023 (in thousands) Capitated revenue $ 303,606 $ 192,577 Other patient service revenue $ 4,340 $ 2,737 Medical expense $ 345,566 $ 197,641 December 31, 2024 2023 (in thousands) Health plan receivable $ 23,872 $ 5,290 Claims payable $ 61,090 $ 41,348 Health plan settlements payable $ 1,386 $ 4,176 Deferred revenue (1) $ — $ 12,700 __________________ (1) Amount is included within accrued expenses and other current liabilities on the Company’s consolidated balance sheet. VGS Promissory Notes As described in Note 10, in December 2023, the Company issued an unsecured promissory note to VGS, an entity managed by CPF and whose equity holders consist of three members of the Company’s Board of Directors and the Company’s Chief Medical Officer, among others. In March 2024 and December 2024, the Company issued unsecured promissory notes to VGS 2 and VGS 3, respectively, both of which are also managed by CPF. The following tables summarize the Company’s transactions with VGS, VGS 2, and VGS 3: Year Ended December 31, 2024 2023 (in thousands) Interest expense, net $ 9,025 $ 3,905 December 31, 2024 2023 (in thousands) Long-term debt, net $ 74,823 $ 28,319 Accrued interest $ 3,992 $ 4,010 Accrued expenses $ 437 $ 331 Florida Asset Sale As described in Note 6, on November 30, 2024, the Company sold its Florida Assets to Buyers which are affiliated with the Company’s principal stockholder. Note 20: Variable Interest Entities P3 LLC has Management Services Agreements (“MSAs”) and deficit funding agreements with the Network VIEs. The MSAs provide that the P3 LLC will furnish administrative personnel, office supplies and equipment, general business services, contract negotiation, and billing and collection services to the Network VIEs. Fees for these services are the excess of the Network VIEs’ revenue over expenses. Per the deficit funding agreements, P3 LLC is obligated to advance funds, as needed, to support the Network VIE’s working capital needs to the extent operating expenses exceed gross revenue. These advances accrue interest at a rate of prime plus 2 %. Net advances made to the Network VIEs and accrued P3 Health Partners Inc. | 2024 Form 10-K | 118 Table of Contents interest on those advances are presented within due to consolidated entities of P3 in the table below. Additionally, P3 LLC entered into stock transfer restriction agreements with the practice shareholders of the Network VIEs, which, by way of a call option, unequivocally permit P3 LLC to appoint successor physicians if a practice shareholder vacates their ownership position. Accordingly, P3 LLC identifies itself as the primary beneficiary of the Network VIEs. Practice shareholders, who are employees of P3 LLC, retain equity ownership in the Network VIEs, which represents nominal non-controlling interests; however, the non-controlling interests do not participate in the profit or loss of the Network VIEs. P3 LLC, directly or indirectly via its wholly owned subsidiaries, may not use or access any net assets of the Network VIEs to settle its obligations or the obligations of its wholly owned subsidiaries. Additionally, the creditors of the Network VIEs do not have recourse to the net assets of P3 LLC. Since P3 LLC represents substantially all the assets and liabilities of the Company, the following tables provide a summary of the assets, liabilities, and operating performance of only VIEs held at the P3 LLC level. December 31, 2024 2023 (in thousands) ASSETS Cash $ 5,216 $ 6,491 Clinic fees, insurance and other receivable 2,440 138 Health plan receivable — 571 Prepaid expenses and other current assets 447 1,261 Property and equipment, net 37 23 Other long-term assets 1,116 153 TOTAL ASSETS $ 9,256 $ 8,637 LIABILITIES AND MEMBERS’ DEFICIT Accounts payable $ 4,521 $ 5,073 Accrued expenses and other current liabilities 677 515 Accrued payroll 3,795 3,141 Claims payable 5,004 3,973 Other long-term liabilities 919 946 Due to consolidated entities of P3 40,264 44,200 TOTAL LIABILITIES 55,180 57,848 MEMBERS’ DEFICIT ( 45,924 ) ( 49,211 ) TOTAL LIABILITIES AND MEMBERS’ DEFICIT $ 9,256 $ 8,637 Year Ended December 31, 2024 2023 (in thousands) Revenue $ 36,187 $ 39,551 Expense 39,520 45,999 Net loss $ ( 3,333 ) $ ( 6,448 ) Note 21: Subsequent Events VGS 4 Promissory Note On February 13, 2025, P3 LLC entered into a related party financing transaction with VBC Growth SPV 4, LLC (“VGS 4”), consisting of the issuance by P3 LLC of (i) an unsecured promissory note (the “VGS 4 Promissory Note”) to VGS 4 and (ii) a warrant to purchase 71.4 million shares of the Company’s Class A stock at an exercise price of $ 0.21 per share to VGS 4. The VGS 4 Promissory Note provides for funding of up to $ 30.0 million, available for draw by P3 LLC in two tranches, as follows: (i) a first tranche of $ 15.0 million which was drawn on February 18, 2025, and (ii) a second P3 Health Partners Inc. | 2024 Form 10-K | 119 Table of Contents tranche of $ 15.0 million which was drawn on March 14, 2025. The VGS 4 Promissory Note matures on August 13, 2028. Interest is payable at 19.5 % per annum on a quarterly cycle (in arrears) beginning March 31, 2025. P3 LLC may elect to pay either (1) 8.0 % cash interest and 11.5 % PIK interest, or (2) 19.5 % PIK interest, provided that payment of cash interest will be permitted only to the extent permitted by the Term Loan Agreement and the VGS 4 Subordination Agreement (defined below), and if not so permitted, such interest shall accrue as PIK interest. The VGS 4 Promissory Note provides for mandatory prepayments with the proceeds of certain asset sales, and VGS 4 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 4 Promissory Note). The VGS 4 Promissory Note restricts P3 LLC’s ability and the ability of its subsidiaries to, among other things, incur indebtedness and liens, and make investments and restricted payments. 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. P3 LLC paid VGS 4 an up-front fee of 1.5 % of the aggregate principal amount of the loan in-kind. In addition, P3 LLC will pay VGS 4 a back-end fee at the time the VGS 4 Promissory Note is redeemed as follows: (i) if paid prior to March 31, 2025, 2.25 %; (ii) if paid after March 31, 2025 and on or before June 30, 2025, 4.50 %; (iii) if paid after June 30, 2025 and on or before September 30, 2025, 6.75 % and (iv) if paid after December 31, 2025, 9.00 %. VGS 4 Subordination Agreement In connection with the transactions described above, P3 LLC entered into a subordination agreement, dated as of February 13, 2025 (the “VGS 4 Subordination Agreement”), by and among the Company, CRG Servicing LLC (“CRG”), as administrative agent under the Term Loan Facility and VGS 4. Pursuant to the VGS 4 Subordination Agreement, VGS 4 agreed to subordinate its right of payment under the VGS 4 Promissory Note to the right of payment and security interests of the lenders under the Term Loan Facility. The terms of the VGS 4 Subordination Agreement will effectively require P3 LLC to pay all interest under the VGS 4 Promissory Note in-kind. Amendment to Term Loan Agreement and Consent In connection with the transactions described above, P3 LLC entered into that certain (1) Seventh Amendment to Term Loan Agreement (the “Term Loan Amendment”), dated as of the February 13, 2025, by and among P3 LLC, as borrower, the subsidiary guarantors party thereto, the lenders from time to time party thereto and CRG, as administrative agent and collateral agent and (2) Consent (the “Consent”), dated as of the February 13, 2025, by and between P3 LLC, as borrower, and VGS, as holder. The Term Loan Amendment and Consent collectively permit the issuance of the VGS 4 Promissory Note and the entry into the VGS 4 Subordination Agreement. P3 Health Partners Inc. | 2024 Form 10-K | 120 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.