NASDAQ:PRVA Privia Health Group Q1 2024 Earnings Report $23.33 +0.61 (+2.69%) Closing price 03:59 PM EasternExtended Trading$23.33 0.00 (0.00%) As of 04:11 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Privia Health Group EPS ResultsActual EPS$0.02Consensus EPS $0.05Beat/MissMissed by -$0.03One Year Ago EPSN/APrivia Health Group Revenue ResultsActual Revenue$415.24 millionExpected Revenue$435.07 millionBeat/MissMissed by -$19.83 millionYoY Revenue GrowthN/APrivia Health Group Announcement DetailsQuarterQ1 2024Date5/9/2024TimeN/AConference Call DateThursday, May 9, 2024Conference Call Time8:00AM ETUpcoming EarningsPrivia Health Group's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Privia Health Group Q1 2024 Earnings Call TranscriptProvided by QuartrMay 9, 2024 ShareLink copied to clipboard.There are 16 speakers on the call. Operator00:00:00Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Robert Burchard, SVP of Investor and Corporate Communications. Operator00:00:09Please go ahead. Speaker 100:00:11Thank you, Tana, and good morning, everyone. Joining me are Parth Barocha, our Chief Executive Officer and David Mount Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com. Today's financial press release and slide presentation are posted on the Investor Relations pages of priviahealth.com. Following our prepared comments, we will open the line for questions. Speaker 100:00:33We ask that you please limit yourself to one question only and return to the queue if you have a follow-up, so we can get to as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10 Q for the Q1 ended March 31, 2024 is filed with the Securities and Exchange Commission. Some of the statements we will make today are forward looking in nature based on our current expectations and view of our business as of May 9, 2024. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings. Speaker 100:01:17Finally, we may refer to certain non GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now, I'd like to turn the call over to my CEO, Parth Bharhotra. Speaker 200:01:30Thank you, Robert, and good morning, everyone. Privia Health delivered solid Q1 results to start 2024 as we continue to drive towards our long term vision to build 1 of the largest ambulatory care delivery networks in the nation. This morning, I'll cover some key highlights and provide a business update and then David will discuss our recent financial performance and our 2024 guidance outlook before we take your questions. During the Q1, Privia Health continued to execute at a very high level with a focus on growth and profitability. As we noted on our February earnings call, we were able to nimbly respond to the changing Medicare Advantage reimbursement environment and protect our earnings power by restructuring certain MH capitation contracts. Speaker 200:02:13We believe these actions demonstrate the flexibility, diversity and differentiation of the Privia business model. Our Q1 practice collections increased 7.4% year over year, which includes the impact of restructuring certain MH capitation contracts for more favorable terms. Our top line performance continues to reflect steady growth of same store and new provider additions. Adjusted EBITDA was up more than 18% as we continue to benefit from operating leverage. This was despite absorbing incremental investment in new markets we've entered over the past 18 months. Speaker 200:02:49We're also being prudent and assuming minimal increase in accrued shared savings in 2024 versus 2023. Our sales pipeline is strong across all our markets and we have a robust business development pipeline of new market opportunities. Our strong balance sheet and free cash flow profile allows us the flexibility to take advantage of any dislocations in the physician enablement space. So overall, we feel really good about our business momentum and operating execution in the current environment. We are closely monitoring medical cost trends and claims data so that we can be proactive in our actions. Speaker 200:03:25We feel very positive about the moves we made in the past 2 quarters to mitigate the downside risk in our Medicare Advantage book and are reiterating our full year 2024 guidance. The combination of our diversified value based book and strong underlying fee for service business serving the entire physician practice continues to be a key differentiator. Privia's national footprint continues to expand as we build 1 of the largest primary care centric delivery networks in the country. At the end of Q1, we had 4,359 implemented providers, caring for over 4,900,000 patients in 13 states and the District of Columbia. As of March 31st this year, we estimate Privia serving approximately 1,140,000 attributed lives across more than 100 Value Based Care contracts in commercial and government programs. Speaker 200:04:16The total attributed lives increased more than 10% from Q1 a year ago. This positions our business as one of the broadest and most balanced value based care platforms in the industry. Our commercial attributed lives increased 8% from last year to 685,000. As we noted last quarter, our ability to earn care management fees and shared savings that are incremental to our highly predictable fee for service management fees offers a very unique value proposition to our medical groups in the commercial book of business. Core to our long term strategy is to thoughtfully move lives into increased risk arrangements over time we are confident it will provide significant opportunities for adjusted EBITDA and free cash flow growth. Speaker 200:05:01Our strong and stable performance is a testament to Privia's proven ability to manage risk across a diverse set of 100 plus value based contracts. We leverage our clinical operations, performance management, actuarial expertise and close alignment with our physician partners to manage patients across the risk spectrum. In aggregate, Privia's ACOs or risk entities are managing approximately $9,000,000,000 of medical spend in 2024 across commercial, MSSP, Medicare Advantage and Medicaid programs. The current environment, scale of our medical spend and potential variability of shared savings require us to be particularly thoughtful in our risk taking to maintain our earnings power for both our provider partners and our shareholders. We are well positioned to opportunistically increase our attribution in various risk arrangements over the next 24 months to drive future earnings growth. Speaker 200:05:56Now I'll ask David to review our Q1 financial results and 2024 guidance outlook. Speaker 300:06:02Thank you, Par. Privia Health delivered another solid quarter of performance in the 1st 3 months of 2024. Our implemented provider count of 4,359 was up 17.3% year over year. Solid ambulatory utilization trends, new implemented providers and additional attributed lives led to practice collections increasing 7.4% from Q1 a year ago to reach 707,700,000 dollars As we noted in February, the balance and flexibility of our operating model enabled us to shift attributed lives out of capitated agreements for improved contribution margin. Most importantly, we continue to invest in existing and new market growth while generating operating leverage. Speaker 300:06:45Our adjusted EBITDA was up 18.1% over Q1 last year to reach $19,900,000 Following our solid Q1 performance, we are reiterating our full year 2024 guidance. Our business momentum and diversified book of business has positioned us well to drive organic provider growth, limit downside and risk arrangements and increase operating leverage for adjusted EBITDA growth in 2024. Implemented providers are expected to increase 9.2% year over year to reach 4,700 by year end at the midpoint of our guidance. As we noted in late February, we are also assuming minimal increase in shared savings year over year as part of our prudent accruals. This implies expected 2024 growth in fee for service practice collections of approximately 10%, driven by implemented provider growth in our more mature markets in 2023 as well as early provider growth momentum in newer markets. Speaker 300:07:38Adjusted EBITDA growth of approximately 21% at the midpoint of our guidance is expected to be driven by operating leverage in our more mature markets, which should more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth in providers, attributed lives and adjusted EBITDA in the future. Our full year guidance assumes a reduction of approximately $198,000,000 in our top line from 2023, given lower risk exposure from MA Capitation agreements. As we continue to invest across our business enterprise, our 2024 adjusted EBITDA guidance absorbs approximately $10,000,000 to $12,000,000 in new market platform investments. We expect to scale our new market significantly in the coming years as we grow our provider base and attribute lives in these new states. Speaker 300:08:24Our balance sheet and capital position continue to be very strong with cash of 3 $51,000,000 and no debt. Similar to previous years, Q1 is typically our lowest cash flow quarter. Our cash balance declined sequentially due to timing differences in cash received at the end of Q4 with the related outgoing payments occurring in January 2024. We also paid our annual employee cash bonuses in March. We expect capital expenditures to be less than $1,000,000 this year as part of our capital light operating model. Speaker 300:08:55This should lead to approximately 80% of our full year adjusted EBITDA converting to free cash flow. Finally, we have an undrawn and available $125,000,000 credit facility and plan to continue maintaining a conservative balance sheet. Trivia Health remains focused on profitably growing and expanding our business for many years to come and investing to support this growth as we build our national footprint. We would like to thank our physician partners and employees for their dedication and hard work to deliver consistent solid results quarter over quarter, especially in the current environment. We are now ready to take your questions. Operator00:09:45Our first question will come from A. J. Rice of UBS. Your line is open. Speaker 400:09:51Thanks. Hi, everybody. I appreciate it. Obviously, you step back from the risk arrangements and trying to provide yourself some more cushion there. Can you just comment though on obviously we've got a second tough year funding environment for MA as we look toward 2025. Speaker 400:10:15How about your discussions, how you're looking at that? How your underlying providers are looking at that? And any discussions with the Medicare Advantage Plans about adjustments they might be making that will impact you? Speaker 200:10:29Thanks for the question, A. J. So a few points. Number 1, we proactively anticipated with our slightly contrarian view over the last 18 months. And so whatever changes we've had to make, we've made. Speaker 200:10:44And so we feel pretty good about how we execute over the next 12, 24 months. As you can see, we are managing 197,000 lives in MSSP, 171,000 lives in MA. And we are happy to take all the risk we can downstream as long as we are getting paid and our providers are getting paid to take that risk. And I think that's where you're going to see some challenges where we clearly see the payers being challenged with the upcoming V-twenty eight impact as they revise their bids and so on and so forth. So while they adjust, it's going to be a discussion on how they are going to enable provider entities like ours downstream and are they willing to share some of the upside and economics from us taking risk. Speaker 200:11:31So we are willing and capable of taking as much risk as possible. We just have to be thoughtful and take it as long as we're getting paid to do so and there's a positive adjusted EBITDA and free cash flow impact both for our providers and our shareholders. So we'll keep having those discussions, but we're very well positioned to increase our risk book. Okay. Thanks a lot. Operator00:11:54And our next question will be coming from Elizabeth Anderson of Evercore ISI. Your line is open. Speaker 500:12:02Hi, guys. This is Samir Patel on for Elizabeth Anderson. Congrats on the solid quarter. Maybe just sticking within capitation, just given the mix in contracts, is the 1Q sort of PMPM an appropriate way to think about the PMPMs for the rest of the year sort of in that $10.50 to $1100 range? Or how should we think about that the remaining quarters? Speaker 300:12:29Yes. I mean, obviously, it's still early in the year. But at this point, I would say that's probably a good way to look at it. Speaker 500:12:38Got it. And if you if I could ask a quick follow-up, just within your ongoing contracts, have you guys looked to negotiate any sort of off cycle rate adjustments or any sort of retroactive relief for 2023? I know some of your peers have done that. Do you think there's an opportunity to do so? Speaker 200:12:56I mean, we've done whatever we had to, as we discussed on our prior earnings call. So at this point, we feel pretty good about 2023. We feel pretty good about 2024. We received a lot of the data for 2023 as you would expect by May of this year. So that's all reflected in our accrual. Speaker 200:13:14So we made all the adjustments we had to. Operator00:13:18And our next question will be coming from Joshua Raskin of Nephron Research. Joshua, your line is open. Speaker 600:13:26Hi, thanks. Good morning. I heard you say you're being more prudent around accrued shared savings. I assume that's MSSP and maybe across the book. But what are some of the underlying metrics and saving rates that you're tracking, suggesting? Speaker 600:13:40And are you being more conservative than you've been in the past? And I guess last part of that is Change Healthcare have any the outage have anything to do with that? Speaker 200:13:49Yes. Thanks, Josh. So on the first part of the question, it's the same process we followed over the past many years. We get data across our different books of business and it's not homogenous as you would expect between commercial, MSSP, MA and then Medicaid. So there are always some nuances on each of these books. Speaker 200:14:10I just think even if we get we look at the same trends effectively, the same underlying operating metrics in terms of utilization, inpatient, ED visits, so on and so forth, quality metrics, just by each book. Overall, I think it's early in the year. So while at this point, we feel pretty good about 2023 performance, as we've gotten most of the data, for 2024, it's still we just ended Q1. So I think just given the environment and the utilization trends, I think it's just prudent to be much more thoughtful as to what our accrual estimates are. And if there's positive or negative variances over the course of the year, we'll just adjust. Speaker 200:14:51So I don't think it's any different than what we've done previously. And then on your second point, we saw minimal impact from change and that's reflected in our strong Q1 practice collections. Whatever little impact we had, it was mitigated pretty quickly with our technology partners. And there continues to be no known compromise of previous provider or patient data. So we don't think that that impacted anything. Speaker 600:15:18Got you. Got Operator00:15:22And our next question will be coming from David Larsen of BTIG. David, your line is open. Speaker 700:15:30Hi, Parth. Congratulations on the good quarter. Can you maybe talk a little bit more about your vision for care delivery components of the business? Like there's a lot going on in the space. Health plans are under pressure with their stars ratings. Speaker 700:15:46There's a lot of cost tied to GLP-1s, obesity health that's having a very significant impact on pharma drug trend. Just like things like putting winning skills in the home or creating preferred narrow networks? And then just related to that Bass Medical Group in San Fran, I just find it interesting that they're going to be working with a competitor of yours. Just any color on your vision for new products and solutions would be very helpful. Thank you. Speaker 200:16:21Thanks, David, for the questions. So on the first part, look, I mean, we are differentiated because we are our business model includes creating a very large medical group with physician governance, pairing that up with a risk entity and then our full suite of tech and services platform that is serving every single patient, every single provider in a practice across any reimbursement model. I just think that is so differentiated because it gets to what you alluded to. We can take that broad network and go to the payers of health care and create all kinds of products and services, both to the self insured employer, to large commercial payers, for profit, not for profit Blues plan and then obviously to CMS. And I think there'll be opportunities for us, to help the payers manage risk downstream. Speaker 200:17:15It's a community based physician network, lowest cost setting in the health care ecosystem, best relationship with members of the family, whether it's the child, it's the mother, person or it's a senior. And I think we are trying to take risk in the commercial book, which is pretty unique. And then obviously in MSSP, MA and Medicaid. And then each of those lines will lead us to innovate to better managed care downstream and have much more closer partnerships with the payers. So I think you'll keep seeing us do different things. Speaker 200:17:51But I think that's a true differentiation for us where we're not just going to only the PCP and offering 1 single line of product to take risk. It's for the entirety of the practice. And then for your second question, I mean, we covered this pretty extensively in the last call. We're not in the business of delegating claims and taking risk on specialists and so forth. So there's no impact to our economics or vision for what we have to do in California. Speaker 200:18:21We think it's a big opportunity and we work closely with Bass. So I think we covered all of that in the last Operator00:18:29call. And our next question will be coming from Richard Close of Canaccord Genuity. Your line is open Richard. Speaker 800:18:37Great. Thank you. Congratulations. Parth, there's been a number of news articles and comments, I guess, coming out of Congress and the FTC about healthcare M and A and also with the change hack, I guess Optum has come under a little bit more scrutiny and their competitors. So I'm just curious how you think all that potentially impacts your business, if you're seeing any kind of increased demand in your model and maybe comment on the quality of the pipeline would be helpful. Speaker 200:19:19Yes. Thanks for the question, Richard. So I think we have a very unique model just tagging on to the last question that David asked. I think what's underappreciated is we offer a unique model of partnership to physician practices where they can retain their autonomy and yet be part of something bigger across all lines of business, all patients, every single provider. We're not buying physician practices. Speaker 200:19:45We don't have non competes and so on and so forth that restrict them in certain other arrangements. And every time there's disruption, I think physicians are realizing that Privia can help them in many ways to take better care of the patients, get paid for that and yet retain their autonomy. And I think that's a very differentiated value proposition. So we feel really good. As you saw last year, we implemented 6 99 providers. Speaker 200:20:13It was a record year for us. You can see our implemented provider guidance, and we feel really good about the pipeline. But the metrics in our mature markets are even better where over 50% of inbounds are referrals from our existing physicians and the conversion rates on those are extremely high to close. And that's the flywheel that gets into effect once we enter a state, we establish ourselves, we have performance history and then the snowballing happens. So I think as we see disruption in the marketplace, as we see private equity stepping back or not able Speaker 900:20:51to do Speaker 200:20:52deals and as we see some of the new VC or private equity funded businesses faltering, I think physician practices are looking for a much stable partner. And given our strong balance sheet cash flow position and how we perform now over the past many years, hopefully it makes us a partner of choice. Operator00:21:11And our next question will be coming from Andrew Maugh of Barclays. Andrew, your line is open. Speaker 1000:21:19Hi, good morning. Can you provide a little bit more detail on the timing related items impacting free cash flow in the quarter? I understand there's some seasonality there, but it looks like the impact was a greater degree than we typically see. And then it sounds like you're paying more cash bonuses in Q1 even though stock based comp more than doubled in the quarter, I think. So can you give us a sense for what's going on there? Speaker 1000:21:42Thanks. Speaker 300:21:44Yes. So if you go back and look historically, Q1 is always our low cash flow quarter for the year. It's due to a lot of value based care agreements paying us in late Q3 or early or late Q4. And so we received the cash for those in Q4 and then we end up paying out the amount to our physician partners in January. And it just happened timing wise where some of the payment maybe a larger percentage of the payments came in later in the year last year. Speaker 300:22:11And so a larger percentage of them got paid in January. And then our annual bonus we pay in March every year. We've done that historically for 10 years. And so that's just an annual cash item for the quarter. We do expect by the end of the quarter to be I mean, excuse me, by the end of the year that we should be over $400,000,000 in cash, excluding any business development deals that we do during the year. Speaker 300:22:36It's stock comp question. Yes. What was the stock comp question? Speaker 100:22:41It was higher in this quarter. Speaker 300:22:42Yes. So from a stock comp perspective, one big difference it's effectively a timing difference. Last year, our annual grants occurred in Q2. This year, our annual grants occurred in Q3 excuse me, in Q1. And so we got a full year of last year's stock comp in Q1 of this year. Speaker 300:23:01That's why the Q1 of last year over Q1 of this year comparison looks a little bit odd. Going forward, we expect to do our annual grants in Q1, so we don't expect going forward this will be an issue. For the full year, we're expecting stock comp to be in the $55,000,000 to $60,000,000 range. So yes, our non cash stock comp. Operator00:23:21And our next question will be coming from Jeff Guo of Stephens. Your line is open. Speaker 1100:23:27Yes, good morning. Thanks for taking the questions. I'll try to compound a few on business development together. So in terms of potential new anchor practices in new markets, any color you could provide on kind of types of markets, types of practices that you're interested in and what stages you are in the various processes on that front? And second one, the script was specific in calling out potential weakness in the provider enablement space and you've commented a little bit more on that. Speaker 1100:23:56But I wanted to ask how that fits into the business development pipeline, thinking about kind of potential for horizontal mergers rather than new relationships with new provider practices? Thanks. Speaker 200:24:10Yes. I appreciate the question, Jeff. So look, the pipeline continues to be pretty strong as you've seen in the past few years. The timing just depends on when we can get the deals done with 13 states. So we have many states to go. Speaker 200:24:26And as you saw in the past 18 months, we could just given the timing, you could have 4 or 5 hit in a pretty short period of time and then or some may not hit. So I think over time, our target is the same that we alluded to when we went public 3 years ago. We're going to target 1 or 2 new markets every year. It could be higher or lower depending on when the deals happen. On the nature of the deals, it will be similar again as to what you've seen in the past 3 years from us. Speaker 200:24:52Given the three components of our business, we're looking to form integrated medical groups, risk entities, service platforms and you can see us do each of those three types of deals. Again, it gives us much more flexibility to enter a state than many others. We've acquired medical groups or the tax IDs and medical groups previously like we did in Washington. We've acquired MSO entities like we did with BaaS. And we've acquired risk entities like we did in Connecticut, an IPA or an ACO entity. Speaker 200:25:24Our guidance excludes any new markets, and that's what we've done historically as well. So as we enter any new states, whatever the impact might be, we'll update guidance appropriately. And then I think to your last half of your question on potential disruption, look, I think you saw an excess of investment in this space, a lot of venture capital dollars chasing physician practices, private equity dollars chasing them. And I think you're going to see some of that unwind over the next few years as you see pressures in MA, specifically that you all are well aware of. So I think it gives whenever disruption happens, we're a proven model, proven unit economics, proven value proposition to the physician practices. Speaker 200:26:09So it's just rinse and repeat for us and just being disciplined. And then I think we are in a pretty enviable position to have close to over $400,000,000 of cash as David outlined by the end of this year and no debt. So I think we're going to be very opportunistic in how we can grow the business. Operator00:26:26And our next question will come from Jack Slevin of Jefferies. Jack, your line is open. Speaker 1200:26:32Hey, good morning. Thanks for taking my question. Just wanted to touch on cadence quickly and how you're thinking about that throughout 2024. Just looking at the fee for service side, growth running a little bit hotter and looks really good in the first half versus the full year guide. And I think on the shared savings side also looks pretty strong even though I know that the conservative accrual approach is sort of what you're taking. Speaker 1200:26:54So just want to make sure I have my basis covered in terms of how you're thinking about the progression of both revenue and earnings over the next couple of quarters? Thanks. Speaker 200:27:04Yes. Thanks for the question, Jack. So from a seasonality perspective, I think it should be the same as previous years. It's a pretty predictable business on the fee for service side with seasonal trends. So you should not expect anything different. Speaker 200:27:18It's always good to have solid performance in the 1st couple of quarters so that it positions us really well for the back half of the year. It's still early in the year, and we reiterated our guidance, but we feel really good. The variability at this point is really in the value based book. While we are accruing prudently, as we say on our slide, it's called risk for a reason. So there can be some elements as we true up for 4, and we'll see how that plays out over the course of this year. Speaker 200:27:47But we feel really good about our guidance and our ability to achieve it. If you look at the past 12 quarters, we've met or exceeded. So we don't anticipate deviating from that cadence. Hopefully, we'll be able to do the same this year. Operator00:28:02And our next question will be coming from Lisa Gill of JPMorgan. Lisa, you're live. Speaker 300:28:08Good morning. It's Cal on for Lisa. I wanted to ask about the performance of the capitated MA book and the fee for service book. Just any color you could give on utilization trends within those businesses? And then any update on the ramping of new markets and how the physician recruitment is going there? Speaker 300:28:29Thanks. Speaker 200:28:31Yes. So on the first half of the question, it's pretty much as expected. We didn't see any big deviations from our accruals or the data we've received was pretty much as expected. We've anticipated whatever utilization trends everybody is seeing. And so that's all that was all factored into our initial guidance and then what we've accrued for. Speaker 200:28:52So we feel pretty good about how we've anticipated some of these trends and reflected that. So no major difference to report as is reflected in our results. On the second half, on the physician recruitment, again, I mean, we see this is just answering the questions we did a couple of questions ago. I mean, we see a pretty good pipeline and recruiting remains pretty strong and we feel pretty good about our year end implemented provider guidance. Every provider given the 5, 6 month lag that we have between signing and implementing is pretty much sold at this point in the year. Speaker 200:29:30So we feel pretty confident. Operator00:29:35And our next question will come from Jeff Tassen of Piper Sandler. Speaker 1300:29:43Hi, guys. Nice quarter and thanks for taking the question. So given the conservative posture around MSSP accruals, can you just break down the sequential growth in shared savings revenue a little bit? And I guess just maybe some of that growth is from the shift of lives from full cap to upside downside, but how did you restructure those MA contracts to make them so much more profitable? And then just is some of the sequential growth implying more favorable pricing in commercial value based care? Speaker 1300:30:10Thanks. Speaker 200:30:12Thanks for the question, Jess. So on the first part, look, I mean, we restructured the contracts effectively to preserve the EBITDA and earnings power for both our doctors and us. And so that's reflected in underlying benchmark expense, what our MLR targets were and then how we got paid and so forth and how we shared the risk with the payer downstream. So the payer has some skin in the game. So again, it was pretty much as expected and there was a reason we did that so that you can see, I mean, at the midpoint of our guidance, we're still trying to grow EBITDA over 20%. Speaker 200:30:50And in this environment, I think hopefully that's just very differentiating both for our physicians to keep preserve that earnings power and then for our shareholders. So I think we feel pretty good across both the MA book and then the commercial book is a basket of different contracts. We are managing close to 700,000 lives in commercial, which is a pretty big pool. And I think again the care management fees and you can see the trend of growing care management fees every quarter, that's becoming a pretty big part of our care margin and our EBITDA profile and that's a very stable part because you're getting PMPMs. So I think that's on top of the fee for service reimbursement And that again speaks to our ability to work with the payers, get paid for the work we do downstream and access a hedge to prevent or to mitigate some of the volatility we see in the MA book. Speaker 200:31:42So overall, we feel pretty good across all lines of business. Operator00:31:46Thank you. And our next question will be coming from Ryan Daniels of William Blair. Speaker 1400:31:54Yes, guys. Thanks for taking the question. I'm curious if you can dig a little bit deeper into the pipeline. I know we've already talked a lot about this, but a clean quarter, so maybe it makes sense to focus on the future. And my question is specific to the provider market. Speaker 1400:32:07We continue to hear about health systems remaining under pressure. They've done a lot of physician group acquisitions that haven't worked out. And I'm curious if you've seen any change in the volume of pipeline specifically as it relates to health systems or larger groups? Thanks. Speaker 200:32:23Yes. Thanks for the question, Ryan. So we continue to have a lot of good dialogue across the spectrum. Obviously, the small practices with our sales team, bigger new market entries with big anchor groups, which could be independent medical groups, but much bigger in size, 100, 200, 300 providers and then obviously, big health systems. I think every time there's some disruption and it takes time for these to simmer and strategic objectives being redefined, if you will, by senior management teams of these organizations. Speaker 200:32:55Our hope is that we now have a very good track record for the past 9 or 10 years and then specifically since we've gone public with a lot of publicly available data that we are hopefully one of the partners of choice that they reach out to. And our BD teams have their hands full and they're doing a great job reaching out. It just depends on the nature of the deal and discussions specifically with Health Systems. You need a lot alignment. There's a lot of discussion around how core the employed group is. Speaker 200:33:27There's there have been many reports written about subsidization of physician compensation and so forth by health systems. And I think it's really a health system by health system discussion and the objectives of the senior management team and how strategically we could fit in into a long term relationship with them. When we enter a state, this is not a we don't act like a vendor or a technology partner just selling one particular product. This is a way of doing business and we are an extension of their physician alignment strategy for hopefully decades to come. So it's a very strategic relationship. Speaker 200:34:02And so that just takes time, but we feel pretty good about our positioning and continue to have pretty good dialogue. Operator00:34:10And our next question will be coming from Whit Mayo of Leerink Partners. Speaker 1500:34:16Hey, thanks. Good morning. Park, can you just maybe unpack the growth in attributed lives that was up 10%, probably places you at the upper end above the guide, how much of this is organic or new panels? And when I look at the growth rate of the attributed lives, it's growing less than the provider growth. And last year, it was growing kind of twice the rate of the provider growth. Speaker 1500:34:41Maybe this is just lapping the Delaware ACO deal from last year. So just trying to understand this dynamic. Thanks. Speaker 200:34:47Yes. Thanks for the question, Whit. So there are 2 or 3 factors. Number 1, we entered Connecticut last year, as you remember. So that was an acquisition of a pretty big IPA in Connecticut. Speaker 200:34:56And so we got close to 185,000 lives. So that obviously distorts some of the year over year comp. As you noted, we exited Delaware. So obviously, that gets out of the equation. So I think that also impacts year over year comp. Speaker 200:35:11And then the rest of the growth is pretty much organic, same store and then new practices that join us in each market. We are building multi specialty groups. So provider additions include specialists in addition to primary care or OBGYNs or pediatricians. So attributed lives are obviously only linked to primary care, but it's a pretty good mix. And obviously, our focus is to double down on primary care. Speaker 200:35:39We're trying to consciously build primary care centric delivery networks where we get attributed lives and then we can take that network to downstream to the payers as we just talked about. So but those are the puts and takes as to the movement year over year. Speaker 1500:35:51Can you just remind me the number of lives in the Delaware ACO just so that we can reconcile the percentage headwind? Speaker 200:35:58Yes, approximately 12,000. Okay. Operator00:36:04And our next question will be coming from Jalendra Singh of Truist. Your line is open. Speaker 900:36:10Yes, thank you. This is Jalendra Singh from Truist. So you called out solid amortative trends in the quarter. Any particular specialties or pair categories you would call out? Any quantification or directional color there would be helpful? Speaker 900:36:23And a quick clarification question. Did you share anything on the unfavorable PYD in the quarter? I know it was pretty small. Speaker 200:36:30Yes. Thanks, Jalendra. So it was pretty broad based in terms of utilization. So really no specific specialty or fair to call out. We're pretty diverse across 13 states. Speaker 200:36:41So I think it was pretty broad across the board as you're hearing from everybody else too. And yes, I don't think there was any major PYD to call out. We've pretty much gotten all data from on 23 now. And so that's all reflected in our accruals and our results. So we feel pretty good about the estimates we made, what we accrued for and then what the actual results so far have been reflected based on all the data we've gotten for 2023. Operator00:37:08Okay. And our next question will be coming from Daniel Grosslide of Citi. Your line is open. Speaker 1200:37:16Hi, it's Daniel Grossley with Citi. Thanks for taking the question here. I want to go back to some of the comments you made around MA and specifically around capitation as we think about 2025 and beyond. And I guess it's really a mechanical question for you. If you see that you get comfortable after the 25 bids that you can take risk in a more conservative way in 2025 and beyond. Speaker 1200:37:41How quickly can you move lives back into capitated contracts? Is that a month, 2 months or is it really kind of a 2026 event that we're looking at? Speaker 200:37:53Yes. I appreciate the question. So two points on this. Number 1, it's usually an annual exercise. So you pretty much start January 1. Speaker 200:38:01And so you start having those discussions in Q3, Q4. And then secondly, and I think this is the more important point, we've always held the view that 100% capitation is probably not the best way to take risk downstream. We prefer deals where the payer has skin in the game, we as the intermediate entity has skin in the game and the physician performing in those deals have skin in the game. And we split our economics sixty-forty with our docs. And we prefer in all instances ideally that the payer also has some skin in the game in economics. Speaker 200:38:39And that's because then you don't have any irrational factors influencing outcomes. So I think there's been this notion that 100% capitation is probably the best way to take assume risk downstream and we just don't have that viewpoint here. So while we like to keep increasing our risk book, we actually prefer to do deals where we are not 100% capitated and assuming all the risk. So with that backdrop, as I said earlier, as the payers feel all the pressure from V-twenty 8 by adjusting their bids, adjusting some of the supplemental benefits, so on and so forth, adjusting some of the new drug costs that may be hitting. Ideally, we factor all that in and have a rational discussion with the payers. Speaker 200:39:31And in this environment, you have to be very conscious downstream that you are paid to take risk when you're resuming more risk. And I think that's been the policy. As we've said, revenue recognition is all over the place in this particular sector. Even for the same life, you're an MSSP, you don't recognize GAAP revenue. If you're an ACO REACH for the same life, you recognize the entire medical spend. Speaker 200:39:56Depending on the level of capitation, you can recognize premium revenue or not. We actually just focus on earnings and free cash flow. Ultimately, that's what matters. Can we generate shared savings? Are we getting paid to take risk? Speaker 200:40:08Are doctors taking home more pay for the work that they do? And then we're happy to share that with the payers of healthcare. And I think that's probably the best contract you can enter into. So we're going to keep seeing opportunities to do that. We have close to 170,000 lives in MA, 16 odd 1,000 are in capitation today. Speaker 200:40:27So there's a huge opportunity to keep increasing the level of risk, but we got to be paid to do so. Operator00:40:33And our next question will be coming from Adam Raun of Bank of America. Speaker 1000:40:40Hey, thanks for the question. So we heard commentary from any peers in the space that the 2025 Medicare Advantage rate notice is disappointing due to lower benchmarks and growth rates for trend assumptions from CMS. And I should probably know this, but how does that actually flow into Medicare shared savings? Like do we already know the benchmarks for Medicare shared savings in versus what you think trend would be in your expectations? Thanks. Speaker 200:41:10Yes. Thanks, Adam. So any physician payment rate expectations are reflected in our guidance with and we think the impact likely will be a little bit more gradual versus one time increase. You get updates from CMS and you see them when we see them. So we have certain expectations and those are all factored in what we've guided. Speaker 200:41:32There are other things that MSSP updates and we think they're kind of favorable overall, whether it's the assignment process and the benchmark risk adjustment methodology, whether it's quality reporting and the potential to take on more risk even more so than the enhanced tracks. You saw some of those updates come from CMS. We just think it's a really well run program, very widely adopted, proven results to generate shared savings. And they've strengthened the overall program and it's one of the best initiatives that they've had over the past many years. So as one of the largest participants, I think we feel pretty good about MSSP and we'll see how it goes. Operator00:42:14And there are no further questions. Please go ahead, sir. Speaker 1100:42:18Thank you for listening to Speaker 200:42:19our call today. We appreciate your continued interest and support of our company. Enjoy the rest of your Speaker 1100:42:25day. And Operator00:42:25this concludes today's conference call. Thank you for participating. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPrivia Health Group Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Privia Health Group Earnings HeadlinesPrivia Health (PRVA) Reports Earnings Tomorrow: What To ExpectMay 7 at 6:31 AM | msn.comPrivia Health Group, Inc. 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Sign up for Earnings360's daily newsletter to receive timely earnings updates on Privia Health Group and other key companies, straight to your email. Email Address About Privia Health GroupPrivia Health Group (NASDAQ:PRVA) operates as a national physician-enablement company in the United States. The company collaborates with medical groups, health plans, and health systems to optimize physician practices, enhance patient experiences, and reward doctors for delivering care in-person and virtual settings. It offers technology and population health tools to enhance independent providers' workflows; management services organization that enable providers to focus on their patients by reducing administrative work; single-TIN medical group that facilitates payer negotiation, clinical integration and alignment of financial incentives; accountable care organization, which engage patients, reduce inappropriate utilization, and enhance coordination and patient quality metrics to drive value-based care; and network for purchasers and payers that enable providers to connect with new patient populations and create custom contracts. The company was founded in 2007 and is headquartered in Arlington, Virginia.View Privia Health Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Disney Stock Jumps on Earnings—Is the Magic Sustainable?Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release? 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There are 16 speakers on the call. Operator00:00:00Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Robert Burchard, SVP of Investor and Corporate Communications. Operator00:00:09Please go ahead. Speaker 100:00:11Thank you, Tana, and good morning, everyone. Joining me are Parth Barocha, our Chief Executive Officer and David Mount Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com. Today's financial press release and slide presentation are posted on the Investor Relations pages of priviahealth.com. Following our prepared comments, we will open the line for questions. Speaker 100:00:33We ask that you please limit yourself to one question only and return to the queue if you have a follow-up, so we can get to as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10 Q for the Q1 ended March 31, 2024 is filed with the Securities and Exchange Commission. Some of the statements we will make today are forward looking in nature based on our current expectations and view of our business as of May 9, 2024. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings. Speaker 100:01:17Finally, we may refer to certain non GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now, I'd like to turn the call over to my CEO, Parth Bharhotra. Speaker 200:01:30Thank you, Robert, and good morning, everyone. Privia Health delivered solid Q1 results to start 2024 as we continue to drive towards our long term vision to build 1 of the largest ambulatory care delivery networks in the nation. This morning, I'll cover some key highlights and provide a business update and then David will discuss our recent financial performance and our 2024 guidance outlook before we take your questions. During the Q1, Privia Health continued to execute at a very high level with a focus on growth and profitability. As we noted on our February earnings call, we were able to nimbly respond to the changing Medicare Advantage reimbursement environment and protect our earnings power by restructuring certain MH capitation contracts. Speaker 200:02:13We believe these actions demonstrate the flexibility, diversity and differentiation of the Privia business model. Our Q1 practice collections increased 7.4% year over year, which includes the impact of restructuring certain MH capitation contracts for more favorable terms. Our top line performance continues to reflect steady growth of same store and new provider additions. Adjusted EBITDA was up more than 18% as we continue to benefit from operating leverage. This was despite absorbing incremental investment in new markets we've entered over the past 18 months. Speaker 200:02:49We're also being prudent and assuming minimal increase in accrued shared savings in 2024 versus 2023. Our sales pipeline is strong across all our markets and we have a robust business development pipeline of new market opportunities. Our strong balance sheet and free cash flow profile allows us the flexibility to take advantage of any dislocations in the physician enablement space. So overall, we feel really good about our business momentum and operating execution in the current environment. We are closely monitoring medical cost trends and claims data so that we can be proactive in our actions. Speaker 200:03:25We feel very positive about the moves we made in the past 2 quarters to mitigate the downside risk in our Medicare Advantage book and are reiterating our full year 2024 guidance. The combination of our diversified value based book and strong underlying fee for service business serving the entire physician practice continues to be a key differentiator. Privia's national footprint continues to expand as we build 1 of the largest primary care centric delivery networks in the country. At the end of Q1, we had 4,359 implemented providers, caring for over 4,900,000 patients in 13 states and the District of Columbia. As of March 31st this year, we estimate Privia serving approximately 1,140,000 attributed lives across more than 100 Value Based Care contracts in commercial and government programs. Speaker 200:04:16The total attributed lives increased more than 10% from Q1 a year ago. This positions our business as one of the broadest and most balanced value based care platforms in the industry. Our commercial attributed lives increased 8% from last year to 685,000. As we noted last quarter, our ability to earn care management fees and shared savings that are incremental to our highly predictable fee for service management fees offers a very unique value proposition to our medical groups in the commercial book of business. Core to our long term strategy is to thoughtfully move lives into increased risk arrangements over time we are confident it will provide significant opportunities for adjusted EBITDA and free cash flow growth. Speaker 200:05:01Our strong and stable performance is a testament to Privia's proven ability to manage risk across a diverse set of 100 plus value based contracts. We leverage our clinical operations, performance management, actuarial expertise and close alignment with our physician partners to manage patients across the risk spectrum. In aggregate, Privia's ACOs or risk entities are managing approximately $9,000,000,000 of medical spend in 2024 across commercial, MSSP, Medicare Advantage and Medicaid programs. The current environment, scale of our medical spend and potential variability of shared savings require us to be particularly thoughtful in our risk taking to maintain our earnings power for both our provider partners and our shareholders. We are well positioned to opportunistically increase our attribution in various risk arrangements over the next 24 months to drive future earnings growth. Speaker 200:05:56Now I'll ask David to review our Q1 financial results and 2024 guidance outlook. Speaker 300:06:02Thank you, Par. Privia Health delivered another solid quarter of performance in the 1st 3 months of 2024. Our implemented provider count of 4,359 was up 17.3% year over year. Solid ambulatory utilization trends, new implemented providers and additional attributed lives led to practice collections increasing 7.4% from Q1 a year ago to reach 707,700,000 dollars As we noted in February, the balance and flexibility of our operating model enabled us to shift attributed lives out of capitated agreements for improved contribution margin. Most importantly, we continue to invest in existing and new market growth while generating operating leverage. Speaker 300:06:45Our adjusted EBITDA was up 18.1% over Q1 last year to reach $19,900,000 Following our solid Q1 performance, we are reiterating our full year 2024 guidance. Our business momentum and diversified book of business has positioned us well to drive organic provider growth, limit downside and risk arrangements and increase operating leverage for adjusted EBITDA growth in 2024. Implemented providers are expected to increase 9.2% year over year to reach 4,700 by year end at the midpoint of our guidance. As we noted in late February, we are also assuming minimal increase in shared savings year over year as part of our prudent accruals. This implies expected 2024 growth in fee for service practice collections of approximately 10%, driven by implemented provider growth in our more mature markets in 2023 as well as early provider growth momentum in newer markets. Speaker 300:07:38Adjusted EBITDA growth of approximately 21% at the midpoint of our guidance is expected to be driven by operating leverage in our more mature markets, which should more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth in providers, attributed lives and adjusted EBITDA in the future. Our full year guidance assumes a reduction of approximately $198,000,000 in our top line from 2023, given lower risk exposure from MA Capitation agreements. As we continue to invest across our business enterprise, our 2024 adjusted EBITDA guidance absorbs approximately $10,000,000 to $12,000,000 in new market platform investments. We expect to scale our new market significantly in the coming years as we grow our provider base and attribute lives in these new states. Speaker 300:08:24Our balance sheet and capital position continue to be very strong with cash of 3 $51,000,000 and no debt. Similar to previous years, Q1 is typically our lowest cash flow quarter. Our cash balance declined sequentially due to timing differences in cash received at the end of Q4 with the related outgoing payments occurring in January 2024. We also paid our annual employee cash bonuses in March. We expect capital expenditures to be less than $1,000,000 this year as part of our capital light operating model. Speaker 300:08:55This should lead to approximately 80% of our full year adjusted EBITDA converting to free cash flow. Finally, we have an undrawn and available $125,000,000 credit facility and plan to continue maintaining a conservative balance sheet. Trivia Health remains focused on profitably growing and expanding our business for many years to come and investing to support this growth as we build our national footprint. We would like to thank our physician partners and employees for their dedication and hard work to deliver consistent solid results quarter over quarter, especially in the current environment. We are now ready to take your questions. Operator00:09:45Our first question will come from A. J. Rice of UBS. Your line is open. Speaker 400:09:51Thanks. Hi, everybody. I appreciate it. Obviously, you step back from the risk arrangements and trying to provide yourself some more cushion there. Can you just comment though on obviously we've got a second tough year funding environment for MA as we look toward 2025. Speaker 400:10:15How about your discussions, how you're looking at that? How your underlying providers are looking at that? And any discussions with the Medicare Advantage Plans about adjustments they might be making that will impact you? Speaker 200:10:29Thanks for the question, A. J. So a few points. Number 1, we proactively anticipated with our slightly contrarian view over the last 18 months. And so whatever changes we've had to make, we've made. Speaker 200:10:44And so we feel pretty good about how we execute over the next 12, 24 months. As you can see, we are managing 197,000 lives in MSSP, 171,000 lives in MA. And we are happy to take all the risk we can downstream as long as we are getting paid and our providers are getting paid to take that risk. And I think that's where you're going to see some challenges where we clearly see the payers being challenged with the upcoming V-twenty eight impact as they revise their bids and so on and so forth. So while they adjust, it's going to be a discussion on how they are going to enable provider entities like ours downstream and are they willing to share some of the upside and economics from us taking risk. Speaker 200:11:31So we are willing and capable of taking as much risk as possible. We just have to be thoughtful and take it as long as we're getting paid to do so and there's a positive adjusted EBITDA and free cash flow impact both for our providers and our shareholders. So we'll keep having those discussions, but we're very well positioned to increase our risk book. Okay. Thanks a lot. Operator00:11:54And our next question will be coming from Elizabeth Anderson of Evercore ISI. Your line is open. Speaker 500:12:02Hi, guys. This is Samir Patel on for Elizabeth Anderson. Congrats on the solid quarter. Maybe just sticking within capitation, just given the mix in contracts, is the 1Q sort of PMPM an appropriate way to think about the PMPMs for the rest of the year sort of in that $10.50 to $1100 range? Or how should we think about that the remaining quarters? Speaker 300:12:29Yes. I mean, obviously, it's still early in the year. But at this point, I would say that's probably a good way to look at it. Speaker 500:12:38Got it. And if you if I could ask a quick follow-up, just within your ongoing contracts, have you guys looked to negotiate any sort of off cycle rate adjustments or any sort of retroactive relief for 2023? I know some of your peers have done that. Do you think there's an opportunity to do so? Speaker 200:12:56I mean, we've done whatever we had to, as we discussed on our prior earnings call. So at this point, we feel pretty good about 2023. We feel pretty good about 2024. We received a lot of the data for 2023 as you would expect by May of this year. So that's all reflected in our accrual. Speaker 200:13:14So we made all the adjustments we had to. Operator00:13:18And our next question will be coming from Joshua Raskin of Nephron Research. Joshua, your line is open. Speaker 600:13:26Hi, thanks. Good morning. I heard you say you're being more prudent around accrued shared savings. I assume that's MSSP and maybe across the book. But what are some of the underlying metrics and saving rates that you're tracking, suggesting? Speaker 600:13:40And are you being more conservative than you've been in the past? And I guess last part of that is Change Healthcare have any the outage have anything to do with that? Speaker 200:13:49Yes. Thanks, Josh. So on the first part of the question, it's the same process we followed over the past many years. We get data across our different books of business and it's not homogenous as you would expect between commercial, MSSP, MA and then Medicaid. So there are always some nuances on each of these books. Speaker 200:14:10I just think even if we get we look at the same trends effectively, the same underlying operating metrics in terms of utilization, inpatient, ED visits, so on and so forth, quality metrics, just by each book. Overall, I think it's early in the year. So while at this point, we feel pretty good about 2023 performance, as we've gotten most of the data, for 2024, it's still we just ended Q1. So I think just given the environment and the utilization trends, I think it's just prudent to be much more thoughtful as to what our accrual estimates are. And if there's positive or negative variances over the course of the year, we'll just adjust. Speaker 200:14:51So I don't think it's any different than what we've done previously. And then on your second point, we saw minimal impact from change and that's reflected in our strong Q1 practice collections. Whatever little impact we had, it was mitigated pretty quickly with our technology partners. And there continues to be no known compromise of previous provider or patient data. So we don't think that that impacted anything. Speaker 600:15:18Got you. Got Operator00:15:22And our next question will be coming from David Larsen of BTIG. David, your line is open. Speaker 700:15:30Hi, Parth. Congratulations on the good quarter. Can you maybe talk a little bit more about your vision for care delivery components of the business? Like there's a lot going on in the space. Health plans are under pressure with their stars ratings. Speaker 700:15:46There's a lot of cost tied to GLP-1s, obesity health that's having a very significant impact on pharma drug trend. Just like things like putting winning skills in the home or creating preferred narrow networks? And then just related to that Bass Medical Group in San Fran, I just find it interesting that they're going to be working with a competitor of yours. Just any color on your vision for new products and solutions would be very helpful. Thank you. Speaker 200:16:21Thanks, David, for the questions. So on the first part, look, I mean, we are differentiated because we are our business model includes creating a very large medical group with physician governance, pairing that up with a risk entity and then our full suite of tech and services platform that is serving every single patient, every single provider in a practice across any reimbursement model. I just think that is so differentiated because it gets to what you alluded to. We can take that broad network and go to the payers of health care and create all kinds of products and services, both to the self insured employer, to large commercial payers, for profit, not for profit Blues plan and then obviously to CMS. And I think there'll be opportunities for us, to help the payers manage risk downstream. Speaker 200:17:15It's a community based physician network, lowest cost setting in the health care ecosystem, best relationship with members of the family, whether it's the child, it's the mother, person or it's a senior. And I think we are trying to take risk in the commercial book, which is pretty unique. And then obviously in MSSP, MA and Medicaid. And then each of those lines will lead us to innovate to better managed care downstream and have much more closer partnerships with the payers. So I think you'll keep seeing us do different things. Speaker 200:17:51But I think that's a true differentiation for us where we're not just going to only the PCP and offering 1 single line of product to take risk. It's for the entirety of the practice. And then for your second question, I mean, we covered this pretty extensively in the last call. We're not in the business of delegating claims and taking risk on specialists and so forth. So there's no impact to our economics or vision for what we have to do in California. Speaker 200:18:21We think it's a big opportunity and we work closely with Bass. So I think we covered all of that in the last Operator00:18:29call. And our next question will be coming from Richard Close of Canaccord Genuity. Your line is open Richard. Speaker 800:18:37Great. Thank you. Congratulations. Parth, there's been a number of news articles and comments, I guess, coming out of Congress and the FTC about healthcare M and A and also with the change hack, I guess Optum has come under a little bit more scrutiny and their competitors. So I'm just curious how you think all that potentially impacts your business, if you're seeing any kind of increased demand in your model and maybe comment on the quality of the pipeline would be helpful. Speaker 200:19:19Yes. Thanks for the question, Richard. So I think we have a very unique model just tagging on to the last question that David asked. I think what's underappreciated is we offer a unique model of partnership to physician practices where they can retain their autonomy and yet be part of something bigger across all lines of business, all patients, every single provider. We're not buying physician practices. Speaker 200:19:45We don't have non competes and so on and so forth that restrict them in certain other arrangements. And every time there's disruption, I think physicians are realizing that Privia can help them in many ways to take better care of the patients, get paid for that and yet retain their autonomy. And I think that's a very differentiated value proposition. So we feel really good. As you saw last year, we implemented 6 99 providers. Speaker 200:20:13It was a record year for us. You can see our implemented provider guidance, and we feel really good about the pipeline. But the metrics in our mature markets are even better where over 50% of inbounds are referrals from our existing physicians and the conversion rates on those are extremely high to close. And that's the flywheel that gets into effect once we enter a state, we establish ourselves, we have performance history and then the snowballing happens. So I think as we see disruption in the marketplace, as we see private equity stepping back or not able Speaker 900:20:51to do Speaker 200:20:52deals and as we see some of the new VC or private equity funded businesses faltering, I think physician practices are looking for a much stable partner. And given our strong balance sheet cash flow position and how we perform now over the past many years, hopefully it makes us a partner of choice. Operator00:21:11And our next question will be coming from Andrew Maugh of Barclays. Andrew, your line is open. Speaker 1000:21:19Hi, good morning. Can you provide a little bit more detail on the timing related items impacting free cash flow in the quarter? I understand there's some seasonality there, but it looks like the impact was a greater degree than we typically see. And then it sounds like you're paying more cash bonuses in Q1 even though stock based comp more than doubled in the quarter, I think. So can you give us a sense for what's going on there? Speaker 1000:21:42Thanks. Speaker 300:21:44Yes. So if you go back and look historically, Q1 is always our low cash flow quarter for the year. It's due to a lot of value based care agreements paying us in late Q3 or early or late Q4. And so we received the cash for those in Q4 and then we end up paying out the amount to our physician partners in January. And it just happened timing wise where some of the payment maybe a larger percentage of the payments came in later in the year last year. Speaker 300:22:11And so a larger percentage of them got paid in January. And then our annual bonus we pay in March every year. We've done that historically for 10 years. And so that's just an annual cash item for the quarter. We do expect by the end of the quarter to be I mean, excuse me, by the end of the year that we should be over $400,000,000 in cash, excluding any business development deals that we do during the year. Speaker 300:22:36It's stock comp question. Yes. What was the stock comp question? Speaker 100:22:41It was higher in this quarter. Speaker 300:22:42Yes. So from a stock comp perspective, one big difference it's effectively a timing difference. Last year, our annual grants occurred in Q2. This year, our annual grants occurred in Q3 excuse me, in Q1. And so we got a full year of last year's stock comp in Q1 of this year. Speaker 300:23:01That's why the Q1 of last year over Q1 of this year comparison looks a little bit odd. Going forward, we expect to do our annual grants in Q1, so we don't expect going forward this will be an issue. For the full year, we're expecting stock comp to be in the $55,000,000 to $60,000,000 range. So yes, our non cash stock comp. Operator00:23:21And our next question will be coming from Jeff Guo of Stephens. Your line is open. Speaker 1100:23:27Yes, good morning. Thanks for taking the questions. I'll try to compound a few on business development together. So in terms of potential new anchor practices in new markets, any color you could provide on kind of types of markets, types of practices that you're interested in and what stages you are in the various processes on that front? And second one, the script was specific in calling out potential weakness in the provider enablement space and you've commented a little bit more on that. Speaker 1100:23:56But I wanted to ask how that fits into the business development pipeline, thinking about kind of potential for horizontal mergers rather than new relationships with new provider practices? Thanks. Speaker 200:24:10Yes. I appreciate the question, Jeff. So look, the pipeline continues to be pretty strong as you've seen in the past few years. The timing just depends on when we can get the deals done with 13 states. So we have many states to go. Speaker 200:24:26And as you saw in the past 18 months, we could just given the timing, you could have 4 or 5 hit in a pretty short period of time and then or some may not hit. So I think over time, our target is the same that we alluded to when we went public 3 years ago. We're going to target 1 or 2 new markets every year. It could be higher or lower depending on when the deals happen. On the nature of the deals, it will be similar again as to what you've seen in the past 3 years from us. Speaker 200:24:52Given the three components of our business, we're looking to form integrated medical groups, risk entities, service platforms and you can see us do each of those three types of deals. Again, it gives us much more flexibility to enter a state than many others. We've acquired medical groups or the tax IDs and medical groups previously like we did in Washington. We've acquired MSO entities like we did with BaaS. And we've acquired risk entities like we did in Connecticut, an IPA or an ACO entity. Speaker 200:25:24Our guidance excludes any new markets, and that's what we've done historically as well. So as we enter any new states, whatever the impact might be, we'll update guidance appropriately. And then I think to your last half of your question on potential disruption, look, I think you saw an excess of investment in this space, a lot of venture capital dollars chasing physician practices, private equity dollars chasing them. And I think you're going to see some of that unwind over the next few years as you see pressures in MA, specifically that you all are well aware of. So I think it gives whenever disruption happens, we're a proven model, proven unit economics, proven value proposition to the physician practices. Speaker 200:26:09So it's just rinse and repeat for us and just being disciplined. And then I think we are in a pretty enviable position to have close to over $400,000,000 of cash as David outlined by the end of this year and no debt. So I think we're going to be very opportunistic in how we can grow the business. Operator00:26:26And our next question will come from Jack Slevin of Jefferies. Jack, your line is open. Speaker 1200:26:32Hey, good morning. Thanks for taking my question. Just wanted to touch on cadence quickly and how you're thinking about that throughout 2024. Just looking at the fee for service side, growth running a little bit hotter and looks really good in the first half versus the full year guide. And I think on the shared savings side also looks pretty strong even though I know that the conservative accrual approach is sort of what you're taking. Speaker 1200:26:54So just want to make sure I have my basis covered in terms of how you're thinking about the progression of both revenue and earnings over the next couple of quarters? Thanks. Speaker 200:27:04Yes. Thanks for the question, Jack. So from a seasonality perspective, I think it should be the same as previous years. It's a pretty predictable business on the fee for service side with seasonal trends. So you should not expect anything different. Speaker 200:27:18It's always good to have solid performance in the 1st couple of quarters so that it positions us really well for the back half of the year. It's still early in the year, and we reiterated our guidance, but we feel really good. The variability at this point is really in the value based book. While we are accruing prudently, as we say on our slide, it's called risk for a reason. So there can be some elements as we true up for 4, and we'll see how that plays out over the course of this year. Speaker 200:27:47But we feel really good about our guidance and our ability to achieve it. If you look at the past 12 quarters, we've met or exceeded. So we don't anticipate deviating from that cadence. Hopefully, we'll be able to do the same this year. Operator00:28:02And our next question will be coming from Lisa Gill of JPMorgan. Lisa, you're live. Speaker 300:28:08Good morning. It's Cal on for Lisa. I wanted to ask about the performance of the capitated MA book and the fee for service book. Just any color you could give on utilization trends within those businesses? And then any update on the ramping of new markets and how the physician recruitment is going there? Speaker 300:28:29Thanks. Speaker 200:28:31Yes. So on the first half of the question, it's pretty much as expected. We didn't see any big deviations from our accruals or the data we've received was pretty much as expected. We've anticipated whatever utilization trends everybody is seeing. And so that's all that was all factored into our initial guidance and then what we've accrued for. Speaker 200:28:52So we feel pretty good about how we've anticipated some of these trends and reflected that. So no major difference to report as is reflected in our results. On the second half, on the physician recruitment, again, I mean, we see this is just answering the questions we did a couple of questions ago. I mean, we see a pretty good pipeline and recruiting remains pretty strong and we feel pretty good about our year end implemented provider guidance. Every provider given the 5, 6 month lag that we have between signing and implementing is pretty much sold at this point in the year. Speaker 200:29:30So we feel pretty confident. Operator00:29:35And our next question will come from Jeff Tassen of Piper Sandler. Speaker 1300:29:43Hi, guys. Nice quarter and thanks for taking the question. So given the conservative posture around MSSP accruals, can you just break down the sequential growth in shared savings revenue a little bit? And I guess just maybe some of that growth is from the shift of lives from full cap to upside downside, but how did you restructure those MA contracts to make them so much more profitable? And then just is some of the sequential growth implying more favorable pricing in commercial value based care? Speaker 1300:30:10Thanks. Speaker 200:30:12Thanks for the question, Jess. So on the first part, look, I mean, we restructured the contracts effectively to preserve the EBITDA and earnings power for both our doctors and us. And so that's reflected in underlying benchmark expense, what our MLR targets were and then how we got paid and so forth and how we shared the risk with the payer downstream. So the payer has some skin in the game. So again, it was pretty much as expected and there was a reason we did that so that you can see, I mean, at the midpoint of our guidance, we're still trying to grow EBITDA over 20%. Speaker 200:30:50And in this environment, I think hopefully that's just very differentiating both for our physicians to keep preserve that earnings power and then for our shareholders. So I think we feel pretty good across both the MA book and then the commercial book is a basket of different contracts. We are managing close to 700,000 lives in commercial, which is a pretty big pool. And I think again the care management fees and you can see the trend of growing care management fees every quarter, that's becoming a pretty big part of our care margin and our EBITDA profile and that's a very stable part because you're getting PMPMs. So I think that's on top of the fee for service reimbursement And that again speaks to our ability to work with the payers, get paid for the work we do downstream and access a hedge to prevent or to mitigate some of the volatility we see in the MA book. Speaker 200:31:42So overall, we feel pretty good across all lines of business. Operator00:31:46Thank you. And our next question will be coming from Ryan Daniels of William Blair. Speaker 1400:31:54Yes, guys. Thanks for taking the question. I'm curious if you can dig a little bit deeper into the pipeline. I know we've already talked a lot about this, but a clean quarter, so maybe it makes sense to focus on the future. And my question is specific to the provider market. Speaker 1400:32:07We continue to hear about health systems remaining under pressure. They've done a lot of physician group acquisitions that haven't worked out. And I'm curious if you've seen any change in the volume of pipeline specifically as it relates to health systems or larger groups? Thanks. Speaker 200:32:23Yes. Thanks for the question, Ryan. So we continue to have a lot of good dialogue across the spectrum. Obviously, the small practices with our sales team, bigger new market entries with big anchor groups, which could be independent medical groups, but much bigger in size, 100, 200, 300 providers and then obviously, big health systems. I think every time there's some disruption and it takes time for these to simmer and strategic objectives being redefined, if you will, by senior management teams of these organizations. Speaker 200:32:55Our hope is that we now have a very good track record for the past 9 or 10 years and then specifically since we've gone public with a lot of publicly available data that we are hopefully one of the partners of choice that they reach out to. And our BD teams have their hands full and they're doing a great job reaching out. It just depends on the nature of the deal and discussions specifically with Health Systems. You need a lot alignment. There's a lot of discussion around how core the employed group is. Speaker 200:33:27There's there have been many reports written about subsidization of physician compensation and so forth by health systems. And I think it's really a health system by health system discussion and the objectives of the senior management team and how strategically we could fit in into a long term relationship with them. When we enter a state, this is not a we don't act like a vendor or a technology partner just selling one particular product. This is a way of doing business and we are an extension of their physician alignment strategy for hopefully decades to come. So it's a very strategic relationship. Speaker 200:34:02And so that just takes time, but we feel pretty good about our positioning and continue to have pretty good dialogue. Operator00:34:10And our next question will be coming from Whit Mayo of Leerink Partners. Speaker 1500:34:16Hey, thanks. Good morning. Park, can you just maybe unpack the growth in attributed lives that was up 10%, probably places you at the upper end above the guide, how much of this is organic or new panels? And when I look at the growth rate of the attributed lives, it's growing less than the provider growth. And last year, it was growing kind of twice the rate of the provider growth. Speaker 1500:34:41Maybe this is just lapping the Delaware ACO deal from last year. So just trying to understand this dynamic. Thanks. Speaker 200:34:47Yes. Thanks for the question, Whit. So there are 2 or 3 factors. Number 1, we entered Connecticut last year, as you remember. So that was an acquisition of a pretty big IPA in Connecticut. Speaker 200:34:56And so we got close to 185,000 lives. So that obviously distorts some of the year over year comp. As you noted, we exited Delaware. So obviously, that gets out of the equation. So I think that also impacts year over year comp. Speaker 200:35:11And then the rest of the growth is pretty much organic, same store and then new practices that join us in each market. We are building multi specialty groups. So provider additions include specialists in addition to primary care or OBGYNs or pediatricians. So attributed lives are obviously only linked to primary care, but it's a pretty good mix. And obviously, our focus is to double down on primary care. Speaker 200:35:39We're trying to consciously build primary care centric delivery networks where we get attributed lives and then we can take that network to downstream to the payers as we just talked about. So but those are the puts and takes as to the movement year over year. Speaker 1500:35:51Can you just remind me the number of lives in the Delaware ACO just so that we can reconcile the percentage headwind? Speaker 200:35:58Yes, approximately 12,000. Okay. Operator00:36:04And our next question will be coming from Jalendra Singh of Truist. Your line is open. Speaker 900:36:10Yes, thank you. This is Jalendra Singh from Truist. So you called out solid amortative trends in the quarter. Any particular specialties or pair categories you would call out? Any quantification or directional color there would be helpful? Speaker 900:36:23And a quick clarification question. Did you share anything on the unfavorable PYD in the quarter? I know it was pretty small. Speaker 200:36:30Yes. Thanks, Jalendra. So it was pretty broad based in terms of utilization. So really no specific specialty or fair to call out. We're pretty diverse across 13 states. Speaker 200:36:41So I think it was pretty broad across the board as you're hearing from everybody else too. And yes, I don't think there was any major PYD to call out. We've pretty much gotten all data from on 23 now. And so that's all reflected in our accruals and our results. So we feel pretty good about the estimates we made, what we accrued for and then what the actual results so far have been reflected based on all the data we've gotten for 2023. Operator00:37:08Okay. And our next question will be coming from Daniel Grosslide of Citi. Your line is open. Speaker 1200:37:16Hi, it's Daniel Grossley with Citi. Thanks for taking the question here. I want to go back to some of the comments you made around MA and specifically around capitation as we think about 2025 and beyond. And I guess it's really a mechanical question for you. If you see that you get comfortable after the 25 bids that you can take risk in a more conservative way in 2025 and beyond. Speaker 1200:37:41How quickly can you move lives back into capitated contracts? Is that a month, 2 months or is it really kind of a 2026 event that we're looking at? Speaker 200:37:53Yes. I appreciate the question. So two points on this. Number 1, it's usually an annual exercise. So you pretty much start January 1. Speaker 200:38:01And so you start having those discussions in Q3, Q4. And then secondly, and I think this is the more important point, we've always held the view that 100% capitation is probably not the best way to take risk downstream. We prefer deals where the payer has skin in the game, we as the intermediate entity has skin in the game and the physician performing in those deals have skin in the game. And we split our economics sixty-forty with our docs. And we prefer in all instances ideally that the payer also has some skin in the game in economics. Speaker 200:38:39And that's because then you don't have any irrational factors influencing outcomes. So I think there's been this notion that 100% capitation is probably the best way to take assume risk downstream and we just don't have that viewpoint here. So while we like to keep increasing our risk book, we actually prefer to do deals where we are not 100% capitated and assuming all the risk. So with that backdrop, as I said earlier, as the payers feel all the pressure from V-twenty 8 by adjusting their bids, adjusting some of the supplemental benefits, so on and so forth, adjusting some of the new drug costs that may be hitting. Ideally, we factor all that in and have a rational discussion with the payers. Speaker 200:39:31And in this environment, you have to be very conscious downstream that you are paid to take risk when you're resuming more risk. And I think that's been the policy. As we've said, revenue recognition is all over the place in this particular sector. Even for the same life, you're an MSSP, you don't recognize GAAP revenue. If you're an ACO REACH for the same life, you recognize the entire medical spend. Speaker 200:39:56Depending on the level of capitation, you can recognize premium revenue or not. We actually just focus on earnings and free cash flow. Ultimately, that's what matters. Can we generate shared savings? Are we getting paid to take risk? Speaker 200:40:08Are doctors taking home more pay for the work that they do? And then we're happy to share that with the payers of healthcare. And I think that's probably the best contract you can enter into. So we're going to keep seeing opportunities to do that. We have close to 170,000 lives in MA, 16 odd 1,000 are in capitation today. Speaker 200:40:27So there's a huge opportunity to keep increasing the level of risk, but we got to be paid to do so. Operator00:40:33And our next question will be coming from Adam Raun of Bank of America. Speaker 1000:40:40Hey, thanks for the question. So we heard commentary from any peers in the space that the 2025 Medicare Advantage rate notice is disappointing due to lower benchmarks and growth rates for trend assumptions from CMS. And I should probably know this, but how does that actually flow into Medicare shared savings? Like do we already know the benchmarks for Medicare shared savings in versus what you think trend would be in your expectations? Thanks. Speaker 200:41:10Yes. Thanks, Adam. So any physician payment rate expectations are reflected in our guidance with and we think the impact likely will be a little bit more gradual versus one time increase. You get updates from CMS and you see them when we see them. So we have certain expectations and those are all factored in what we've guided. Speaker 200:41:32There are other things that MSSP updates and we think they're kind of favorable overall, whether it's the assignment process and the benchmark risk adjustment methodology, whether it's quality reporting and the potential to take on more risk even more so than the enhanced tracks. You saw some of those updates come from CMS. We just think it's a really well run program, very widely adopted, proven results to generate shared savings. And they've strengthened the overall program and it's one of the best initiatives that they've had over the past many years. So as one of the largest participants, I think we feel pretty good about MSSP and we'll see how it goes. Operator00:42:14And there are no further questions. Please go ahead, sir. Speaker 1100:42:18Thank you for listening to Speaker 200:42:19our call today. We appreciate your continued interest and support of our company. Enjoy the rest of your Speaker 1100:42:25day. And Operator00:42:25this concludes today's conference call. Thank you for participating. You may now disconnect.Read morePowered by