Privia Health Group, Inc. (NASDAQ:PRVA) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good day, and thank you for standing by. Welcome to the Privia Health Q1 2023 Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Robert Borchert. Robert, please go ahead.

Robert Borchert: Thank you, Kyle, and good morning, everyone. Joining me today are Shawn Morris, our Chief Executive Officer; Parth Mehrotra, President and Chief Operating Officer; and David Mountcastle, our Chief Financial Officer. This call is being webcast and be accessed from the Investor Relations section of priviahealth.com. Today’s press release highlighting our financial and operating performance and the slide presentation accompanying our formal remarks are posted on the Investor Relations pages of priviahealth.com. Following our prepared remarks, we will open the line for questions. 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 and in the press release are preliminary and are not final until our Form 10-Q for the first quarter ended March 1, 2023 is filed with the Securities and Exchange Commission, which was filed earlier today. 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 4, 2023. 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 in conjunction with the cautionary statements in today’s press release and the risk factors described in our company’s most recent SEC filings.

Finally, we may refer to certain non-GAAP financial measures on the call and reconciliations of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now I’ll turn the call over to Shawn.

Shawn Morris: Thank you, Robert. Good morning, everyone. Privia Health delivered solid first quarter results to start 2023 as we continue to execute in each of our markets. We remain focused on driving towards our long-term vision to build Privia Health into one of the largest ambulatory care delivery networks in the nation. Our market momentum and highly aligned partnership model continue to drive growth on multiple fronts and support our high-level confidence in our 2023 outlook. This morning, I’ll review a few business highlights, Parth will offer a market and operational update, and then David will discuss our recent financial performance and our 2023 guidance outlook before we take your questions. During the first quarter, Privia Health continued to execute at a very high level with Practice Collections increasing more than 17% year-over-year.

Adjusted EBITDA was up almost 14% as we continue to increase our number of provider partners and invest in our recent new market entries. This performance was again driven by continued same-store growth as well as our new provider additions in existing markets. In the last few months, we’ve entered 4 new states and have already signed new providers in our medical group platforms in Connecticut, North Carolina and Ohio. We continue to see a very strong sales funnel with potential new providers across our markets and are maintaining a healthy business development pipeline as we look to enter additional states over the next few years. Separately, we are very excited and have launched and priced this morning a large secondary offering of the company’s total diluted shares outstanding.

This transaction substantially reduces or eliminates Goldman Sachs and Pamplona Capital’s ownership. We are also very excited to welcome a number of new long-term oriented investors, including Durable Capital Partners and Rubicon Founders among others who purchased shares in this transaction. The entire Privia team looks forward to executing on our strategy, continue to create value for our shareholders in years to come. In other news, we recently announced that I plan to retire at the end of June and our Board of Directors named Parth Mehrotra to succeed me as Chief Executive Officer of Privia Health. I decided that now it was an opportune time to step away from my operating role, to spend more time focused on my personal interest. I will remain on the Privia Board, and I look forward to continuing to track Privia’s future success.

Parth and I have worked very closely together over the last 5 years. As many of you know, Parth has been an integral part of establishing Privia’s presence in many new states, taking our company public in 2021 and directing Privia’s growth. We expect a very smooth transition, and it will be exciting to watch Parth and our leadership team drive Privia’s next phase of growth. It’s been a privilege to interact with many of you and more than 900 Privians dedicated to improving health. Now I ask Parth to provide a market and operational update.

Parth Mehrotra: Thank you, Shawn. It has been an absolute pleasure to work with you and our privilege to succeed you as CEO. We continue to expand Privia’s national footprint, which now includes more than 3,700 implemented providers in our medical groups, caring for over 4.4 million patients in 970 locations. We believe our scale and diverse provider and payer partnerships offer a true differentiator as we build one of the largest multi-specialty medical groups and ambulatory care delivery networks in the country that can improve patient outcomes and reduce costs. We are ahead of our growth plan in each of our new markets and expect to add new implemented providers in Connecticut, North Carolina and Ohio before the end of this calendar year.

Privia’s value-based care platform continues to be one of the broadest, most balanced and diversified in the industry. We cover more than 1 million attributed lives across more than 100 at-risk payer contracts in commercial and government programs. Total attributed lives increased more than 22% from a year ago, driven by our new ACOs in 2023, including our partnerships with Community Medical Group in Connecticut and Beebe Healthcare in Delaware. Our quarter end attributed lives includes the impact of a joint decision with a health plan partner to pause one capitated MA risk arrangement for performance year 2023. The health plan terminated its relationship with the technology services provider earlier this year. And as a result, given the health plan’s near-term operating challenges, we both decided to pause the capitated arrangement.

We will continue to serve these MA patients as before with a focus on improving patient outcomes and reducing total cost of care, and we’ll jointly reevaluate the downside risk arrangement for performance year 2024. Overall, our value-based book of business performed very well in 2022 and in the first quarter of 2023. And there remains a significant embedded opportunity for us to thoughtfully move MA lives into capitated arrangements over the next few years. Now I’ll ask David to review our recent financial results and 2023 outlook.

David Mountcastle: Thank you, Parth. Privia Health delivered another solid quarter of performance in the first 3 months of 2023. Our implemented provider count of 3,716 was up 10.3% year-over-year. Solid ambulatory utilization trends, new implemented providers and additional attributed lives led to practice collections increasing 17.3% from Q1 a year ago to reach $658.9 million. We continue to generate operating leverage with adjusted EBITDA up 13.9% over Q1 last year to $16.9 million. Total value-based care comprised 33.8% of total GAAP revenue in the first quarter of 2023 compared to 27.1% in Q1 a year ago, which highlights our thoughtful move to at-risk contracts over time. The strength and resiliency of our operating model is highlighted by our solid Q1 performance, diversified book of business and strong aggregate performance in our value-based and capitated arrangements.

With this continued business momentum, we are reiterating our full year 2023 guidance. We expect practice collections to grow 14.5% to more than $2.7 billion and adjusted EBITDA to increase 18.3%, both at the midpoint of our guidance. With 4 new states and 3 new ACOs in 2023, we plan to continue to invest across our business enterprise to support our significant expansion. Our balance sheet and capital position continue to be very strong with cash of more than $311 million and no debt. Our 2023 adjusted EBITDA guidance absorbs approximately $8 million to $10 million in new market entry and expansion investments. We expect our new markets to scale significantly in the coming years as we grow our provider base and attributed lives in these new states.

Given our capital efficient partnership model with annual capital expenditures of less than $1 million, we expect 80% to 90% of our adjusted EBITDA to convert to free cash flow. We remain focused on growing and expanding our business for many years to come and investing to support this growth as we build our national footprint. We are now ready to take your questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Lisa Gill from JPMorgan.

Operator: Your next question comes from the line of A.J. Rice from Credit Suisse.

Operator: Your next question comes from the line of Andrew Mok from UBS.

Operator: Your next question comes from the line of Sean Dodge from RBC Capital Markets.

Operator: For our next question, it comes from the line of Gary Taylor from Cowen.

Operator: And your next question comes from the line of Whit Mayo from SVB.

Operator: For the next question, it comes from the line of Jessica Tassan from Piper Sandler.

Operator: For your next question, it comes from the line of David Larsen from BTIG.

Operator: And for your next question, it comes from the line of Richard Close from Canaccord.

Operator: And for the next question, it comes from the line of Jamie Perse from Goldman Sachs.

Operator: And for your next question, it comes from the line of Joshua Raskin from Nephron Research.

Operator: Thank you. And for your next question, it comes from the line of Sandy Draper from Guggenheim.

Operator: And for the next question, it comes from the line of Brian Tanquilut from Jefferies.

Operator: And for your next question, it comes from the line of Adam Ron from Bank of America.

Operator: And for our next question, it comes from the line of Jailendra Singh from Truist.

Operator: And for your next question, it comes from the line of Jeff Garro from Stephens.

Operator: And for the last question, it comes from the line of Ryan Daniels from William Blair.

David Mountcastle: So if we have no further questions, Kyle, I’ll ask Shawn Morris to just make a quick closing statement.

Shawn Morris: Sure. Thank you, everybody, for listening to our call today. I really have enjoyed getting to know you, and I look forward to talking to you more. We appreciate your continued interest and support for our company. Enjoy the rest of the day.

Operator: Thank you. And this concludes today’s conference call. Thank you for participating. You may now disconnect.