Q2 2022 Privia Health Group Inc Earnings Call

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Good day, and thank you for standing by and welcome to the <unk> Health Q2, 2020 conference call.

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Jordan here, an automated message advising your hands raised.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your speaker today, Robert Parcher SVP of Investor and corporate Communications. Please go ahead.

Thank you Kyle and good morning, everyone. Joining me today are Sean Morris, our Chief Executive Officer Par from road track, President and Chief Operating Officer, David <unk>, Our Chief Financial Officer. This call is being webcast and can be accessed from the Investor Relations section of <unk> Dot com.

Today's press release, highlighting our financial and operating performance in the slide presentation to accompany our formal remarks are posted on the Investor relations pages of Privy Health Dot Com. Following our prepared comments, we will open the line for questions and we ask that you. Please limit yourself to one question and one follow up so we can get through the full queue in a timely fashion.

The financial results reported today and in the press release are preliminary and are not final until our Form 10-Q for the quarter ended June 32022, as 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 our view of our business as of August 11, 2022, such statements, including those related to our future financial and operating performance and future business plans 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.

This 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 Sean.

Thank you Robert and good morning, everyone.

<unk> delivered another strong quarter of growth and are highly aligned.

Provider partnership model continues to gain momentum highlighted by our 31, 5% growth of implemented providers from a year ago.

We expect to continue expanding our number of provider partners increased attributed lives and enter new markets over the coming quarters, while also driving profit margin expansion by leveraging our capital efficient operating structure.

We are executing on multiple opportunities to extend our market reach drive future growth and positively impact care delivery with continued momentum in existing markets. We remain highly confident in our growth outlook for 2022 and beyond as we continue to organize physicians into scaled networks across our country.

This morning, I'll present, an overview of key business highlights and David will discuss our recent financial performance and updated outlook for 2022 before we take off for your questions.

<unk> health is continuing to execute at a very high level.

Practice collections increased more than 67% in the second quarter, reaching over $615 million.

We generated a record quarter of $15 5 million and adjusted EBITDA up 55% when compared to the second quarter last year, showing the scale of our operating model, while we continue to invest across our enterprise to support this accelerated topline growth.

This business momentum and high forward visibility into our growth metrics as reflected in our updated financial guidance for 2022.

Our balanced growth is being driven by continued same store growth and strength in ambulatory utilization across all our existing practice locations. We generated another solid quarter of new provider additions and existing markets in combination with our sustained high level of provider retention and.

In addition, our business development pipeline remains robust as we look to enter many new markets over the next few years.

On an industry note.

In early July CMS released the proposed 2023 Medicare physician fee schedule rule overall, we believe the proposal or a net positive for <unk> in particular CMS made a significant endorsement of the Medicare shared savings program and some of the changes positively impact both premier providers and their patients.

CMS has been vocal in their support having recently said it wants to use MSP as a chassis for growth and care transformation launched 10 years ago. The Medicare shared savings program now serves 11 million patients across 525000 providers.

Structure of the program has evolved over the last five years to seven years into one of the most successful CMS in CMI programs. We continue to prove our success in the program by lowering costs and improving outcomes, thereby generating shared savings for CMS as well as for premier and our provider partners.

As I noted our business momentum has continued to be extremely encouraging across both existing and potential new geographies. Our national footprint now includes more than 3500 implemented providers caring for over $3 9 million patients in more than 890 locations across eight states and the district of Columbia.

Our scale and geographic density is also defined by their breath of medical specialties.

As I noted last quarter, we will while approximately 60% to 65% of our practice partners. Our primary care focused including internal medicine family practice, Pediatrics and obgyn, we actually partner with over 50 specialty Tox.

This enables us to offer our primary care providers in our payer partners as well as consumers a broad ambulatory care delivery network that improve patient outcomes and reduce costs across the value based care spectrum.

Our operating model and strategy has led <unk> to have one of the broadest and most balanced and well diversified balanced care value based care platforms in the industry are more than 80 at risk contracts now cover approximately 856000 attributed lives across commercial Medicare and Medicaid programs.

This is up 15, 8% from a year ago, giving us a lot of momentum and visibility and the remainder of 2022.

As you know, we take upside and downside risks and many of our payer contracts covering nearly two thirds of our attributed Medicare lives across our MSP and Medicare advantage programs.

This thoughtful move to risk continues to provide significant opportunities for top line and EBITDA growth as we execute on our goals to earn greater shared savings in the years to come.

Now I'll ask David to review, our recent financial results and updated 2022 outlook.

Thank you Sean.

Our operating model again delivered outstanding performance in the second quarter of 2022, highlighting both the scale of our operations and our continued business momentum.

Our 31, 5% growth and implemented providers and 15, 8% increase in value based attributed lives.

Bind with solid ambulatory utilization trends led to all of our financial results coming in above expectations.

This collections increased to $615 5 million up 67, 6% from Q2 a year ago.

<unk> margin increased 36, 6% and adjusted EBITDA was a record $15 5 million up 54, 8% over the same period last year.

As expected our top line grew slightly faster than EBITDA again, this quarter due to the new <unk> arrangements as well as investment across our business enterprise to support this accelerating topline growth.

At the same time, the operating leverage in our model is clearly apparent as our as our topline and care margin growth is translating nicely into EBITDA growth and margin expansion.

Our adjusted EBITDA margin as a percentage of care margin increased 240 basis points from a year ago to reach 24%.

For the first half of 2022 practice collections increased 65, 5% to almost $1 2 billion.

<unk> margin was up 36, 5% and adjusted EBITDA grew 51, 8% to reach $30 3 million for the first half of the year.

Our capital resources continue to be very strong given the cash flow dynamics of our business in June 2022, the company repaid all of its outstanding debt with cash on hand.

Our balance sheet included cash and cash equivalents of $292 2 million and our $65 million revolving loan facility remains in place available and Undrawn as of June 32022.

Given our first half performance business momentum and visibility through the rest of 2022.

We have a high level of confidence on our updated financial guidance.

We now expect practice collections GAAP revenue and care margin to be at the high end of our guidance ranges.

We raised our platform contribution guidance to a range of 137% to $142 million and also raised our adjusted EBITDA guidance to a range of $57 million to $60 million, an eight 3% increase at the midpoint.

Our yearend implemented provider guidance is now expected to be in the mid to high end of our range and.

And our guidance for attributed lives is now at the midpoint of our range.

Our growth outlook includes only previously announced new market entries and we continue to expect 90% plus of our adjusted EBITDA to convert to free cash flow with capital expenditures of less than $1 million in 2022.

We remain focused on growing and expanding our business and continuing to execute on our multiple growth initiatives.

This includes growing existing practices, increasing attribution and risk based contracts, adding new providers.

Identifying opportunities to expand our platform and opening new markets over time with.

With that operator, we are ready for the first question.

As a reminder to ask a question you will need to press star one one on your top talent once again that is Taiwan, one on your telephone keypad.

Please standby, while we compile the Q&A roster.

Your first question comes from the line of Josh Raskin from Nephron Research. Your line is now open.

Alright, Thanks, Ed good morning.

My question I wanted to follow up on the comments you made about the Medicare physician fee schedule and the proposed changes around the MSP program and I'm curious do you think there's short term benefit from some of the benchmark changes do you think that helps and then I am curious if you guys are in a position where the changes to the risk score cap actually impacts she was.

Well.

Hey, Josh this is Sean.

To hear your voice.

Without getting into all the details of it and as we talked about them for months.

Proposed we're going through all of this we think it's there's a lot of beneficial things too.

The within the proposed remarks, but.

Yes. The biggest thing probably is just as we've talked a lot about in the past.

Huge endorsement the way CMS once the once the kind of kind.

Kind of reinvest in MSP and these changes and I think some of the ones you mentioned are positive for <unk>.

As you know we have one of the largest most successful acos in the country and our experience over the last seven years.

It's been very positive.

It had some continuous and headed that direction. So.

They'll continue to evolve it and the mitigate changes you mentioned are positive for us.

Yes, Josh just to add.

It's not a program where risk adjustment is a big factor average risk scores around one or thereabout. So.

That's what differentiates us it's relative performance.

And it's harder to execute so we're pretty happy with how we perform here.

Okay.

And then if I could follow up just I know, it's early but I know you guys have a pretty good lead time on implemented providers.

Just curious on your thoughts going into 2023.

A big bump at the end of last year I don't know how they ended this year based on guidance seems like sort of continued steady March upward, but I'm, just curious 2023, and we should be thinking about that and specifically if there is any new market entries that you guys are expecting.

Yes. Thanks, So obviously, we're not giving 'twenty three guidance today.

What I would say is as we sit at this time of the year pretty much everybody. That's expected to be implemented this year is already sold.

So that gives us a lot of good visibility and thats reflected in the guidance, we provided our sales pipeline and execution has been.

Head of our expectations. This year and we continue to see a lot of momentum so as we close out the year with new providers being added across all of our eight states.

That gives that will give us very good visibility as we enter 2003, and we expect it to continue to see that momentum.

In the existing markets and then obviously this guidance does not reflect.

Any new markets that we may enter the business development pipeline is pretty robust.

Similar to last year again, the timing is uncertain, but as and when we execute on those arrangements, we will announce them and we'll update the guidance appropriately that could impact.

That metric into 2023.

Got you so it sounds like there are a couple of big ones in the pipeline.

Similar to what we've heard in the past, but tough to figure out the timing.

Thanks, Jeff next question please.

Your next question comes from the line of a J Rice from Credit Suisse. Your line is now open.

Thanks, Hi, everybody.

Maybe I'll just follow up on that last one.

When you think out to 2023, you've mentioned some of the.

You mentioned some in response to jonathan's questions, but what are the some of the big puts and takes when you think about the outlook what are the biggest swing factors in your.

Your mind there's software.

Where we might as well.

Looking at 2020 this distance.

Yes, it's far to I. Appreciate the question look again generically speaking.

The drivers are as we've stated in the past it's growth in our existing markets.

It's a pretty broad footprint a lot of time left we continue to.

Add new providers, so that obviously.

In fact, I was really well a lot of same store growth in the existing providers that are already implemented both on the fee for service book.

Adding attributed lives in existing markets.

And then moving them further down the spectrum of risk.

So it's pretty multipronged on the existing base of business and then obviously as we execute on business development and new markets similar to what you saw last year, when we announced California, Montana.

That accelerates growth even further so it just depends on where we end this year.

On just executing pretty strongly really happy with what we've done in the first half year positions us really well to close this year up strong and then we continue to execute here in the next few months and.

And see what 2023 brings the one generic comment we've obviously given our long term guidance of 20% practice collections growth, 30% EBITDA growth.

And obviously, we are growing much faster than that this year as you can see is a lot of those drivers.

Hit pretty well last year and this year, so there'll be some years, where we grow faster some slower. We're obviously focused on accelerating that growth as much as we can as soon as we can but youll have variability year over year, but over the long term 10 plus years at least that's what we see ahead of us.

As you know we're in eight states, we have 40 due to go so lots more to go.

Okay.

Maybe just a follow up question.

A lot of mix this quarter across providers across.

People broadly in your space around utilization trends.

Just wondered if you could comment both on your risks and your fee for service business.

Anything to call out in underlying utilization trends that youre seeing and is there any areas of surprise or.

Or something to highlight.

Sure so to break it out on the FIFA service book.

<unk> already utilization very similar to our comments in last few quarters has been running ahead of our expectations.

We think that is good utilization with.

Patients seeing their primary care provider. Peter addition, obgyn and the community.

That's been running ahead of our expectation.

<unk>.

Our guidance assumes that that normalizes.

So obviously, we're trying to be prudent.

And it's been tough to predict in and out of Covid as has been the case with everybody, but we prefer to or on the side. If you are wrong, there is upside and downside.

The inpatient utilization, obviously has been also very difficult to predict that impacts a value based book.

Again, our guidance and accruals reflect what we see today and we try and again be prudent with our assumptions.

There's a lot more variability in the inpatient utilization you've seen that in the comments from from others in the industry.

And again, it's a tough tough environment that just predict that so we'll see how it plays out.

Okay. Thanks, a lot.

Thanks, a J.

Okay.

Our next question comes from the line of Lisa Gill from Jpmorgan. Your line is now open.

Alright, thanks, very much good morning, congratulations on the quarter I.

Im wondering if you can maybe just give a little might be tail around the value based care lives.

15, almost 16% growth.

What areas are you seeing growth.

The first question and then secondly.

We think about the improvement in the adjusted EBITDA.

Some of the key drivers there are you starting to see leverage in the business model or is there something else that you would call out as we think about that improvement being the biggest of the line items that you called out for improving in the back half of the year.

Thanks for the question Lisa.

So on the first question the growth is broad based as you can compare quarter over quarter or year over year. We are focused and I think that's where we differentiate from a lot of peers. We are focused on commercial.

MSB attribution as well as Medicaid. So all four buckets are important to US we are trying to add lives across those four there can be some variability quarter over quarter in the mix, but ultimately they focus on the full patient panel, which I think really diversifies, our book and as a key source of differentiation.

It's also impacted by which providers, we are adding in which markets and what the mix is in that particular geography and that could influence that a little bit quarter over quarter, especially as we add new markets and ramp them up but again, our focus is on growing all of those four buckets from an attribution perspective, and then and then hopefully moving to increased levels of.

Risk and all of those so that's your first question on the second one again look we are really proud that the business already operates at a pretty good scale. While we are just in eight states. If you look at any of our metrics number of locations at close to 900 number of patients at close to 4 million.

<unk> <unk>.

<unk> thousand 500 providers.

Attributed lives of our 850000.

Our book of business.

Is that scale and Theres a lot of room to grow so where we are at today is.

Pretty.

Nice point, where if we see acceleration in top line that is ahead of our expectation you can see that translating into.

Pretty good operating leverage down the P&L, which is what we'd like to see now we obviously don't invest in the business and capitalize on the growth opportunity. That's ahead of us.

Just mentioned 42 more states to go and so there'll be quarters, where we'll prudently.

The level of investment if we open up new markets and so on and so forth and update the guidance, but as we see that topline momentum, it's all across the P&L, where we see good operating leverage.

Alright, thanks for the comment.

Thanks Lisa.

For next question. It comes from the line of Adam Ron from Bank of America. Your line is now open.

Hey, Thanks for the question.

Going back to the fee for service revenue and I guess the revenue.

In the quarter it looks like based on the guidance that you've kind of touched on this in the back half.

Looks like there is 46% of your practice collections in the second half versus 56% last year and 53% in 2020, So just wondering.

It seems like.

Counter to how I would think about utilization trending people kind of hit their deductible into Q4 generally being the highest utilization quarter. If there's anything else you would call out in terms of the slowdown you're expecting.

No nothing particular again, we're being prudent.

Everything that we see.

It doesn't do any material difference than how this operated last year.

And again look where we're at the mid point of the year and we've guided towards the high end of the range.

Like I said, if these trends continue.

Again, we'll update our guidance in three months here.

But nothing that we see is different from what we saw last year.

So youre, saying that.

Thank you acquired physician utilization is above your expectations, but like what specifically makes you think that.

The actual utilization itself, that's elevated enough that youre gaining.

Gaining share on a same store basis.

And that's a good point I think it's a combination of both.

Obviously, our all allocations are.

They have some spare capacity in and if there is increased demand.

To absorb it I think we have gained market share at the care center level.

Given the strength of our business and our practices and how they've come out of Covid I think we've increased patient panels at each provider level in aggregate overall, so when you see all of that strength playing out.

And again, it's hard to predict.

Some of these trends overall level of utilization on a per patient basis, and then increase in the number of patients at the provider level. If they are growing same store growth on top.

We continue to also see telehealth, which is about 10% of the mix.

Pretty stable at least in the ambulatory FIFA service book.

Again, all of those I think bode pretty well for how we are set up and those continue.

Date guidance again in three months.

Alright, great.

For your next question comes from the line of Richard close from Canaccord. Your line is now open. Please ask your question.

Thanks for the question and congratulations I was wondering if you could just provide us an update on the new markets you entered last year West, Texas bass I know there is.

Periodically where youre selling.

We're investing in.

Potential new providers, just just curious how that sales process is going now that we're call.

All at two plus quarters into it.

Yeah. Thanks, Richard I appreciate you joining despite your conference.

All three markets are up and running Calif.

California, West, Texas and Montana.

As you know, we and each of those with a with an anchor partner in a group joining us.

<unk> Medical group in California.

I believe.

Index in West, Texas, and then Great falls clinical surgery partners in Montana. So all of those are live.

And we have started our sales effort in all of the markets. We have sold our first provider groups.

In these markets and we are on our way obviously that just takes time to ramp up the effort on the ground, but theyre going as expected and.

Obviously.

Montana in West, Texas are smaller dams, but we're really excited about California, a big state the population and we think we can we can really grow that medical group pretty meaningfully in the years to come so we're really excited about it.

And just as a follow up Sean your.

Your comments on the new market potential.

Maybe a little bit more bullish although it was bullish in the first quarter.

Any big changes with respect to the pipeline that are that.

You can call out.

Maybe three months ago.

Yes, Richard we remain bullish I guess to use your words its pipeline is robust it's we've talked a lot about.

The core model kind of be in physician groups. We're still very excited about the health system approach so not.

Not to get overly specific about what's in our pipeline, but it's a it's a good cross section it's geographically dispersed.

Across those two.

To talk about so.

If you look at our history these things come in.

Different lead times into the it's not we're not selling a widget. So we were out there selling a solution.

They take time, but at the same time, we are we're very excited about.

Pipeline itself.

Great Congratulations.

Thank you.

Thanks for joining and we know you're busy today.

Thank you.

Your next question comes from the line of Mcmahon from Seb Securities. Your line is now open. Please ask your question.

Hey, thanks.

Just first on the two new full risk contracts.

How did those track versus expectations what are the MLR looked like I don't have your your acute yet, but just maybe any any early learnings or observations now that you are sort of six months into standing up a full risk bearing entity.

Yes, thanks for the question yes.

Again, yes, we are.

Again.

We're still really early into those contracts and we're taking a I would say a conservative approach in how we are recording things. So at least to date, we have recorded and again youll be able to see this in our Q that 100% of the revenue we've taken and we recorded expense against that we're recognizing zero care margin from the business. So far really only have about four months.

A data with some tail out of 12, and so again, just sort of taking it pretty conservative at this point.

But again I think we feel good about the business.

And again as we get more data from those programs.

I think we're looking to see.

It will take off.

Yes, maybe just a follow up are you are you finding any.

Additional interest from existing affiliated groups to date.

Splore. These arrangements I'm just sort of curious like how are we kind of think about.

$2023 2024, and perhaps the penetration of new full risk contracts and I have one other follow up sorry.

Yeah, Hey, Rob it's Mark So look I mean at every point of very evaluating what part of the book do we move into enhanced level of risk would be capitation could be just enhancing the level of risk that we take without being <unk>.

And I think that just goes payer by payer geography by geography, and medical group by Medical group. We're looking for good density in each market in our pools and Thats a discussion we continuously have with both our providers as well as our payer partners. So we're going through that discussion right now for 2023.

And obviously, we will update.

The one thing I would say is.

Our criteria as we've been very clear to take on more risk as always to ensure that at a minimum we're not economically and from an EBITDA standpoint worse off and ideally we are doing it to enhance the level of EBITDA and earnings and <unk> savings. So that's a fundamental criteria, we're not going to do with just do recognize topline practice collection.

Our revenue will do it when it makes sense and when we think.

It's a good financial decision for our physicians as well as the <unk> and <unk>.

That makes sense just to AAR days grew two times faster than revenue can you kind of flush out what's going on there.

Presume some of that may be influenced by some of these capitate the contracts, but I am not sure.

Yes, I would say, it's a combination of the capitation contracts and if you want to think about how our shared savings accruals work.

We were at Q2, we're at.

Whatever 18 months of accruals related to 'twenty, one because again, we keep looking at those and then as we look at 'twenty two we've put an additional accrual. So when we get for example, MSP, which were expecting hopefully in Q3, maybe early Q4, youll see a bunch of that receivable come down, but we kind of get to a high point on receivables, especially related to <unk>.

Shared savings because we just got.

So much accrued in that number as of the end of Q2.

Okay. So it's not really a bad number them, okay alright. Thanks.

Thanks Whit.

Our next question comes from the line of Gary Taylor from Cowen. Your line is now open. Please ask your question.

Hey, good morning.

Wanted to ask a question about.

Patient.

Attributed lives.

I'll take your question and then a big picture one.

The small picture, yes, I think the ACO lives were down about 4000 sequentially.

We haven't seen a sequential decline there.

Back in my model. So just wondering what that small change was in the bigger picture one.

When we sort of look at this quarter I think.

Gross practice collections up north of.

60%.

Providers year over year providers up like 32% in <unk>.

Should we utilize up 16% I don't think thats the long term growth.

Rhythm.

I just wanted to see kind of as we think about modeling 23, and 'twenty four and trying to hit that 20% long term guidance on growth.

Perfect.

I would imagine practice collection lies and providers are all tying a little closer together than we're seeing right. Now so just wanted to make sure im understanding that.

Yeah. Thanks, Gary it's Mark so on the first question.

There'll always be some quarter over quarter variability on the MSP book as you know these are BPL kind of lives.

Theres also some movement.

From two MAA from the MSP book as those patients can move and then the third factor could be if some patients in the first half just simply havent coming from coming for the PCB visit.

MS classifies them as non assignable and <unk>.

You can count them in the period, but when that happens you've got them again, so again the movements are pretty small.

Nothing that worries us again.

Again, our guidance range was pretty tight and so I think thats thats kind of the short near term question that you had.

On a longer term question the model is we.

AD providers.

In existing and then obviously in new markets and the attribution then follows.

So, California is a great example.

That that the medical group that we partnered with Avast doesn't have a big value based book today.

Not a lot of attributed lives, even though it's about 400 providers. So the mix of provider matters the market matters, but over time that's a.

Really good market to do a lot of value based care as we know and as we add more primary care providers in California, as we as the existing.

Providers add more patients and attributed lives.

The attribution follows the provider growth.

Third aspect then will be.

The level of shared savings and profile of the contracts, we get into so even with the same attributed lives over a course of through 345 years, you can expect the level of shared savings to increase in the same program in our MSP book is a perfect example in mid Atlantic If you look at the history over seven years publicly available.

<unk> data with CMS, you can see we've grown both attribution and the level of shared savings and the actual percentage of savings.

Under the benchmark.

So you can see the value of our life of a yield for life increases over time, and then obviously in the MA book.

There is a much more pronounced revenue recognition.

When you move into capitation and Thats, what you saw with about.

25 to 30000 lives this year as we as we entered those contracts. So it's a multi pronged answer to bridging topline practice collections do the provider and attributions, but thats. The algorithm essentially again that plays out over multiple years, so it's tough to pinpoint.

What happens in one particular year a lot of the growth in California, I would likely come in the subsequent years, even though we entered the market last year.

That helps.

Thank you.

For next question. It comes from the line of David Larsen from <unk>. Your line is now open. Please ask your question.

Hi, congratulations on another very good quarter, when we think about 2023.

Can you maybe talk a little bit about some of your large largest groups.

How our satisfaction levels.

What percentage of revenue due some of your largest groups make.

And is there is there any risk that some of those large groups you either in the process of implementing our implemented now may for whatever reason.

Switch off of your platform computer like M&A activity or anything else just any color around that would be very helpful. Thank you.

Yeah, Thanks, David It's Marc.

So as we showed in.

Slide five.

Our satisfaction levels up pretty high one of the highest we've seen.

Since the beginning patient Nps's 84 provide our NPS of 57.

Graders, but 57% pretty high amount of work benchmarking us.

Our.

Attrition is at a record low.

Then I'll close to record lows in across our.

Markets give or take and that just <unk>.

Rate metric for us internally, we don't disclose it externally but.

So all of those things point to.

Good satisfaction.

Ultimately.

Our value proposition is very ROI driven.

Providers are.

Making more take home pay at the end of the day, having pretty robust patient panels, we're moving them into value based care and adding a lot of value to their overall practice in the functioning of the practice and efficiency productivity and so on so forth.

So we've.

We are not worried about M&A activity and folks buying out our groups, we don't have very big concentration.

We had the one group that had left us prior to us going public in 2020 that we have disclosed.

And again that was if somebody wants to come in and buy a big check we've said, we're not going to chase it.

But again our practices are joining us in a very self selected manner. They are eminently independent.

And our health system partners are also very progressive in the way that they are <unk>.

Goodbye partnerships with us so that gives us a very diversified book and as we grow there is no really no single practice that really.

Have any concentration risk from that perspective.

David has shown a level of color.

Over the years, we've talked a lot about.

Physicians are the customers of <unk> and their care centers in.

We strive to any business when your customers are referring you other potential customers be that parkman due to how we grow that same store growth additional providers in existing markets addition of doctors and existing care centers and even growing new markets.

Onto something special.

As you can always improve but you know youre headed the right direction with that over half of our additions come from doctors, referring colleagues to preview and.

If you think about it and somebody asked the question last quarter about yes.

How does it how the inflation factors.

Kind of different what do you think from a driving business perspective anytime there is.

I guess.

Tough things going on in the economy people are looking for partners and solutions to help and we believe that I mean, we saw it through Covid and we believe that's going to continue to play out.

In the next few years as we as the economy gets back on its feet.

Great. Thanks, very much and then one more quick follow up.

Cap revenue it sounds like you have four months of data I like how you are not assuming any margin there.

What's the risk of a loss how do you know you're being sort of conservative enough without four months of data that you have is that within budget or is it over budget.

What is that telling you. Thanks.

Yes look I mean, when you're in the risk business. We've said very clearly it's called risk for a reason.

There is always a potential for losses, a potential to have good shed savings.

Generically speaking again, we're not going to go into any particular contracts and what the data is saying for four months and so on and so forth.

Our view has been you enter into these arrangements with the hope that you will do better than what you were just taken upside only risk.

And you are not on the downside on any hooks. So our hope is that we underwrite these properly.

That there is not much potential for downside.

But anomaly.

Anomalies can happen.

<unk> can happen that can impact the book again year over year, but from a long term perspective.

We feel pretty good as we as we're moving into these contracts that we can perform in depth and.

And again the diversity of our book also prevents any one particular contract from really impacting the P&L in a big way.

I think I think we are differentiated in that respect given we are taking.

We're doing value based care across commercial MSS be MAA and mitigate and <unk>.

<unk> application is just part of the business.

And congrats on a good quarter. Thank you.

Thank you.

For next question. It comes from the line of Todd Phillips from Jefferies. Your line is now open. Please ask your question.

Hi, Good morning. This is patchy anchor Brian and thanks for taking my question today. So first to start I'm. Just curious can you give some color on.

The factors that drove the beat and specifically clarify.

Operational metrics that came in higher than your original expectation.

Yes sure. Its part look it was pretty broad based which is what we like to see the.

FIFA service book performed ahead of our expectation the utilization utilization trends were ahead of our expectations as we just stated.

On the value based side again, we are accruals reflect.

All the information, we have and Thats been ahead of our expectation. So so that's reflected there and then that outperformance.

Reflecting down the P&L, given the scalability of the business and the inherent operating leverage so.

As you know, we have been meaningfully profitable and free cash flow positive.

We're managing the expense base pretty prudently investing where we need to do.

And some of this outperformance if it happens translates nicely into bottom line metrics. So it was up it was fairly broad based all across all across.

It shows our confidence we paid all our debt.

Yeah.

We feel pretty confident in the future here.

Great. Thanks, and then just one more question with thinking about specialty offering can you provide some detail on.

Patient demand or specialties that are.

Driving highest patient demand, our healthcare utilization and how that's informing.

Yes.

How you target Adil.

Additional providers for inclusion in your network.

Sure. So look obviously as Sean stated in his prepared remarks were fairly broad based with 51 odd specialties on the platform today.

The one differentiation is our specialists are folks that typically take care of the chronically ill, we're not going for.

Surgical specialties, specifically, we do have some.

And so that that is a good reflection of the medical groups, we're trying to create a very primary care.

Obese feeds focused and then surround them with the right specialists in some markets the concentration can be different with our anchor partner as is the case in Florida and with Vas in California, but over time as those medical groups grow.

Our hope is that that mix.

Normalizes and its a very primary care focused so that's 0.1.

Again, we see good utilization all around we have a pretty good in network referrals with our high quality lower cost specialists and that that benefits our value based book.

And I think that differentiates us to create a pretty holistic medical group debt.

That can perform at a pretty high level across both fee for service and value based arrangements.

Thank you.

Turning next question. It comes from the line of Sandy Draper from Guggenheim Partners. Your line is now open. Please ask your question.

Thank you very much actually all of my questions had been had been asked and answered.

Pass it back to the operator.

Thank you Andy appreciate it.

For next question. It comes from the line of Jessica This is Dan.

From PSC. Your line is now open please ask your question.

Hi, Thanks, so much for taking the question.

So I guess my first one would be I know you guys said you are booking in the following slides that Europe present care margin, but then also that you wouldn't enter these contracts.

We're going to make you less well off.

Over what timeframe.

And answered so ill pass it back to the operator.

Thank you Sandy appreciate it.

Very next question it comes from the line of Jessica Simpson.

From PSC. Your line is now open please ask your question.

Hi, Thanks, so much for taking the question.

So I guess my first one would be I know you guys said Youre bucking the following slide and thanks for the question Josh look we look at data and.

As and when we feel comfortable that we see the right trends.

We will book it will accrue for it appropriately you should expect to see that happen over the next few quarters.

The data does come with a lag and it's.

It is not almost immediate so this could flow into next year as well and that's why you do have prior period adjustments in this business when you're when you've taken risk and they could be positive it could be negative in certain cases, and thats why its called risk.

But again, we hope we can manage the book pretty well and we've entered into these to do well for both our buyers as well as our physicians in previous so hopefully over time, you'll see that trend.

Got it.

Just one more on the 2020 to 22, well cap performance does appear to be better than zero percent caremark and what is kind of the latest possible date that you'd expect to reconcile that.

On the P&L and then just and if you could remind us what was <unk> revenue.

In the quarter and that's it for me thanks.

Yes, sure. So on the first half part of the question. So our guidance assumes the existing accrual that we would book.

Medical expense that equals <unk> revenue and that's what's reflected in the guidance, we're giving today.

If it is better or worse, we will update guidance appropriately in.

That could happen again in subsequent quarters this year.

So in Q3 or Q4, when we report Q4 early next year or it could happen afterwards, if theres any property of adjustments. So so again, you would expect to see that as we close out the year and go into next year and David can take the next.

As Youll see in our 10-Q when it gets published later today cap data revenue was $57 7 million for the quarter and $106 1 million for the first six months.

Now value based care equals about 29, 6% of our total GAAP revenue up from 12, 5% last year.

What you will see that in the Q as well got it.

And then just quickly sorry, if the sequential increase due to cap rate.

An increasing population of black Thunder forecast.

Yes, it's a combination of all of those.

We entered one additional <unk> data contract.

From what our what we announced in our press release earlier in the year.

So its increase in lives, it's the nature of the capital arrangements in the topline that we can recognize on a <unk> basis and then it's also reflected of shared savings across the rest of the book and commercial and MSP.

Got it thanks, so much.

Thank you that's all my question.

Thank you.

Your last question comes from the line of Ryan Daniels from William Blair. Ryan. Your line is now open. Please ask your question.

Hey, Good morning, guys. This is Jackson on for Ryan Daniels, Congrats on the solid quarter and thanks for taking my my last question here. So my phone cut out so apologies if you addressed this already but just looking at your total practice collections for the first half of the year.

It looks like we're already past the halfway point to the high end of your guidance range for I think it's 2200. So just curious if you can provide any color on how we should kind of think about the quarterly cadence as it relates to the back half of the year.

And if we should anticipate any sequential step downs in third or fourth quarter.

Any update there would be great. Thanks.

Yes, sure Jack I think we did aggressive one but no worries if youre line got cut off so look again, we don't expect any deviations from the trend we saw last year.

We're being prudent stuff.

It's tough to predict the ambulatory utilization as we have stated and so our guidance assumes that there is some normal normalization of that trend. It's been running ahead of our expectations. If the trend continues then we'll obviously update the guidance in three months here, so but again, we don't see any any anomalies from what we've experienced previously.

Got you thanks, guys.

Thanks.

Thanks.

There are no further questions at this time I would now like to turn the conference back to Mr. Sean Morris Chief Executive Officer for closing remarks.

As always thank you for listening to our call.

<unk> supports all providers our patients through all reimbursement models are capital efficient and proven integrated care delivery model as always is already running at scale, we have significant momentum and the physician labor market and we look forward to continue to execute at a high level through 'twenty two and beyond so we appreciate your continued interest and support of our company and we.

Look forward to speaking you again and wish you the best and enjoy the day and the rest of the week. Thanks.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Due to the high level through 'twenty, two and beyond so we appreciate your continued interest and support of our company and we look forward to speaking to you again and wish you the best and enjoy the day and the rest of the week. Thanks.

Yes.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Yes.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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