Q4 2022 Privia Health Group Inc Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the Privia Health Q4 2022 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone and then hear an automated message advising your hand is raised. To withdraw your question, press star one one again.
Speaker 2: Please be advised that any conference is being recorded. I'd now like to hand the call back over to our speaker today, Robert Burchert, SVP of Investor and Corporate Communication. Thank you, Gerald, and good morning, everyone. Joining me today are Sean 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 can be accessed from the Invest Relations section of PriviaHealth.com.
Speaker 2: Today's press release highlighting our financial and operating performance and a slight presentation accompanying our former remarks are posted on the investor relations section of PriviaHealth.com. Following our prepared comments, we will open the line for questions. Given the number of analysts in the queue, we 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 and in the press release are preliminary and are not final until our Form 10-K for the year ended December 31, 2022 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 February 28, 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.
Speaker 3: 2022, previous health executed and delivered at a very high level with full year of financial performance at or above the high end of our updated guidance provided in November . Practice collections increased more than 49 percent year over year to reach $2.42 billion and adjusted EBITDA was up more than 47 percent to a record $61 million. Our consistent performance was driven by a healthy balance of same-store growth.
Speaker 3: New provider additions in existing markets and strength and ambulatory and value based utilization across all of our existing practice locations. We've entered a number of new states in the last few months. North Carolina and Ohio offer abundant opportunities to attract new providers to our medical group platform. More recently, we've entered Connecticut and Delaware with our Preview Care Partners Strategy offering community positions and opportunity to join Preview and leverage our platform solutions and population health expertise while caring for patients across all reimbursement models.
Speaker 3: Our entry into these four states validates our growth algorithms, significantly expanding our addressable market and organic growth opportunity and our significant steps toward our long-term goal to build one of the largest care-delivering networks in the nation. We continue to see very strong sales pipeline of potential new providers across our existing markets and are maintaining a healthy business development pipeline as we look to continue to enter new states over the next few years. We now have more than 100 value-based care arrangements with payers and commercial, Medicare, Medicare Advantage, and Medicaid plans, and we continue to see very strong performance across the board. Overall, we now have approximately 1.1 million attributed lives covered by our value-based care arrangements from upside-only to significant downside risk. This aligns perfectly with our long-term strategy to thoughtfully move providers and their patients to value-based arrangements when we are confident we can be more successful doing so. Our business momentum and high-forward visibility is driving our 2023 financial guidance with practice collections expected to reach two point seven billion dollars or higher. We will continue to invest.
Speaker 3: It significantly across our enterprises support our long-term growth and market expansion goes and still expect strong, adjusted eBoot-I-growth and free cash flow conversion. Now I'll ask David to review our recent financial results in 23L. Thank you, Sean. Ferville Health Operating Model continues to scale and we again deliver strong performance in the fourth quarter of 2022. Our implemented provider count of 36006 was up 8.7% year over year. We updated our definition of implemented providers to exclude any temporary low-continent providers. This growth and implemented providers combined with our capitated agreements and solid ambulatory utilization trends led to practice collections increasing 23.7% from Q4 year ago to reach 634.8 million. The operating leverage in our model is clearly apparent as our top line and care margin growth translated into significant eBoot-I-growth with adjusted eBoot-I-up 89.5% over Q4 last year to 14.3 million. For full year 2022, practice collections increased 49.1% over 2021 to more than 2.4 billion.
Speaker 4: Air margin was up 28.2% and adjusted EVA the group, 47.1% to reach 60.9 million for the year. We added a source of revenue schedule on our press release this quarter so you can see the breakdown of the value-based care and fee-preserved gap revenue. Total value-based care comprised 28.5% of total gap revenue in 2022 compared to 12.4% in the previous year. As a reminder, our gap revenue significantly understates total medical costs under management across our value-based care arrangements, including in the Medicare share-based program. We also included a provider liability disclosure. The capture of the medical costs related to our at-risk, capitated contract. This shows that we booked a care margin of 264,000 from our capitated agreement in 2026. While we are still in the early stages of these capitation arrangements, we are focused on improving our patient outcomes, lower costs, and improving profitability for trivia and our provider partners.
Speaker 4: Our balance sheet and capital position continue to be very strong, with 348 million of cash and no debt. Free cash flow for 2022 was 47.1 million, adjusting for 8 million of one-time cash costs, including employer taxes on pre-IPO equity options, exercised by our employees, as well as legal, severance and other non-requering expenses. The conversion from EBITDA to free cash flow was approximately 91%. Our strong 2022 performance and business momentum has positioned us well heading into this year. Using the midpoint of our 2023 guidance, implemented providers are expected to increase about 14% year-over-year for each 40-100 by year end. Attributed lines are up 28% for 2022 to 1.1 million. We expect practice collections to grow 14.5% to more than 2.7 billion, and adjusted even of the increased 18.3% both at the midpoint of our guidance. We remain confident in achieving our long-term target of 20% practice collections growth, and 30% adjusted EBITDA growth per year on average. As we've moved into 2023, we have entered four new states, launched three new ACOs, and added 11,000 capital loans. We plan to continue to invest across our business enterprise, a clinical, operational performance, sales, leadership, and technology infrastructure to support our significant expansion. Since new market entry and expansion costs are ongoing in a regular part of our long-term growth strategy,
Speaker 4: We do not add these expenses back to get to adjusted even. Therefore, our 2023 adjusted EBITDA guidance absorbs approximately 8 to 10 million investments. We expect our new markets to scale significantly in the coming years as we grow our provider base and attribute a lives in these new states. Finally, with our capital efficient partnership model, we expect 80 to 90% of our adjusted EBITDA to convert to free cash flow. Now, powerful providers update on our market growth, the IBA's care footprint and geographic expansion. Thanks, David. and adjusted EBITDA growth of close to 35% over these four years.
Speaker 5: To reiterate, we continue to believe we can grow practice collections 20% and adjust at EBITDA 30% a year on average with a proven long-term growth and profitability algorithm. Our performance has clearly demonstrated our execution capabilities and success in transitioning to at-risk contracts over time as we generate increased profitability under those arrangements. We expect EBITDA and free cashflow growth each year, while investing in our operating infrastructure to support our growth and expansion. We continue to be very encouraged by previous business momentum across both existing and potential new geographies. Our national footprint now includes more than 3,600 implemented providers in our medical groups, caring for over 4 million patients in 950 locations across 12 states and the District of Columbia. At our scale, geographic density, and partnerships across more than 50 specialty types enable us to offer our providers, bears, and patients a broad ambulatory care delivery network that can improve patient outcomes and reduce costs. There is a significant opportunity for us to move these previous care partner providers to our full services platform over time. While our entry in each state may look unique, given our partnership model,
Speaker 5: Our strategy is simple, consistent, and replicable across all states. We enter new geographies and set up four primary elements. First, a single tax ID entity that facilitates fair negotiations and clinical alignment while maintaining a provider's legacy ownership structure. Second, an accountable care organization for risk-bearing value-based contracts. Third, our tech and services platform offers providers a breadth of cloud-based applications and expertise to help reduce administrative burden, increased efficiency, and lower medical costs. And last, but most important, our close alignment with physicians is critical in successfully managing patient panels across the risk spectrum. We create a physician-led governance structure in our medical groups for data and analytics reviews, as well as peer-to-peer sharing of clinical and operational best practices. Previous operating model offers a unique ability to partner with and organize providers of all types, whether it's community physicians, health systems, clinically integrated networks, independent physician associations, or other facility-based providers across all specialties.
Speaker 5: Our flexible model enables us to offer solutions for all providers no matter where they are in the transition to value-based care. We drive performance improvement through same-store volume and practice growth, add on valuable ancillary services over time, and move to value-based care arrangements when we are confident we can be more successful doing so. Previous very thoughtful move to risk and value-based arrangements is a key differentiator. We believe our doctors get better results than their peers due to our physician-led governance, extensive clinical, performance, and actual expertise, and clear incentives that keep us highly aligned. We take a balanced approach across a diverse set of commercial, Medicare, and Medicaid contracts. Our success over the last eight years is key to our collaboration with a wider and fair partners. In fact, in 2021 performance year alone, we generated savings of over $100 million in the Medicare Shared Saving Program. Previous value-based care platform continues to be one of the broadest, most balanced, and diversified in the industry. We now cover an estimated 1.1 million attributed lives across more than 100 at-risk bear contracts in commercial and government programs. This includes our newest ACOs in Connecticut and Delaware.
<unk> offers a unique alternative for community physicians across all specialties in dire patient panels, and all reimbursement models and alternative where doctors can remain in the legacy ownership structure remain autonomous if they choose to and yet to be part of a bigger organization an option that we believe was not truly available.
In the past.
With that operator, we're now ready for the first question.
Thank you at this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one on your telephone.
And wait for your name to be announced to withdraw your question Press Star One again, please standby, while we compile a roster.
One moment. Please our first question comes from Brian <unk> from Jefferies. Your line is now open.
Hi, Good morning, you have positive on.
Brian .
Clearly, we've seen very aggressive in pursuing partnerships with health systems and physician practices in the back half of 'twenty two 'twenty three.
You may be discuss expectations for 2003 is the focus here integration are you optimistic about the potential pipeline for additional partnerships.
Yes, thanks for the question.
Our pipeline continues to remain pretty robust.
For new markets. So.
So we are focused both on expanding the footprint in existing geographies, where there is a pretty inherent large tam with the opening of the new states and even in the states. We are operating in today and.
And we continue to pursue entering into enter new states I mean, we're in 12 states. We have 38 to go so we're pretty much full steam ahead.
Both strategies.
Thank you our next question.
One moment please.
Our next question comes from David <unk> of <unk>.
Your line is now open.
Hi, congratulations on a very good quarter and good guidance.
Can you talk a bit about the impact of the Rad visa program and the advanced retailers, but are you getting some feedback sorry about that.
Does that drive incremental demand for trivia what are you focused on.
Please thank you.
Hey, David Sean as you can imagine we take a very thoughtful and disciplined approach.
As you would expect us to we hold ourselves to very high standards, along with our providers when it when it comes to risk adjustment or any other type of quality or compliance program.
<unk>.
We don't believe <unk> is going to have a material impact to us.
But just to kind of go away we'd run the program in the past, where we continue to expect to run it now and I would say we understand what CMS is trying to do.
The address I guess potential over coding for lack of a better word.
Did some with <unk> do you think about it is with US the diversity of our revenue.
Probably this is a more significant risk for other companies that we tend to focus just on the on MAA or something where <unk> is.
Bigger portion of the top line, so again, I guess, our balance of revenue and diversity as.
A differential for us.
Thank you one moment for our next question.
Our next question comes from Lisa Gill from Jpmorgan. Your line is now open.
Good morning, Thanks for taking my question.
On the four new markets that you talked about Connecticut, Delaware, North Carolina, Ohio.
Included in the guidance for 2023 as far as any of the key metrics that we think about attributed lives or physician count.
Is there anything included or is that what youre going to spend the $8 million to $10 million to bring those on and Thats more of an opportunity as we think about 2024, just trying to figure out what's in the guidance.
Yes. Thanks for the question Lisa So, let's take them one at a time for North Carolina, and Ohio are actively recruiting new providers, we did not start with with any.
And given the 5% to six month lag and implementation there is pretty de Minimis con.
Contribution from those two markets and any other kpis.
So very limited implemented providers very limited lives.
Very limited practice collections care margin and so forth. So so obviously as we are spending those dollars you should expect pretty significant operating leverage starting next year and beyond.
In.
In Delaware and Connecticut.
We entered those markets as we outlined in our prepared remarks with attributed lives in both those states. So we are in value based arrangements and there'll be so those are included in our in our attributed lives numbers.
There are no providers in those two states today in the implemented provider counts. So again, we are going to be actively recruiting in both of those states and youll see some operating leverage coming from the fee for service book in.
In the future, but there is some contribution from the value based book in practice collections and care margin in those two states.
Thank you one minute why prepare the next question.
Yes.
Sure.
Our next question comes from Joshua Raskin of Nephron Research. Your line is now open.
Alright, Thanks, Ed good morning.
<unk> 2023 guidance that includes 200 to 300 incremental attributed lives I was wondering if you can just give some color on the categories that you gave us the MA, but just sort of where those buyers are coming from and how do we think about that in the few that number in the future just the gross number of incremental attributed lives sort of based on your pipeline and what you are looking at should we think of that as a.
Relatively consistent number of patients that can convert over time or should we think about that as sort of an abnormal year or does it grow over time.
Yeah. Thanks for the question Josh So if you compare our bubble chart on slide 12 to previous quarters.
You can see the growth year over year on those lives.
We added Connecticut.
We added Delaware and both of those came with.
180012 thousand lives respectively.
And so we've made the appropriate disclosure. So you can see it's mainly MSP some commercial and some M&A.
In those two states. That's all included in the $1 1 million. There's also organic growth in the existing states as we've grown our provider footprint.
Some growth across all lines of business and lives from there.
Then to your second question.
We'll just take a judicious approach on when we move to downside arrangements you have seen we've gone from zero to 40000 in two years here.
It will not be a linear line.
We just evaluated year by year and in our model, where we are sharing the economics $60 40 up and down with our physician partners. It's a joint decision and we'll try and do it when we think it's <unk>.
Profitable and successful doing so.
Thank you one moment for our next question.
Okay.
Our next question comes from Ali Agha mature your line is now open.
Alright, and so that ended up being from securities.
Thanks, and good morning, everyone and congrats on a good quarter and good guidance.
But the EBITDA guidance, including Amazon lately.
And startup costs for new geographies I was wondering if you could share some color around quarterly quarterly cadence ability.
And any of the puts and takes to keep in mind that about the quarterly EBITDA cadence in general two.
<unk>.
Yeah. Thanks, Andrew I think you should expect the quarterly cadence to be pretty consistent with the with previous years.
From an EBITDA perspective, our spend is pretty even across the years.
Across the year in different quarter, so it should not be materially different from from 2022.
Thank you.
Moment, while we plan next question.
Our next question comes from Andrew Mok UBS. Your line is now open.
Good morning. This is Thomas on for Andrew.
Do you have a target for converting a certain share via care partners providers Q fully implemented providers, just trying to figure out the general progression, you're expecting on whether converting those providers priority in the near term.
Yes, it is a pretty high priority.
Have a good relationship with those doctors and our hope is that they can move to the full stack we.
We have our internal targets, but obviously don't disclose that publicly but you should expect for us to target those 1440 providers and over time move as many of them to the whole stack.
Thank you one moment, while im sorry, our next question.
Our next question comes from Ryan Daniels of William Blair. Your line is now.
Hey, guys. Congrats again and thanks for taking the question a quick one on the guidance the implement of provider range is reasonably high 12% to 15% growth, but if I look at the attributes and lives, it's 23% to 34% growth. So a bigger range there and I'm curious if there's any nuances between those two metrics.
Larger provider groups coming on with more patient panels or anything unique that you described kind of a larger range on lights under management. Thanks.
Thanks Ryan.
One is the law of large numbers its a bigger number so slightly wider range.
Implemented providers, we have we have pretty good visibility given the 5% to six month lag.
And so the range reflects that that kind of visibility unless theres some quarter over quarter movements.
In the in the implemented in the attributed lives.
A lot of these products our BPL. So some of the attribution flows in.
Even into Q1 late Q1 early Q2.
So that's the range, where we have a little bit less visibility other than the cap of data book.
And so we just account for that in the guidance. Once we've entered some new states. So obviously as we are adding providers in that attribution close in.
It's just a bigger footprint, so we're giving ourselves a little bit of an attitude from a broader range perspective.
Thank you one moment longer term next question.
Our next question comes from Sandy Draper with Guggenheim. Your line is now open.
Thanks very much.
My question, because a lot of them earlier questions.
If you look at since the IPO, we've shown on slide nine.
We've added six new six new state and.
And they've been they've.
They have been consistent with our strategy to target medical groups health systems.
Or <unk> partners, whether it's politically integrated network. So ratios. So we're focused on all three.
There is no particular focus on on one or the other.
And as we outlined on slide 11 or strategy. Once we enter is very very consistent we launched the full medical group.
Fullstack through both fee for service value based care.
The underlying.
Operate of strategy for us is to get very large scale as quickly as we can.
We think our scale is underappreciated, so if an opportunity arises in Connecticut, where <unk>.
<unk> is the largest clinically integrated network with 1100 providers across 450 locations.
You can just compare to their size to any other business model out there just in one state and our models flexibility allows us to partner with an entity like that and enter the state with an alignment with the large number of providers day, one and.
And then launched the full stack behind it.
And offer our full full platform. So I think the flexibility and the model allows us to pursue all.
Including health systems, and including Ipas are Cim's and that's how health care is organized in different parts of the country.
I think the flexibility and a model allows us to pursue all but there's no. One particular focus on any one particular Adam Sandler.
One thing.
As you would expect us we're having both conversations.
Because you I think you called it the lighter version perfect care partners. So I mean, we're and it has parts last comment there. It's just the way healthcare's organize we're having those conversations.
Getting the who would be interested in what we want to kind of obviously, we think the solution long term solution for us is to build single tax Ivy medical groups, but we want to have these relationships and we have those conversations upfront and we'll do that over a period of time.
Thank you.
One minute, while we prepare our next question.
Oh.
Our next question comes from Jamie parts of Goldman Sachs. Your lines now open.
Hey, Thank you. Good morning, just a question on the profitability. Appreciate you sharing your your your savings from that in 2022, I think in the past you've made some comments around and being potentially more profitable than MSP, but just curious how we should think about timing and how long.
It takes you to get too.
Similar contribution to M SSP, if not above.
Yeah. Thanks, Jamie appreciate the question. So that's a good comparison, we and our most successful large <unk> in mid Atlantic.
Close to double digits in check savings and MSB as we've reported close to 10%.
And that's in open access product B B O type obviously in SMA.
And Gaffer Dacian, where you are when you were handholding the patient a little bit more.
You should expect that the that we can get through that level overtime won't happen overnight. It varies by geography varies by our failed relationship and and how our physicians perform but overtime.
At least that are exceeding that should be the target for logical purposes. Our hope is when we as you can see the contribution today is fairly <unk>. So that's a pretty big source of operating leverage in our business model is we won't be as lives in decapitation.
And again, hopefully, we'll see good progression over the years.
Thank you one minute and second hand next question.
Our next question comes from really close Canaccord. Your line is now open.
Yeah. Thanks for the questions congratulations.
I'm curious if you could comment on the reception.
<unk>, Ohio, and North Carolina, So far and then as you think about entering new markets is there any comments.
Comments, you can provide us in terms of how we should think of startup expenses based on the different models, something like Ohio, and North Carolina versus.
Trying to get Privy to care partners people in Connecticut, and Delaware on the platform just curious there.
Thanks, Richard So on the fourth spot initial initial reception is pretty good.
We're just getting started and again.
This is a 5% any journey to go build big medical groups five six 100000 providers overtime. So initial reception has been great. We shed that photo bus add in.
In the triangle area, which is which is pretty cool so.
So we think again, we offer a very unique solution to providers that as we stated in our prepared remarks really wasn't available I think there's a lot of education, but this is a solution that has a real need in the market and physicians are realizing that this alternative exists in its entirety.
For them as an alternative to be employed.
Anywhere.
So we think the reception is pretty good our partners are really excited and we're pretty full steam ahead, and then secondly.
As we stated on slide slide.
Slide 11.
Focus is to go and build a full stack all our elements in every single state overtime. So if we are entering a stayed with the medical group or a health system.
What may not happen day, one is positive practice collections all care margin contribution because we have no doctors in our lives and we are setting up the market spending sales marketing implementation costs leadership costs for that particular state and that's about two to 3 million number that we have stated previously we do exactly the same.
In a in a state where we might enter with a <unk> partners model as.
As an example in Connecticut, However that state comes with attribute it lies in some contribution.
Practice collections and care margin, Dave one on the value base book, but the level of spend is consistent.
The only other factor I would say is the size of the state will have some impact on the level of spend so obviously, delaware would be much smaller than than Connecticut, Montana is much smaller than California, and so forth, but the strategy is pretty pretty consistent and the level of spend that due to $3 million per.
Per year is fairly consistent.
Thing I would add would be the those last two.
We're hitting the ground with operators on the ground <unk>, we've got some expenses.
Because we have revenue they won.
Thank you one moment.
Question.
Our next question comes from with Mayo on SDB. Your line is now open.
Hey, Thanks to steal in Connecticut is a little bit unique with CMG, you're actually I think putting capital into this deal to acquire the ACO by the value base care can you may be spend a minute talking about this transaction the structure a little bit what the split at the ACO is and.
Really the corollary to this question is should we read into this transaction that you may be looking to be a bit more active with the balance sheet to grow in buying into some new and existing markets. Just wanted to take your temperature on the desire to be a little bit more active here.
Yeah, Thanks with.
So our strategy has been consistent in any state as we outlined establishing the medical group the risk entity in our services platform. So they can be an opportunity for us to buy either of those three types of entities and we've done that in the past. If you look at California, you look at West access and I'll look at Connecticut.
Those are three different types of acquisitions.
Small scale, but all all three variety. So I think as we look again and are flexible model to enter the remaining 38 states.
Given how health care is organised, we may come across entities that can get us a pretty strong foothold with a pretty large entity in a scale in a particular state they won.
B a medical group could we could be an established services platform could be in ACO entity.
With all the capital flexibility, we have with closer to 350 million cash no debt.
Like I said, we're we're kind of full steam ahead looking at these opportunities obviously will be very thoughtful and doing so smaller is is better for us I.
Don't want to make mistakes.
And so will be will be consistent with what we've been doing in the recent past.
Thank you.
Again as a reminder to ask a question you will need to press star one one on your telephone.
One moment.
Questions.
Our next question comes from Jessica song, a 5% <unk> is now open.
Hi, Good morning, Thank you for taking my question.
So I wanted to follow up just on the Buck and can you help us understand the structure of the full cap contract.
Should we continue to think about these that's about a 625 or six at ATM or Avenue.
And then just what kind of year to care marketing ramp is inside and the 20th.
Thanks.
Yeah. Thanks Jess.
So the structure is fairly unique bye bye <unk> and by geography. This is not a homogenous contract we don't break down the number of lives by geography or <unk>.
The BNP should be higher than the amount you stated just logically.
In practice.
And gap revenue, but for practice collections. The BNP M should be it should be much higher and then again, we're not breaking down care margin contribution but.
You can see the.
The number every quarter now given our increased disclosure and our hope is from the de Minimis level. It's at today that increases over time.
Jessica.
Park mentioned and.
We've talked about it the past these contracts tend to be somewhat spoke I mean.
We don't we are not we all do just a flat 85% and take all the risk we really focus on aligning with the payer. We believe the payers should have some risk. We believe we should have some risk would we believe the doctor should have some risk. We think that is the most sustainable model Lauren long term so.
We sit down with him we look at where we have density but payers are there where would you know kind of what preferred type of <unk>, we'd like to have and then we go with contracting in that manner. So each one of growth probably they're going to be unique just because of the nature of the nature of the market the nature of the players and.
And then kind of how we go about the business.
Thank you at this time I would like to turn it back to Mister Moore for any further comment.
Thank you for listening for our call today <unk> capital efficient.
Position enabled model continues to gain significant scale and market momentum as we can support all providers and all patients I'll reimburse models.
Uniquely different geographies, we look forward to continue to execute at a high level through to 2023 and for years to come and we appreciate your continued interest and support of our company and we look forward to speaking to you very soon again enjoy the rest of your day and thank you.
Thank you for your participation.
This does conclude department.
Now.
Mmm.
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