Q2 2023 Privia Health Group Inc Earnings Call

Good day and thank you for standing by welcome to the previous second quarter 2023 conference call. At this time, all participants are and listen only mode.

Today's financial press release N slide presentation are posted on the Investor Relations pages are Privy health Dot com. Following our prepared comments will open the line for questions. Please limit yourself to one question only in return to the queue. If you have a follow up so we can get to as many questions as possible today.

Financial results reported today and in the press release, our preliminary and are not final until our Form 10-Q for the second quarter and six months ended June 30th 2023 is filed with the Securities Exchange Commission.

Some of the statements will make it are forward looking in nature based on current expectations and your business as of August 3rd 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. It may cause the actual results to differ materially as a result, these statements should be considered.

With the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.

Finally, we made her for a certain non-GAAP financial measures on the call and reconciliation of these measures comparable GAAP measures are included in our press release any accompanying slide presentation posted on a web site now like to turn the call over to park. Thank you Robert and good morning, everyone.

Hell delivered another solid quarter as we moved into the second half of 2023.

We continue to execute on our strategy and remain focused on building one of the largest ambulatory care delivery Netflix in the nation.

This morning, I'll highlight a number of business and company update then David will discuss a recent financial performance in 2023 guidance outlook before we take your questions.

Trivia health continues to gain market share and momentum with a broad provider partnership an operating model.

We executed at a very high level during the second quarter, which resulted in practice collections, increasing almost 14% year over year.

Adjusted EBITDA was up more than 24%, which demonstrates a very strong operating leverage of our model as we continue to increase our number of provider partners and invest in a new markets.

Based on our performance you have the date, we have updated our 2000 twenty-three guidance and Ah raising most of the matrix to the mid to high end of our initial race.

Earlier this week, we announced a definitive agreement to enter Washington, Our 13 state in partnership with Walla Walla clinic, a multi specialty practice with more than 50 providers caring for patients in three locations.

It was essential for us to find the right partner, who shares our vision to help build a scale provider network in Washington, while improving access to and affordability of care in the local communities.

While our clinic has a highly successful history over its decades of operation and we look forward to continuing to build on its rich heritage of delivering high quality care in the community.

We expect the transaction to close in third quarter with Walla Walla clinic being fully implemented on the previous platform by the end of 2023.

Turning to some other company news on May 8th we completed a secondary offering a 42.6 million shares of common stock of more than 34% of our total fully diluted shares outstanding.

Is entirely eliminated Goldman Sachs in Pamplona capitals ownership in the company as well as the previous shareholder agreement provisions with a private equity sponsors.

We are excited to welcome a number of new longterm oriented investors and look forward to continuing to create shareholder value in the years to come.

In addition, the appropriate headboard has continued to broaden the capabilities and expertise of our board members.

<unk> managing partner aerobic on founders joined are brought on July 1st He brings deep domain experience as a former senior adviser for value based transformation and innovation at the department of Health and Human services and also previously served as director of C. M. M. I The innovation center at C. M S.

Dave Workman and <unk> joined our board on August 1st Dave's distinguish Korea with United help will bring unique insights to our board across the health care industry landscape.

Bam is a proven leader with broad corporate experience and human capital expertise, both in and outside the health care sector.

We look forward to the important insight and valuable contributions from each of these new board members as Premier continues to execute on its vision.

Previous national footprint continues to expand and now includes close to 3900 implemented providers and our medical groups caring for more than 4.4 million patients in over 1000 care Center locations.

Our scale and diverse provider and bear partnerships are true differentiators.

We are building 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 continue to be Arab ahead of our growth plan for adding new implemented providers in a recent new markets of Connecticut, North Carolina and Ohio.

While not highlighted on the slide. It is also noteworthy that are gross provider attrition rate in 2023 has been less than 1% year to date. This is one of the lowest in our company's history and we continue to add providers on a net same-store basis.

<unk> has one of the broadest most balance and diversified value base scared platforms in the industry.

<unk> close to 1.1 million attributed lives across more than 100 at risk their contracts and commercial and government programs.

Attribute of lives increase almost 27% from a year ago.

There remains a significant embedded opportunity for us to move our Medicare advantage lives into upside and downside risk arrangements over the next few years. However, we remain focused on tactfully moving to increased risk arrangements, while continuing to provide significant opportunities for EBITDA and free cash flow growth.

Our strong performance and the current health care environment is a testament to previous pro inability to manage risk.

Our book of business across a diverse set of fee for service and value based contracts and commercial Medicare advantage, the Medicare shared savings program and Medicaid.

Allow us to uniquely balance risk, while deliberating significant shared savings EBITDA and free cash flow growth across the cycle of varying utilization trends.

We leverage our clinical operations performance management health care economics, an actual real expertise to manage the transition to risk.

Or close alignment with our physician is critically important in managing patient battles across the risk spectrum.

This is accomplished through our physician led governance structure and our homogenous single tax I D medical groups in each state and the hands on day to day work of a clinical and operations teams.

These differentiated fee for service and value based care capabilities and the previous model allow us to be a unique partner to physician practices across all specialties in any state serving all patients across all reimbursement models.

David to review, our recent financial results in 2000 twenty-three outlook.

Thank you bar.

Perfect Health operational execution continued to deliver strong performance in the second quarter of 2023.

Are implemented provider count was 3870 up 9.3% year over year.

Solid ambulatory utilization trends and new implemented providers led to practice collections, increasing $13, 70% from Q2, a year ago to reach $700 million.

Adjusted EBITDA was up 24.3% over cutesy last year to $19.3 million.

Highlighting our ability to continue to generate operating leverage as we expand and grow an existing and new markets.

Total value based care comprise 37% of total gap revenue in the second quarter of 2023.

3rd% to 29.6% in Q2, a year ago.

Which highlights are thoughtful imprudent moves to at risk contracts over time.

For the first half of 2023 practice collections increased 15.4% to almost 1.36 billion.

Their margin was up 18.8% and adjusted EBITDA grew 19.3% to reach $36 $2 million.

Our update of 2023 guidance highlights the strength and resiliency of our operating model and diversify book of business.

Based on our year to date financial and operating performance. We are raising all of our 2023 guidance metrics to the mid to high end of our initial ranges except practice collections unattributed lives.

We expect practice questions to come in at the mid point of the guidance. As this includes the impact of the one paw fabricated contract we discussed last quarter.

We also expect your in attributing lives to be at the midpoint of our previous guidance.

As we've noted previously or 2023, adjusted EBITDA guidance absorbs approximately $8 billion to $10 billion in new market entry and expansion investments.

<unk> states in <unk> in 2023, we plan to continue to invest across our business enterprise to support our significant expansion, while continuing to grow EBITDA and free cash flow year over year.

We expect our new markets the scale significantly in the coming years as we grow our provider based on attribute the lives of these new states.

Our balance sheet and capital position to continue to be very strong with a cash cash of approximately $380 million and no debt.

Given our capital efficient partnership model with annual capital expenditures of less than $1 million. We continue to expect 80% to 90% of our adjusted EBITDA to convert to free cash flow on an annual basis.

We remain focused on building trivia health into one of the largest ambulatory care delivery networks on the nation.

And investing to support this growth as we build our national footprint. We are now ready to take your questions.

Thank you we will know conduct a question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced until.

To withdraw your question. Please press Star one line again, please I've only compile the Q and a roster.

Our first question comes from <unk>, Hello, John just sang from <unk> Securities.

How this happens on a previous call. This is <unk> <unk> securities. Good morning, everyone and congrats on a strong quarter. So actually I wanted to get more color around installation trends in the quarter.

How did those compared with our expectations and maybe what are you assuming for the rest of the <unk> and for the court in particular were there any pockets severe mutilations, what higher or lower than your expectations and impact on your business radius business lines and kind of related there was a 3 million unfilled, providing the court or can you.

Provide some colored wardrobe that.

<unk> I appreciate the question attack of the first half and then David will comment on the 3 million prior period adjustment. So generally speaking on the utilization trends one brought comment if you look at the last three or four years 2019 through 20 twenty-two pre COVID-19 acute dirt.

The Covid and then coming out of Covid, we've had <unk> flowing utilization to a pretty extreme level and the strength of our model just speaks for itself, where we've each year grown both our fee for service book and our value based book from both the top line and an EBITDA perspective, So I think it's important to take slightly longer term view as we.

Look at utilization the second point I'll make is.

As we've said previously it's important to distinguish between ambulatory utilization and then surgical or in our outpatient utilization trends.

On the ambulatory side, we continue to see a higher plateau coming out of Covid, we've seen pretty strong tailwinds that in our minds is as good a utilization with people seeing their primary care provider pediatrician obgyn and that bodes well for a fee for service book and also is good for the value based book.

I think if you see some spikes in surgical utilization both in an outpatient that obviously impacts the Medicare advantage book.

But despite that our other value base books, both commercial and the Medicare savings program Act as a very natural hedge. So I think obviously, we are downstream from the bears we've all seen the same commentary that you read and all of our all on balance we performed really well in aggregate across both fee for service and and value Facebook.

Yeah in Georgia on the 3 million that you see out there. It is not related to the policy cavitation a contract that we did last quarter. So I kind of wanted to make that point to start with.

We received some hair data relative to retroactive 2022 adjustments. So the $3 million a primary claims increase was not actually a gloss those offset by approximately the same amount of revenue both the Q2 of 2023.

And even with.

Our financial performance remains strong as reflected in our queue to result, an update of 2023 financial guidance to the mid to high arranges.

Alright, thanks, guys.

Okay.

Thank you please came back.

Our next question comes from Lisa Gil from J P. Morgan.

Alright, thanks, very much good morning, Uhm I just wanted to take in a little deeper on the ramp and the new markets and you know, adding North Carolina, Connecticut, Ohio, How do how do I think about you know the trend that you're seeing how quickly you're getting suggestion to come onto the platform and would we.

Expect an impact as we go towards the back half of this year and I understand that Washington will be will close in the third quarter. So I'll take that as more of a 2024 opportunity, but I'm just curious as to how the ramp it's going first is your ear expectation.

Thanks for the question Lisa So we're really pleased with how we've started in each of those markets. As we stated in our prepared remarks, we are running ahead of our expectations in new provider sales in.

And each of those states and we continue to see pretty good opportunities to build very large medical groups over the next four to five years, which is which is always a pieces. When we entered these new states I think this yard is we've experienced one of the strongest.

In market sales ears, and the history of the company that's reflected in our updated guidance of.

To meet the high end on the implemented providers for the for the end of the year and then again, Washington as a new state that was not disclosed.

Disclosed earlier, and we're really pleased with that partnership there'll be implemented before the end of the year, but you'll see the financial impact for the full year going into 24. So I think all of that leads us to have pretty good momentum closing out this year and then entering into next year and that's.

That's reflected in the guidance we provided today.

And part of the email and any early thoughts on like health system pipeline partnerships for 24 like how do you feel about that person is what we've seen in the last two you're just giving your success are you seeing.

More interest the same interested just curious if there's a way to quantify how to think about that pipeline going into 24.

Yeah sure I mean, we've seen a really strong momentum if you see our performance since going public a couple of years ago.

We've accelerated the opening of new States. We've entered now five states in pretty short order here in the last 12 months and when we went public. We said you don't expect us to enter one state a year and were clearly exceeding that.

<unk> continues to be broad, we having multiple discussions with medical groups ACO entities health systems again, the timing of when these head is always uncertain. These are very strategic partnerships very long term oriented and we are very careful and who we choose as a partner. So obviously as those head we will update you as we've been doing but we feel really good.

About going.

Going into the next couple of years and the momentum of the business.

Thank you.

Next question comes from Elizabeth Anderson from Evercore. Please.

Please go ahead.

Hi, guys. This is <unk>.

Okay.

We're upwards of $900 on P. M. P M for Capitated revenues for the corner you know assuming no major change in and lives should we expect something in this range going forward or is it kind of just trying to understand.

The range that it could potentially following over the rest of the year.

Yes, I'm here. So I think that's a fair range to look at obviously, we are downstream from the bears on the cap book. So it's 85% of premium and then in some some risk pools, we are not taking the full 100% risk across all buckets of spend so it just depends on the mix of business and the risk pool, we are in and and.

How much risk Mia sharing with the bear so will typically be slightly lower than the.

The average B M. P. M that you usually see in the industry compared to 100% risk contract.

[noise]. Thank you.

Our next question comes from Richard close.

Yeah. Thanks for the question I was wondering if you could just talk a little bit about Washington.

Difference in that deal is maybe compared to let's call. It a bass in California and then.

When do you expect to see I guess gross offer that in terms of bringing a new physicians.

Thanks for the question Richard So the fundamental differences up.

We we will on the tax I D on dmso entity, the ACO entity in Washington, So all three entities.

That's not always the case and some of our partnerships, but in this stage, we would own all three entities.

So you'll see us consolidate the results on a gap revenue basis and that will happen from the date of the closing of the transaction.

The full year impact from an earnings standpoint will happen likely starting 2024 is a while I, while I clean it gets implemented towards the end of this year similar to the five to seven month Ram that we have and implementing providers and then we'd start a war with again the pieces is very similar to other states. This is a four five year journey for us to add.

Providers and I, Thank God differentiated model Israeli should be welcomed in that state I think there's a real need for providers to have an alternative in the purview of model to be autonomous and remain in their ownership structure, while aligning with somebody like us.

So we're really excited it's a big dam in that state and we feel really excited to enter enter that state.

Thank you.

Our next question comes from Tagine Phillips from Jeffries.

Hi. This is <unk>. Thank you for taking my question. So looking at the value base attributed by squirrels, mainly contact concentrated in commercial and then on the government side M. A so I'm just curious as he goes through the year and there's a lot of you can say Matthew nice are a lot of shifting in terms of enrollment.

With Redeterminations and exchanges how are you thinking about the impact on your business and then parse you had talked about it still seeing a lot of embedded opportunity in Medicare advantage, I guess, what what kind of trigger that unlocked right for you to see more growth in that part of the business. Thank you.

And thanks for the questions allergy. So obviously the one key differentiator for Previa is our book of business is very balanced as you noted between commercial and government programs and within a government programs and and MSB medic aid I think that puts and takes in each one of those are our view us as we grow our provider base.

As we get more patients on the platform. We are looking to increase the number of attribute it lives across all of these buckets and I think we see great tailwinds across our state and continuing to add attribute of lives and then increasing the yield for life.

As we entered into these programs both for opposition partners in delivering local scare and adding value for the players I think that differentiates us very meaningful even in the commercial book. So I think you'll continue to see growth in each of those buckets. Obviously they are there's movement within the year. If you take up two largest buckets commercial NMS S. B.

They are more open access BB or like products in the early half of the year you, sometimes see employers change that insurance carrier. So there can be some shifting.

Of lives as they need to come in and see their BCP again before being attribute it and the new new plan and we are downstream from that it's very unlikely that the patient actually leaves the doctor. So I think you'll see some movement in the first couple of quarters, but overall as we increase the number of providers you should see broken lives and then the last one on murder.

<unk>.

Again, you'll see somebody domination effect on that pool, but we are hoping that we capture those lives back in the commercial bucket overtime and then the book.

We will continue to as we've noted and are not prepared remarks take possibly increase the level of risk. We had we are taking on that book a business.

A lot of embedded opportunity, but you need to do it very thoughtfully as we have been doing with a focus on maximising the earnings power for the level of risk we take.

Thank you. Our next question comes from Jamie purse from Goldman Sachs.

Hey, Thanks. Good morning, two quick financial questions Uhm first can you help us with the bridge on care management piece from from one <unk> seemed like a a bigger step up than than usual. So I'm wondering if there's incremental services being offered a new partnerships. There that are driving that and then just just on second half.

Guidance I mean, it feels like there's a lot of momentum coming out of the second quarter, you're you're implied second half really isn't changing too much across most metrics I'm I'm wondering if there's any incremental headwinds you're you're assuming for the second half or just any specific assumptions, we should be thinking about.

Now thanks, Jamie So on the first question look again, you'll see they're great operating leverage in a business, where if we get great top line growth and perform well in value based arrangements.

There is embedded operating leverage that you can see flowed through into EBITDA, and then free cash flow. So I think that quarters, where you see that play out very significantly. We also saw that in all of 2022, where we grew top line close to 50%, but that close to 50% free cash flow grows closer 50 per cent. So I think again, we differentiate from that perspective in our book of business.

And with a unit economics, working and seeing some of that play out in queue to and for the rest of the year.

Look at your will try to be prudent with our guidance, we see a lot of good momentum. We also investing in five new market as David noted. So I think it's a balance between continuing to invest in and get future growth versus profitability in the current year. So I think we feel really good about the guidance we have given in.

As the year goes will will update guidance going into Q3 and Q4.

Thank you. Our next question comes from Jeff <unk>.

Yeah, good morning, and thanks for taking the the questions. So what while I asked about investments in new markets and you've mentioned the success Rampey markets like North Carolina, Ohio in Connecticut. So curious how how new market investments spend is tracking year to date and then maybe I'll see you could help us think about growth in new market.

[noise] investments going forward versus what you've detailed for the current year and specifically how the the types of markets and agreements like what you've disclosed in Washington, and whatever else is in the pipeline might impact that thanks.

Yeah, So I would say as we've been tracking with our with our results in those markets. So have the the investments in those markets. So I would say the investments are on track and maybe even a little bit ahead of schedule for the ones that we've done in the past on a go forward basis, obviously, we have an air.

Spectation of investment each time, we enter one of these markets and so we're expecting to invest in Washington, starting obviously as soon as we close so I'll have some of that impact this year, but obviously that's reflected in our increased guidance that we provided for the year and again on a go forward basis as we continue to enter new markets, we expect that.

Operating costs as we get into this market not to really be much different from that in the past.

The larger the market may be a little bit larger cost a smaller mark may be a little bit smaller but at the end of the day, we are going to make that we are going to need to make an investment in any of those markets as we enter them on but we see great long term results for.

We're making those investments.

Thank you. Our next question comes from Andrew Bach from U B S.

Hi, just wanted to follow up on the utilization conversation you hold the mid point of your practice collections outlook constant despite strong performance in the quarter. The low attrition rate decided add your comments around strong tried any ambulatory <unk>.

<unk> can.

Can you help quantify the impact of the pause capitated contract and expectations for this year and is there anything else you would call out why the higher utilization isn't necessarily flowing through to hire practice collections revenue. Thanks.

Yeah. Thanks, Andrew solve obviously, if you look at the implied lives that are.

Not capitated.

You can you can if we hadn't have that contract paused.

You can imply that we would have been closer to the mid to high end of our original guidance even on practice collections. Obviously, the reason for causing that contract was preserving the earnings power and given the situation. The unique situation in that one particular contract it's not impacted our bottom line results and that was the objective here. So.

You know again, you can see the top line impact is not resulting in any any bottom line metric in with the momentum. We've had had it not been for that we would have been mid to high end of that that guidance as well.

Thank you. Our next question comes from David Larsen kind of B P. I G.

Alright, congrats on the good quarter could you maybe talk a little bit about the nature of the conversations that you're having with the health plans are they are they willing and ready and happy unable to get into risk deal. Sometimes they want to avoid risk deals are you seeing more success on the Medicare or Medicaid side.

And then just any thoughts around you know the the CMS proposed rule for 24, there's gonna be some headwinds for the conversion factor, but an increase in risk just any color there would be helpful. Thank you.

Yeah. Thanks, Dave So in general look we work really closely with all of our health plan partners. It's a longer term discussion than than a very major discussion. We look at the different risk pools, we look at density of lives.

Density of duels and decide when to dial up risk look at our our approach has been to be very prudent we're going to be more explicit than have a slide and our earnings call with the sub heading that stays at skull risk for a reason or philosophy has been to have very close alignment both with the pay our partner as well as our physicians.

Having all three entities participate in that risk, we think that leads to very bad better aligned outcomes and will continue to follow the same philosophy, obviously that can be you know in a period of time, where everybody's chasing M. A utilization sorry, MA attribution you know you can have.

Population growth or attribute of lives growth, which can be a little bit of natural if everybody's chasing that from the bay our side and we are downstream from the payer. So we try to avoid adverse selection and and things things of that nature. So having that alignment is very important. So I think we continue to have those discussions and every each one of our states with hopefully move into risk.

We really liked dcms MSB program as you as you noted it's a big part of our business CMS takes about 25% share of the shape savings and the enhanced track and I think most of the changes that they proposed further will spend in the program and will be favorable in general to us around the assignment process, whether it's been.

Mark risk adjustment methodology quality reporting and then potentially the ability for acos like us to take more risks in the enhanced track I would say, though these will the financial impact will likely be more gradual then some one time spike here as we've seen in the past with CMS adjusting the program, but we continue to think that this is one of the best.

Most broadly applicable value based programs in the country and then we feel really good about it.

Thank you. Our next question is from Jessica <unk> and some pay per Sandler.

Hi, Thanks for taking my question. So I was hoping you could maybe talk a little bit about the performance of some of your more mature and that's S. T. A T S and specifically curious to know if atheists like the mid Atlantic are still growing new provider Ah new lives and nine years after infection and kind of went in a C. L is that.

Sophisticated or mature how do you think about bringing new providers into default without diluting the savings rate <unk>. Thanks.

Yeah. Thanks for the question, Jeff We've continued to grow all of our Acos over the years, we continue to add new providers, even in mature markets like mid Atlantic. There are a lot of late adopters, we see a lot of momentum we still despite being in this market for.

More than eight or nine years.

Have pretty low market share relatively we barely approach double digits, even in mature markets with very large medical groups and I think that speaks to the strength of this business model, where the dam is really large for us and we continued to get more attribute lives enter into increased risk arrangements. So moving from <unk>.

Two three are AVC as they were in the past into more enhanced track and then increase the savings rate. So I think you're going to see a double whammy on the shared savings and the EBITDA progression on these acos and our hope is to continue to keep delivering on that obviously the more mature markets you start to see some stabilization of results, but we think.

We have a pretty good pretty good line of sight in the next few years to keep growing some of our acos and continuing to deliver.

Thank you. Our next question comes from with Mayo.

Hey, Thanks policy, you guys acquired Uhm that ACO in Connecticut, you know a few months ago and I'm. Just wondering instead of strategy that you guys think you might plan on exploring further and I guess the question is are you finding more inroads conversations after that transactions just how willing you are to maybe put capital to work too.

Move into new markets, you'll probably have over $400 million of cash by ear and so just kind of curious as you think about capital deployment and and growth. How willing you are to maybe pursue that as a as a strategy.

Yeah. Thanks for the question with so the uniqueness of our business model is as you well know we are forming medical groups risk or ACO entities, and then a full management services entity in every state. It's a very integrated type model across fee for service and value based care.

The way, we enter each market or grow a market. After we enter can be acquiring either of those three types of entities and we've done that in the past as you've seen with different entries in different states with though and putting capital small amounts of capital to work I think you should continue to expect that we keep doing that entering Washington is another.

Example, we bought the medical group entity.

There and I think.

We are on the lookout for more such opportunities to either enter into new states or expand and increase our density an existing states and I think that's a great use of capital for us to keep growing our business and so I think you should continue to expect us to do that in the future.

Thank you. Our next question comes from Gary Taylor from Colin.

Hi, Good morning. This is Ryan likes and then for Gary Taylor It looks like.

<unk> jumped up quite a bit sequentially and in the second quarter DSO looks like it's up about 10 days, but this is pretty similar to what we saw last year can you just remind us what is driving this and also it looks like on the cash flow statement. There was a 5 million dollar repurchase of N. C. I can you just maybe give us some context on what.

My first one thanks.

Yeah, Hey, this is this is David yeah on the accounts receivable. So the there was partially related to our new cavitation related equivalent 23, you've got some new contracts led increase revenue.

But remember on our value based care side of the business with the typical one year annual payment in Q3 or two four of each year.

Build in Q1 and Q2 each year. So unlike b for service that you get sort of more of a normal DSO churn for the diabetes care stuff that grows throughout the year and then we get a payment in queue for you before a R goes back down and then it continues to grow back from there so and again as you mentioned very similar Saint pattern is our past couple of years.

<unk>. So we're expected we expect this and this is what we expect on the $5 million on the cash flow, we purchase the remaining minority stake and a and M. S. O that we own the majority stake in so it was just a small additional investments one 100 per cent of an M. S. One one of our markets.

Thank you. Our next question comes from Sandy Draper from Guggenheim Partners.

Thanks, very much a lot of questions have been asked and answered it maybe just a quick housekeeping than my actual question I think David you mentioned you gave the percentages of fee for service and value base care versus as a percentage of practice collections. If that's true could you just repeat that and I guess my broader question I know you guys don't.

Typically comment on Capitated margins, and where you are but just yeah in light of all that what's out there and it's sort of been talked about how you're progressing in terms you you feel like you're progressing on your Capitated revenue in terms of the margins and again, how you think about the long term trajectory about where it virtual scale is there and targeted margins. Thanks.

Mmm.

Oh, Okay. Yeah. So value based care represents 30 37 per cent of gap revenue in twenty-three compared to $29 six <unk>.

22, and practice collections diabetes care was 24.9% in Q3 twenty-three versus 21.8% and Q2 22.

Yeah and Sandy.

I appreciate the question on the on the Capitated book look argue is.

You've taken creased level of risk if they are significant.

Earnings opportunity for taking that risk and not getting compensated in a doctor's getting compensated so I think with close to 150000 lives.

The the embedded opportunity is pretty huge for us to dial up risk we are just taking <unk>.

<unk> downside risk in about 23% of those lives today over time, you should expect to see that number increase obviously, we tried to do this very prudently working with a bears understanding where we've got their identity, making sure I'll providers outlined the share the risk with us upside and downside we don't backstop.

Cause you know and we think that's the right long term model to get all all three entities align in such an environment. So I think while our approach has been more prudent than many other players you know I think there's been a lot of focus on taking more risk in the recent years, then managing risk we thank our manager.

Risks should be as important if not more important than taking risks, especially as you go through some of these utilization trends that the fares have been vomiting on we as provider entities, taking risks downstream from that and and I think again, you'll continue to see us being very thoughtful overtime over the long run you should see very pretty significant opportunity for us to <unk>.

<unk> the earnings power of this business as.

As we take more risk in that in that particular segment and drive the future EBITDA in free cash flow growth.

Thank you. Our next question comes from Ryan Daniels from William Blair.

Yeah. Good morning, Thanks for taking the question part one for you you've talked a little bit about outpatient utilization. Obviously the managed care companies are seeing a lot of pent up demand and sustained outpatient surgery volume you're in a pretty unique position here both with your surgery partners <unk> I've been kind of your multi specialty per view maybe help with.

I'm curious, what you're seeing specifically there and if you can move into more risk based contracts or episodes of care on the outpatient surgery to help deal with that and drive your growth and value proposition. Thanks.

Yeah. Thanks for the question Ryan.

We would agree with your assessment I think we are in a very unique position and that's a great differentiate or for US. We have 50 plus specialties on the platform. We're not very heavy on surgical specialties, but we have partnerships that are and and the markets, where we have hospital partners, obviously, that's a bit more heavy.

But overall, we think the commercial book.

Going to continue to be a pretty important part of our business. It's 50 per cent of the population is commercially insured I think there's a big focus by the payers to move a lot of the surgical procedures in an outpatient setting from an inpatient setting I think that bodes well for our business and the value of multi specialty group like network can provide the bare partners.

We're having a lot of discussions and adding to our special specialists network and moving a lot of those volumes to the outpatient setting. So again, it's a long term strategy, but it adds a big Dale went through our business and again that diversification helps us continuing to grow both top line and EBITDA as I mentioned earlier and one other question.

<unk> if you look at the last four years, it's displayed outwear, despite the ups and downs through the Covid years, we've continued to grow top line and bottom line would that kind of mix and so we feel breached excited about our strategy in it validates our approach and building big multi specialty groups 80 per cent of the costs are downstream from the P. C P.

And it allows us to manage those costs and different arrangements as they they come about overtime.

Thank you. Our next question comes from Adam Ron of Bank of America.

Hey, Thanks for the question coming back to the Washington market entry I'm, just trying to get a sense for how dilutive who would really be to enter just because if you already have 50 provider that could be like $30 million in revenue and if you take 10% of that that's like $3 million increments revenue to you Uhm and you talk about like low single digits startup cause.

Cost of new markets. So just wondering why wouldn't that just be breakeven next year and just trying to understand.

[noise], what scale, you kind of need in the market to overcome the dilutive investments. Thanks.

Thanks, Adam So you know your assessment is correct. If we get a headstart like we are doing here with 50 plus providers as you've seen we've entered the market and we've increased our our guidance ranges on the bottom line metrics to them at a high end. So we are absorbing some of those costs within the year.

Despite edition of one new market that we hadn't previously announced however, I think the damaged pretty big so.

While we'll get a little bit of a headstart here. These markets breakeven is we're looking to build very big <unk> medical groups 202, 50, or 300 providers over the next few years, there's pretty significant sales marketing implementation costs that go in.

We've commented on the two to 3 million spend for new state and that's been will happen in Washington as well.

Getting a headstart with 50 providers held but most of these markets take a couple of years just ahead breakeven.

Thank you and our last question comes from Sean Dodge of or be seen capital markets.

Hey, good morning, Mrs. Thomas Keller on for Sean Thanks for taking the question.

So the higher level in here, how does spiritual care, putting your current provider Playboy for strategy cause it's like an effective tool to improve overall economic shall we make a baby's care side or is it just more of a capability that certain patients kind of expect at this point.

Yeah. Thanks for the question.

I think we've we've continued with our playbook, where you know it's it's everything that you mentioned I mean, our job is to transform the practice once a provider joins us and optimize both there fee for service operations take as many other lives and move into value based arrangements streamline the expense structure and take on a lot of the Adam.

<unk>. So we are focused on all of those aspects to increase at the end of the day that take home pay for our physician partners in the Provider's that join us and that's our value proposition. It's a it's a pretty big moth a lot of hard work goes into it we take a lot of the dirty work off of their plates and then increase both the top top line and <unk>.

Out of line and then you know our management fees are directly tied to the performance of the practice. So I think the interest jeopardy line. So I think you know we're going to focus on all three aspects of doing that and keep adding value to all provider groups and that increases. The stickiness is you are seeing with our business.

Thank you I'm showing no further questions at this time I would now like to turn the conference back to Mister <unk> for our closing remarks.

Thank you for listening to our call today. We appreciate your continued interest and support of our company and look forward to speaking with you again in the near future.

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

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