Q4 2024 Privia Health Group Inc Earnings Call
Luella: Thank you for standing by. My name is Luella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Previa Health fourth quarter conference call.
Luella: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Luella: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Speaker Change: Thank you. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Robert Borchert, SVP of Investor and Corporate Communication. Please go ahead, sir.
Robert Borchert: Thank you, Luella, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of PriviaHealth.com, along with today's financial press release and slide presentation.
Robert Borchert: Following our prepared comments we will open the line for questions and we ask 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.
Robert Borchert: The financial results reported today are preliminary and are not final until our Form 10-K for the year ended December 31st, 2024 is filed with the Securities and Exchange Commission. Some of the statements we will make today are forward-looking in nature based on our current expectations and view of our business as of February 27th, 2025.
Robert Borchert: 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.
Robert Borchert: As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.
Robert Borchert: Finally, we may refer to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now I'd like to hand the call over to our CEO, Parth Mehrotra.
Thank you, Robert, and good morning, everyone.
Robert Borchert: Previa Health had a very strong 2024 on many fronts as we continue to execute well and drive growth across all our markets.
This morning, I'll cover our 2024 performance and business highlights.
Robert Borchert: Then David will discuss our recent financial results, capital position, and our 2025 guidance outlook before we take your questions.
Robert Borchert: Previous momentum extended across all aspects of our business as we exceeded the high end of all guidance metrics for 2024.
Robert Borchert: Our growth team once again delivered an exceptional year of new provider signings in existing markets, which underpins our strong visibility through 2025.
Robert Borchert: Implemented providers increased 11.2% year-over-year, which drove FIFA service collections growth of 13.6%.
Robert Borchert: Healthy growth and attribution, and a continued focus on clinical performance improvement, led to better than expected value-based care results, despite the challenging Medicare Advantage environment.
Robert Borchert: Adjusted EBITDA was up 25.2% with operating leverage driving margin expansion of 230 basis points year-over-year despite continued investments in our newest markets.
Robert Borchert: Previa also generated a record 109.3 million in free cash flow in 2024 converting 121% of adjusted EBITDA.
Robert Borchert: We ended the year with $491 million in cash and no debt.
Robert Borchert: Our balance sheet positions us with significant financial flexibility to deploy capital and take advantage of opportunities in the current market environment.
Robert Borchert: Our business development pipeline is robust and we are committed to pursuing disciplined growth that complements our organic sales engine in existing markets.
Robert Borchert: Previa's outstanding performance in the current healthcare and regulatory environment is a testament to the strength of our unique business model, strong execution by our operating teams, and most importantly, exceptional performance by our physician partners in our high-performing medical groups and risk entities.
Robert Borchert: We are well on our path to building one of the largest primary care centric delivery networks in the nation.
Robert Borchert: Our large-scale, high-quality, community-based medical groups and risk entities have demonstrated proven success across 14 states and the District of Columbia.
Robert Borchert: In these geographies, our footprint now comprises 4,789 implemented providers caring for over 5.2 million patients in more than 1,200 care center locations.
Robert Borchert: Gross provider retention of 98%, highlights the stickiness of our model and our provider satisfaction with the Privia platform.
Robert Borchert: Likewise, our patient net promoter experience being delivered by our medical groups.
Robert Borchert: Previa now serves over 1.26 million attributed lives across commercial and government value-based care programs.
Robert Borchert: The breadth of our contracts and geographic reach positions us as one of the most balanced and diversified value-based care organizations.
Robert Borchert: Total attributed lives estimated as of January 1st increased more than 11% from a year ago driven by new provider growth as well as new value-based care contracts in certain programs.
Robert Borchert: Commercial attributed lives increased 15.2% from last year to reach 782,000. Medicare Advantage and Medicaid attribution both increased almost 8% from a year ago.
Robert Borchert: We continue to expect headwinds in Medicare Advantage over the next few years, given pressures from elevated utilization trends, phase-in of WEE 28 through 2026, and changes in star scores among other factors.
Robert Borchert: However, the diversification of previous value-based care contracts gives us confidence in our ability to build scale and profitability across the business despite challenges in any one particular program.
Robert Borchert: We remain highly focused on generating positive contribution margin in our value-based contracts as we pursue attribution growth, manage risk, and implement clinical and operational enhancements in our partner practices.
Ultimately, our goal is consistent.
and Sustainable Earnings Growth.
for our medical groups and shareholders year after year.
Robert Borchert: Previa has delivered consistent growth and profitability and free cash flow across economic, health care, regulatory, and political cycles over the past seven years.
Robert Borchert: The power of our business model and consistent execution is evident in how we have compounded all key metrics, including free cash flow over time.
Robert Borchert: Since 2018 we have consistently expanded EBITDA margins and converted 105% of EBITDA to free cash flow on average.
Robert Borchert: The midpoint of our 2025 guidance metrics demonstrates our expectations for another year of strong EVA-DUG growth, despite significant headwinds in the current healthcare environment for value-based care.
Robert Borchert: Now I'll ask David to review our recent financial results and discuss our capital position and 2025 guidance outlook in more detail.
Thank you, Parth.
Robert Borchert: PREVIA executed very well through the developers, events, and employees of this operations management firm.
Robert Borchert: The growth in implemented providers, along with continuation of solid ambulatory utilization trends and value-based performance, led to practice collections increasing 4.7 percent from Q4 a year ago to reach 792.5 million.
Robert Borchert: Excluding revenue from the renegotiated Medicare Advantage capitated agreements, practice collections increased approximately 12.4% year-over-year in the fourth quarter of 2024.
Robert Borchert: Adjusted EBITDA, which is reconciled to Gap Net Income in the Appendix, increased 44% over Q4 last year to reach $24.9 million, representing 23.1% of care margin.
Robert Borchert: This is a 420 basis point improvement from a year ago as we generated operating leverage across both cost of platform and G&A while investing across all markets.
Robert Borchert: As Parth noted, we exceeded the high end of guidance for all key operating and financial metrics for full year 2024.
Robert Borchert: Practice collections increased 4.5% to $2.97 billion. Care margin was up 12.4%. And adjusted EBITDA grew 25.2% to reach $90.5 million.
Robert Borchert: The free cash flow generation of our business model further strengthens our healthy balance sheet as we ended 2024 with approximately $491 million in cash and no debt.
Robert Borchert: With the minimum capital expenditures in 2024, free cash flow for the year was 109.3 million or 121% of adjusted EBITDA. Higher than previous guidance due to the timing of certain outgoing cash payments as well as prudent working capital management.
Robert Borchert: Our initial guidance for 2025 is built upon strong 2024 provider signings and the diversity and resiliency of our operating model in the current healthcare environment.
Robert Borchert: In 2025, we expect to focus on the same four priorities that have driven our business to date. First, provider growth to increase density and scale in existing and new markets.
Robert Borchert: Second, attribution growth and performance in value-based arrangements. And third, operational improvements and efficiencies that impact the bottom line.
Robert Borchert: Using the midpoint of our 2025 guidance, implemented providers are expected to increase 9.6% year-over-year to reach 5,250 by year-end, and attributed lives growth is expected to be approximately 7.5%.
Robert Borchert: We expect practice collections growth of approximately 7.8% at the midpoint.
Robert Borchert: This guidance assumes minimal increase in shared savings and accruals year over year, given the ongoing challenges in the Medicare Advantage environment.
Robert Borchert: We expect care margin growth of 8.9% at the midpoint, given minimal increase in shared savings accruals. We are also guiding to adjusted EBITDA growth of approximately 19% at the midpoint.
Robert Borchert: Even a margin as a percentage of care margin is expected to expand approximately 200 basis points year-over-year as our operating leverage in more mature markets more than offsets new market entry costs.
Robert Borchert: While we are maintaining a robust pipeline of existing market expansion and potential new market opportunities, our initial 2025 guidance assumes no new business development activity or capital deployment.
Robert Borchert: Finally, we expect capital expenditures to be de minimis again this year as part of our capital light operating model and are assuming an effective tax rate of 26 to 28 percent.
Robert Borchert: We are nearing the end of our net operating loss carryforward, so we expect to pay more for cash taxes in 2025. This should still lead to at least 80% of our full-year adjusted EBITDA converting to free cash flow.
Robert Borchert: Previa Health remains focused on building one of the largest primary care centric delivery networks in the nation. We look forward to continuing to serve our physicians, providers, and health system partners and their patients while creating value for our shareholders for many years to come.
Operator, we are now ready to take questions.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Elizabeth Anderson with Evercore ISI. Please go ahead.
Speaker Change: Hi guys, this is Samir Patel on for Elizabeth Anderson. Congrats on the strong quarter and the solid guidance here. I just wanted to ask about the OPEX line. It looks like you're increasing OPEX based on your guide by only about 300k.
Speaker Change: year-over-year. Can you just help us understand and break out the leverage between sales and marketing and G&A? Is sales and marketing expected to be maybe down year-over-year just given the fact that there's no new market entry costs or how should we think about this?
Speaker Change: Yeah, thanks, Amir. Yeah, I think, you know, you're seeing the scale, scaling of the cost structure.
Speaker Change: We added one new market last year and you know the sales infrastructure spend happens right at the up at the outset, so I think you know our guidance does not assume any new markets any business development activity if that happens We'll update the guidance
Speaker Change: But other than that, you know, our job is to continue to scale the cost structure between G&A and sales and marketing. We are fifth year as a public company and you should expect that and so you're seeing the operating leverage play out really nicely. So that's one of the key levers to drive EBITDA growth.
Andrew Mock: Your next question comes from the line of Andrew Mock with Barclays. Please go ahead.
Andrew Mock: Hi, good morning. The cash on the balance sheet is now approaching 500 million, hoping you could provide a bit more color on the M&A pipeline and, you know, are you diligencing a lot of opportunities and passing on them or just haven't seen many opportunities thus far? And then relatedly, are there any uses of the building cash if not M&A? Thanks.
Speaker Change: Yeah, I appreciate the question, Andrew. So yeah, you could expect us to look at everything in the space. You know, we have 23 analysts covering us. You can expect we have 23 plus bankers covering us as well. And so given our strong financial position in this
Speaker Change: environment in our space. We're looking at all transactions that come across the table. As we noted, the pipeline is really robust.
Speaker Change: However, you know, we're going to be disciplined. It's been a pretty tough environment out there for value-based entities and a lot of revisions in estimates.
Speaker Change: performance both you know publicly as you've seen but also in the private market.
Speaker Change: So I think it's just finding the right opportunities. We continue to be very aggressive, but very disciplined in how we pursue those and take advantage of the situation. But you should expect us to deploy the capital, enter new states, increase density in existing states.
We've said previously we're looking at medical groups, risk entities.
Speaker Change: MSO entities given our model I think we can be very flexible. So we'll continue to look for opportunities to deploy capital to create shareholder value and that remains the primary focus. Obviously the strong balance sheet also helps us have sufficient capital to prepare for any
Speaker Change: unseen risks that might come, regulatory changes and so on and so forth to support our medical group and risk entities. So that's that's a big part of the capital that we that we have. So I think it puts us in overall in very strong financial position and then ultimately if
Speaker Change: the stock price deviates fundamentally from what we think is intrinsic value, we have the option to return capital to shareholders as well.
Speaker Change: Your next question comes from the line of Josh Raskin with Nephron Research. Please go ahead.
Yeah, thanks. Good morning.
Speaker Change: It seems as though, you know, other companies in the sectors, I think, are looking maybe to sort of evolve their business models and take less risk, especially in their initial contracts with providers and plans. You know, I heard one competitor speak to.
Speaker Change: a glide path to risk now, it sounded very familiar. So I guess my question, does that help PREVIA as plans and providers are getting more used to that?
Speaker Change: sort of as you guys talk about this path to risk methodology.
Speaker Change: Or do you think that puts competitors on sort of better footing now? And then I just wanted to make sure I heard just a follow-up. Did you say you were generating positive contribution margin from your MA risk contract still? And if so, how's that?
Speaker Change: Yeah, I appreciate the questions, Josh. I'll take them in order. So on the first one, look, I think we've been very consistent since five years that we've been public that
Speaker Change: You know, you have to distinguish between the willingness to take risk and the ability to take risk.
Speaker Change: We've always had the ability to take risk. We do so at the highest level in MSSP as you know. We do capitation in MA with a small book.
Speaker Change: I don't think providers wake up every day saying we want to do full risk.
Speaker Change: I think there was a lot of noise in the space by entities that jumped into full risk.
Speaker Change: And I think it's a misconception that to perform well in value-based care, to perform well in MA...
you necessarily need to take full risk.
Speaker Change: We've always said we prefer models where the payer has skin in the game, an entity like Previa that's enabling has skin in the game, and the doctors have skin in the game, or the medical groups and the risk entities have skin in the game. And we share it upside and down and I think that keeps everybody honest.
Speaker Change: So, I just think it doesn't change our position in the marketplace. You know, I can't speak for competitors. I think they've learned a hard lesson.
Speaker Change: Ultimately, our job is to take as much risk as possible.
Bezos
Speaker Change: And pays our medical groups and risk entities by the payers to assume that risk. I don't think we're not trying to do venture capital in public markets
Speaker Change: You don't need to lose money to do all this good work, and if we don't come across a fair contract from a payer that compensates our medical groups for the work that they're doing, you know, we're not going to take downside risk.
Speaker Change: It's pretty much simple and I think the providers Appreciate that and actually respect that that glide path. So I don't think it changes our position. In fact, I think it validates our approach and Makes our position much stronger
Speaker Change: And then secondly, on the MA book, yes, as you can see from the disclosure on our press release, we made a small, you know, about 2% gross margin on the capitated book.
Speaker Change: and you know we said last year we had renegotiated a couple of contracts at the beginning of last year much ahead of the curve and the one that we remained we were hoping that we'll make money and we're glad that we performed really well.
Speaker Change: It was better than expected and that led to some of the outperformance and the results that you see and and that's our hope that If you're doing taking downside risk, the objective is you do it to make money. It's pretty binary at the end of the day
Speaker Change: Your next question comes from the line of Whit Mayo with Leering Partners. Please go ahead.
Whit Mayo: Hey, thanks. I just wanted to hear more about the factors influencing the flatness this year and shared savings I don't know if this is all just V28, the respectfulness that you have around utilization, cost trim But are there any other changes with, you know, the benchmark methodology that's concerning you? And then I'm wondering...
Speaker Change: In the event that ACO reach doesn't get extended and sun sets, is this a thing that could be potentially good for you with new groups that may be looking to affiliate with with your platform?
Speaker Change: Yeah, thanks for the questions, Wood. So, look, I think we've taken a pretty prudent approach last couple of years, just given all the factors we outlined.
whether it's utilization trends, V28, Star Scores.
you know, benefit design changes, so on and so forth.
Speaker Change: And it's across the book. I think our guidance assumes prudence that
Speaker Change: We won't grow shared savings meaningfully year over year. We were able to do so. We had the same assumption last year, and then we outperformed, and that led to better-than-expected results.
Speaker Change: This guidance does not assume any meaningful step up in shared savings.
Speaker Change: And if we are wrong, we are hoping that there's upside than downside, as you've consistently seen with our results over the past five years. So I just think it's that. It's across all the programs. Utilization hurts us if you're taking risk. We've said you've got to manage that risk.
Speaker Change: So, I think it's more prudence across the board versus any one particular program from that perspective. And then to your second question, as you know, CMS obviously allows a risk entity or a tax ID medical group to choose.
patients and their spend.
Speaker Change: and would like to get paid for doing that good work, irrespective of the program. So ultimately, I think if there's convergence, we'll hopefully tend to benefit or capture some of that volume. We don't do reach today because we think we perform really well in MSSP, and if in all our ACOs or states,
Speaker Change: We've chosen to continue to add attribution in MSSP because we think that's the better outcome to save dollars for the government, taxpayers, perform well for our medical groups and risk entities. And if there's convergence, I think it'll just validate our position even more.
Speaker Change: Your next question comes from the line of Jailendra Singh with Tourist Securities. Please go ahead.
Jailendra Singh: Thank you and good morning and thanks for taking my questions and congrats on a good quarter. I wanted to follow up on higher than expected EBITDA to cash flow conversion in 2024. You guys called out certain outgoing cash payments, maybe provide a little bit more color there. And is this the reason why you are expecting the conversion at 80% this year compared to like 90% you expected heading into 2024?
Jailendra Singh: Yeah, thanks for the question. Yeah, it's really just sort of the timing of payments and where the liabilities and the cash ended up at the end of the year.
Jailendra Singh: I would say next year is really driven more based on the fact that we run out of some of our NOLs.
Jailendra Singh: and we're going to have to start paying some taxes next year and that's really going to decrease the percentage. So, you know, might it next year have been a little bit higher than 80 without the great year this year? Perhaps, but we feel very confident in our 80% guidance.
A.J. Rice: Your next question comes from the line of A.J. Rice with UBS. Please go ahead.
Hi, everybody.
A.J. Rice: When I look at your guidance EBITDA, you're expecting within the range of sort of 16 to 22 percent growth. I know every year there's puts and takes. I wondered if you would comment on that.
A.J. Rice: What do you see as some of the key variables that will move you around within that range? Is there anything that's different because you're heading into 25 from what you normally see?
A.J. Rice: And if I could squeeze in a variance on that, anything in Washington with all the uncertainty? I don't perceive you've got a lot of things at risk there, but anything you're looking at that they're discussing that could be an opportunity or a challenge for you?
A.J. Rice: Yeah, I appreciate the questions, AJ. So on the first one, look for context. Our guidance is very, very narrow. It's a five million range.
A.J. Rice: you know, that underscores the predictability and the consistency of our model and you know, there's not a big range from a dollar perspective.
A.J. Rice: And then, you know, there's nothing new this year, it's pretty much rinse and repeat, the variables are the same, we have a very predictable FIFA service book.
A.J. Rice: We've sold a lot of the providers that will get implemented already. As you know there's a five, six month lag.
A.J. Rice: and so the FIFA service book is extremely predictable. The only source of variability is the value-based book.
and that's actual performance versus our accruals.
A.J. Rice: and you've seen from a track record, you know, you can see slide seven.
A.J. Rice: seven-year track record that we've been pretty consistent with our accruals and we follow the same methodology as I alluded to in the answer to the previous questions.
A.J. Rice: So, I think that's going to be the only source and that's why you have the range, if the value-based book performs.
A.J. Rice: better than expected then like last year hopefully you know we'll be at the at or above the high end of the range and if not then then we have the range so
that's pretty much you know underscores that that narrow guidance.
A.J. Rice: On your second question, look, I don't think there's anything specific with our model supporting community-based physicians.
A.J. Rice: it's the lowest cost of setting in health care. You know the administration in its first term was really supportive of all the programs we are in.
A.J. Rice: We don't expect them to, you know, change that, and so there's nothing currently that we've heard that impacts our results. If something changes, obviously we'll let you know, but I think we'll continue to get good support from CMS here for all the programs that we participate in.
Speaker Change: Your next question comes from the line of Jax Levin with Jeffreys. Please go ahead.
Jax Levin: Hey, thanks for taking the question, and congrats on the really strong print.
Jax Levin: Pretty simple one for me here. I guess just want to zero in on the care margin guidance and running quick numbers.
It looks to me like...
Jax Levin: It's taking in a 6% drop in a in a sort of simplified view if you just look at care margin per average Implemented provider and I know that doesn't take all the moving pieces into account, but maybe just considering that
Speaker Change: What are the scenarios you guys think you'd have to look at to upside the care margin and the EBITDA guidance for the full year? Thanks.
Speaker Change: Yeah, good question, Jack. So, you know, it's predominantly the flat assumption in value-based care shared savings.
Speaker Change: So, that's one factor, and the other is, you know, the mix between...
Speaker Change: and nurse practitioners. So that impacts it a little bit given our scale, but not too much. And then obviously the mix between primary care, peds, OBs, and then specialists.
Speaker Change: and then how that flows down into care margin from practice collections. So, you know, I think overall we're looking to...
increase operating leverage.
Speaker Change: down to EBITDA and free cash, and you can see that increasing pretty well. But I think that's mainly driven by the first factor, which is if shared savings assumptions is flat.
Speaker Change: and, as you know, our take rate is 40% on every dollar of shared savings. You know, that is leading to that outcome. Hopefully, we'll get leverage in future years as that improves.
Jeff Garrow: Your next question comes from the line of Jeff Garrow with Stiefens Inc. Please go ahead.
Jeff Garrow: Yeah, good morning. Thanks for taking the questions. I thought maybe we'd check in on the Care Partners Program and just curious how provider interest has trended in that model and similarly, where previous level of interest is in not requiring providers to switch electronic health record systems to join the Previa platform. Thanks.
Jeff Garrow: Yeah, I appreciate the question. So I think that's progressing well. As you know, we, you know, we we bought Community Medical Group in Connecticut, which was one of the largest IPAs.
Jeff Garrow: and that's a state where we're starting to implement providers on the on the same technology stack but a large portion of that those are not on the platform yet. I think over time our hope is we'll migrate as many of our providers onto the same tech stack into our medical groups.
Jeff Garrow: But you know that's a good lever for us to continue to expand, get attribution, perform in value-based care, and over time get providers on the integrated stack. So I think it's performing pretty well as we had expected. It's all embedded in the results. We don't break it out. It's part of the core business.
Jeff Garrow: and so I think it's gone gone pretty well as planned.
Speaker Change: Your next question comes from the line of Matthew Gilmore with KeyBank. Please go ahead.
Matthew Gilmore: Hey, good morning. Thanks for the question. I wanted to ask about the physician fee schedule. I don't think Congress addressed the, you know, the cut that started this year at this point. There's obviously a lot of bipartisan support to get that addressed, hopefully in the next couple of weeks.
Speaker Change: I was curious how you were thinking about that from a guidance perspective. Is that even something that's material enough to move anything either way? And if it doesn't get addressed, is that something that actually helps drive additional providers onto the platform?
Speaker Change: Yeah, I appreciate the question Matt. So, you know, I mean we've embedded
Speaker Change: You know, our best estimate into the guidance, with whatever puts and takes, I think we have
Speaker Change: one of our offsetting factors in there too, so it's nothing material that we like to call out and if it's better, it's better, I think our fundamental value proposition does not change with that particular variable.
Speaker Change: you know, if anything, you know, all of these pressures, you know, further validate the need for providers to join a very large integrated medical group, risk entity, and, you know, and the value that Privy has to offer. So I think nothing fundamentally changes either way.
Speaker Change: Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.
Richard Close: Yeah, congratulations. Thanks for the question. Maybe digging into Washington a little bit more specifically, Parth, how do you think about, you know, maybe the level of uninsured increasing if subsidies go away and then the potential, you know, changes in Medicaid, you know, how does that impact your business? Obviously, it would be more 2026, but just thoughts there.
Parth Mehrotra: Yeah, I appreciate the question, Richard. So, you know, as you know, we don't have a big Medicaid book. We have about 97,000 lives in some value-based programs.
Our mix represents the demographics in each state.
Parth Mehrotra: across our 14 states and D.C. So, you know, it's pretty diversified.
Parth Mehrotra: You know, same with the uninsured, you know, so I think we'll just see We went through the whole Medicaid redetermination And you saw like, you know, we can capture some of those patients and lives into other parts of the book whether it's commercial MA, duals, whatever it is
Parth Mehrotra: on the individual exchange. So I just think it depends on how it all plays out, what the impact is. Do patients actually move in a particular direction? And that'll be again, state by state. So it's just tough to predict, but we don't have big exposure to Medicaid or to the uninsured yet.
Parth Mehrotra: Your next question comes from the line of Ryan Daniels with William Blair. Please go ahead.
Speaker Change: Yeah, hey guys, this is Jack Sempton for Ryan. Congrats on the strong year. I know you called out the cash balance where you can use some of that to help enter new markets and build density, and your guide does not include the new market entries, but is there any one area that you're targeting more or that you should see more growth from, like whether it is entering new markets versus same market growth? Just kind of curious what your mindset is, kind of parsing out the difference there. Thanks.
Speaker Change: Yeah, thanks, Jack. So, look, I think all the sales and marketing expense for existing markets is fully expensed in the P&L. So I think you're seeing the...
Speaker Change: power of the platform in that we can continue to grow organically in existing states pretty well.
Speaker Change: without deploying capital. I think in existing states where we could use capital as do
Speaker Change: just double down or increase density, you know, if there are opportunities that arise.
Speaker Change: and that's very value accretive because we already have an infrastructure. And then a lot of capital, obviously, predominantly the business development is getting into new states, which we've consistently done.
Speaker Change: over the past, you know, as you can again see on slide seven, we've consistently added new states every year.
Speaker Change: And then, you know, we've absorbed any incremental costs within our guide. I think that's pretty important.
Speaker Change: to also underscore. So I think if you look at some of the years like 2022, 23,
Speaker Change: You know, we continue to absorb a lot of those costs within the guide that we gave. So I think, you know, our guidance is pretty prudent, assuming no impact of BD.
Speaker Change: obviously if we deploy significant capital that'll come with the, you know, incremental collections, care margin, EBITDA, some will flow this year, some will flow next year, so we'll just see when we can get those deals done and if and when that happens we'll update guidance, but I think this guidance does not include any impact.
Speaker Change: Your next question comes from the line of Matt Shea with Needham. Please go ahead.
Matt Shea: Hey, thanks for taking the questions and congrats on a strong close to the year. I guess kind of as a follow up to the last question, you know, it was great to hear earlier this year that 70% of the new provider pipeline is coming from referrals, pushing down tax and
Matt Shea: payback period. So now that referrals have reached this level, is this changing your philosophy at all?
Matt Shea: New Market Expansion versus stepping on the gas to grow more in existing markets, and maybe as a follow-up, as we think about new markets like Indiana, how long does it take for the referral flywheel to get going?
Matt Shea: Yeah, I appreciate the question, Matt. So on the first one, look, we're going to be aggressive everywhere. Existing states, new states.
You know, just given the business model is very proven.
The unit economics are really proven.
Matt Shea: You know, each market evolves, so those conversion rates are in the most mature markets, as you would expect. Some of the new markets, I think that takes time to develop.
Matt Shea: So, I just think each market evolves over time, but I think we can have referrals across markets too. We can have bigger groups join us as they hear about the success story of their colleagues in other states.
Matt Shea: So I think we're pursuing all aspects, all levers to continue to grow and scale the business.
Matt Shea: You're seeing that in the results, you know, despite challenging value-based environment, we're continuing to...
Matt Shea: to grow, to grow EBITDA, to grow free cash all the way down to the down the P&L. So I think that's just reflective of how how this is playing out and we're pretty pretty proud of the accomplishment.
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Speaker Change: Your next question comes from the line of Ryan Langston with TD Cowan. Please go ahead.
Thanks, good morning. In the 2025 Guidance,
Ryan Langston: Providers it looks like expected to grow around 10%, but lives around 7.5% year-over-year, I guess despite kind of the strong
Ryan Langston: 2024 provider pickup. For 2024, actually, the lives growth was over the provider growth. So just wondering if that's an expectation of a
Ryan Langston: Slower ramp up of lives once you get those providers on boarded or anything else going on there. Thanks
Ryan Langston: Yeah, I appreciate the question. I mean, it's a wider range this year from 1.3 to 1.4 million lives, so, you know, at the high end, it's 11.5% growth.
Ryan Langston: We'll just see how it plays out, you know, it's law of large numbers are playing out, so I think the numbers you reflected were at the midpoint, but we'll just see how it plays out. It's also influenced by, you know, we're building multi-specialty groups.
Ryan Langston: and so, you know, primary care to specialty mix influences that a little bit as the attribution predominantly happens with PCPs, as you know, and then to some extent with OBs and Bs. But I think it's a broader range, so we'll just see how it plays out, but usually it kind of is pretty consistent with provided growth.
David Larson: Your next question comes from the line of David Larson with BDIG. Please go ahead.
David Larson: Hey, congrats on the good quarter and the great year. Did I hear you say there's no new market entry costs in the guide for 25? And why not? You usually enter a couple of markets, you got a bunch of cash on the balance sheet. And then also, did I also hear you say that the gross margin for cap revenue is 2%? It's great that it's positive, but that still sounds kind of low, right? I would assume a negative EBITDA margin if the gross margin is 2%. Why not just sort of exit those contracts. Thanks very much.
Speaker Change: Yeah, thanks David. So, on the first one, yeah, just to correct, the guidance assumes no incremental new markets.
Speaker Change: We obviously entered a few new markets over the last couple of years, so those are still, you know, we are investing in those as we noted in our prepared remarks.
Speaker Change: and all of those costs are fully embedded in the guidance.
Speaker Change: And then I think if you refer to, you know, page 10 of the press release, you know, you can see we break out, you know, the capitated revenue and then the total claims incurred, so you can see that we actually generated a positive contribution margin in that book.
so that's what we were alluding to.
Adam Rohn: Your next question comes from the line of Adam Rohn with Bank of America. Please go ahead.
Adam Rohn: Hey, thanks for the question. I'd like to unpack more of the shared savings commentary you gave, particularly on MSSP. As you mentioned, in 2024, you had initially expected minimal accrual increases for shared savings, but then it ended up coming in better.
Adam Rohn: Was that more so on the 2023 true-up, or was that based on what you're accruing for 2024? And then second, it'd be helpful if you could share.
Adam Rohn: you know, somewhat directionally what you're seeing on trend for MSSP in 2024 and how that compares to what people are saying in ACO reach is like a high single-digit trend, and if that, you know, what you're kind of assuming in 2025, if you're assuming, you know, similar trends continue in 2025 versus 2024 accruals. Thanks.
Adam Rohn: Yeah, I appreciate the question. So look, I mean, we don't obviously give guidance by year and by accrual versus actual, but in general, it's a combination of both. So in every year we are truing up
Adam Rohn: accruals versus actual performance for the previous year as the results come in and then adjust our accruals in the current year based on the data we see. So that's fundamental to the question you asked. Our methodology is the same. Our assumptions are the same that we want to be very prudent with the trends we witness.
Adam Rohn: If we are wrong, we hope that there's positive upside versus negative downside.
Adam Rohn: you know that's how we look at when we when we guide.
Adam Rohn: And so, I think the outperformance was again a combination, 23 versus 24. There was some prior period stuff, there was some in-year stuff, it balances across different lines of business.
We've got Commercial, we've got MSSB, we've got MA.
Adam Rohn: So there are puts and takes across all that balances itself out, and we're adopting the same approach this year. I can't specifically comment on trend and reach versus MSSP. It's really by geography, by book of business.
Adam Rohn: by state, based on regional benchmarks, how they change, so on and so forth.
HCC trends in those states.
Adam Rohn: And so, you know, we're just looking at the data that we get from CMS each quarter, each rolling quarter, and that influences, you know, true ups versus how we accrued for in prior periods and then, you know, how that informs us for adjusting accruals.
Adam Rohn: in the current year. So it's a pretty dynamic exercise. I mean our healthcare economic teams...
Adam Rohn: Data analytics teams just does a fantastic job, you know, with a pretty large book. I think you've seen that very consistently with our results.
Adam Rohn: over the last seven years. I mean, slide seven just speaks for itself. So I just think we're going to keep following the same approach and just see how it plays out. And the diversification of the book really helps us mitigate, you know, any puts and takes in any particular state or any particular program.
Speaker Change: Your next question comes from the line of Michael Ha with Baird. Please go ahead.
Speaker Change: Thank you. I just wanted to follow up on that last question.
Speaker Change: accountable care perspective trend for 23 to 24 and I know everyone's saying it's significantly below emerging trend right ACO reach like you just mentioned but you sound very confident based on you know what you're seeing internally does that mean what they publish for the ACPT is in line with what you're actually seeing for your own ACOs and I guess how does it impact
Speaker Change: your 24 performance accruals and is there any potential go-forward risk if rates do remain understated versus trend or I'm guessing maybe it's more in line than what people are assuming
Thank you.
Speaker Change: Yeah, so I think it's important to recognize the the ACPT impact is on newer ACOs Not not older ACOs. So I think there's some of that
Speaker Change: that you have to factor in. We have, you know, I think one new ACO that's impacted a little bit, just given the, you know, the gestation of these ACOs over time.
Speaker Change: So again, our book is very diversified. All those trends are factored into the guidance.
Speaker Change: Then it's our relative performance versus the benchmark, you know, the ACOs rebase every five years. So that happens over time with our different ACOs. I mean, you know, we've been in the program 10 years. So.
Speaker Change: You know, I think we just have a methodology that we follow we
Speaker Change: We look at the balance book and we embed all that in the guidance.
Speaker Change: you know, try to outperform based on good clinical performance in our practices and other levers that we can pull. And so I think we're not doing anything different than we've done in past years.
Constantine Davidas: Your next question comes from the line of Constantine Davidas with Citizens JMP. Please go ahead.
Constantine Davidas: Thanks. Parth, there's a number of competing medical group strategies out there in the marketplace that just haven't been as successful as yours. How much is technology a differentiator or enabler for you in supporting your growth in terms of just
Constantine Davidas: leveraging the Athena backbone, and I'm assuming now being one of their largest partners, in terms of driving your ability to scale quickly but efficiently at this pace across, as you mentioned, a pretty diverse set of providers, states, payers, etc.
Speaker Change: Yeah, thanks Constancee for the question. I think, you know, it's a great question but it's much more broader than just the deck stack.
Speaker Change: I think how we've differentiated ourselves, we've been saying this for five years since we were public.
There are not too many entities that
Speaker Change: are creating integrated medical groups, risk entities and a full tech and services platform all together in one shop.
Speaker Change: You know, having providers join an integrated medical group on the same platform
Speaker Change: with the same governance structure where we are deeply embedded in the workflows.
Speaker Change: Deeply embedded from a technology standpoint not only just an EMR and RCM But everything you build on top of that and then having a risk entity that is
Speaker Change: fully embedded and is supporting that medical group to take risk, and we are seeing the data, you know, day in day out across all lines of business. That's a very unique model. I don't think other models are this deeply embedded in the workflow. I think you've seen how that impacts performance.
They are relying on payers. They are relying on
Speaker Change: you know, a very light layer on top. They don't have the governance, the deep governance that we do. So I think it's the combination of those elements of our business model, and then obviously the embedded technology stack.
Speaker Change: that allows us to really work very closely with our practices.
organized them in small pods and influenced results.
Speaker Change: So I think it's all those factors that we have fundamentally built this business in a very thoughtful manner from day one.
Speaker Change: and you're seeing the fruits of that in empirical results over seven, eight years.
Speaker Change: A lot of companies went public, a lot of private companies out there that got funded.
Speaker Change: And it's very easy to just go take risk and on a few lives and support practices in a very light manner. I think that just plays itself out as you're seeing as this industry evolves.
Speaker Change: So I think, I think it's probably, you know, a very thoughtful question if you just, you know, look at the results that we've produced consistently over seven eight years that you can see publicly now that demonstrate the validity of this business model and I think it's a combination of all of those factors and that's why providers choose us given that strong value proposition.
Daniel Grossleit: Your next question comes from the line of Daniel Grossleit with Citi. Please go ahead.
Hi, thanks for taking the question.
Daniel Grossleit: On your capitated book for 2025, are you still assuming around a 2% contribution margin, or should we expect some improvement there? And then as we think about capitation, full cap in 2026 and beyond, it does seem like
Daniel Grossleit: rates, the advance rate was, you know, it was good and maybe some room for improving that as it goes to final. It seems like bids have been a bit more rational this year. So curious how you're thinking about capitation also in 2026 and beyond.
Daniel Grossleit: Yeah, I appreciate the question. So obviously we don't break out guidance in any particular program, you know, as we've consistently said we are in
Daniel Grossleit: a particular program and we are doing some capitation with the hope that we'll have positive contribution margin. I think it's tough to predict.
Daniel Grossleit: where there will be the same repeat from last year. I think we're going to be prudent in that book.
Daniel Grossleit: The environment continues to be challenging, as we alluded to, with all the factors, so, you know, we'll see how it plays out in this year. If we are in it, we are hoping we'll make money. We'll just see how it plays out during the course of the year. And then on the broader question, look, I think this goes back to the first or second question that was asked.
Daniel Grossleit: We continue to, you know, distinguish, you know, in our minds this
Daniel Grossleit: need to take full risk and capitation to do well in MA. I think, I think fundamentally we think a shared risk methodology with the payers where everybody's interest aligned is the right model. We are, we have the ability to take as much risk. I just don't think the payers
Daniel Grossleit: given the pressures they are facing, you know, will hand over contracts that...
Speaker Change: or slam dunk for provider groups just to assume full risk and make money.
Speaker Change: in this environment with all those factors. I mean, you've seen every payer go through their results and all the pressures, so it's pretty well documented by all of you on the call.
Speaker Change: So I don't think you should expect us to ramp up our capitation book. I think if there are opportunities where we can do so, where we see a good.
Risk Reward Ratio, and there's a fair...
Speaker Change: Payment for us to assume that risk we will otherwise our preferences
Speaker Change: to share the risk with the payer across all aspects of the book whether it's
Speaker Change: It's Part D, it's Part C, it's PCP span, specialist span, inpatient span. I think we...
Speaker Change: We take as much risk as we can in the things we control.
Speaker Change: And if we don't control certain things, then we're not going to take risk or share it with a pair.
Speaker Change: But our hope is if we are taking risk, we're going to make money. Otherwise, there's no need to take risk. We're making money for the payer. We're making money for our medical groups. We're making money for our shareholders. So it's a pretty simple concept. At the end of the day, again, it's a very binary outcome.
Speaker Change: Your next question comes from the line of Jessica Tassin with Piper Sandler. Please go ahead.
Jessica Tassin: Hi guys, thanks for taking the question. So this one's maybe for David. Can you just help us understand why the 4Q upside to the high end of the implied platform contribution guide didn't see more of a kind of complete flow through to adjusted EBITDA upside in 4Q?
Jessica Tassin: Were there any one-time items in OPEX? And I guess just why wouldn't the platform contribution upside be really high incremental margin and drop kind of straight through to each of them? Thanks.
Thanks, Jess. A relatively complicated question, I think.
Speaker Change: I think what you're asking is why is the EBITDA increasing greater than...
Contribution Margin and Platform Contribution.
Speaker Change: If that's the case, it's due to, you know, how our sales cost and our G&A cost run through for the year. And, again, both of them were, I would say, you know, positively or negatively impacted, depending on how you want to look at it, from how we did for the year.
Speaker Change: So, I don't know if I 100% answer your question. You asked a lot in there. So, if not, we can follow up after.
Speaker Change: Yeah, Jess, I think, you know, we had a great sales year, so obviously the sales cost in Q4
were higher as we drew up commissions.
Speaker Change: and then the company did pretty well, so some of the bonus accruals are higher than originally anticipated, so all that kind of just gets factored into EBITDA versus platform contribution.
Tau Chu: Your next question comes from the line of Tau Chu with Macquarie. Please go ahead.
Tau Chu: Hey, thank you. Just to continue on the point about your willingness to take risks, looking back in 2004, you renegotiated some MA comps.
Tau Chu: contracts and your BBC share of total collection came down 7% versus the previous year.
Tau Chu: Parth, I think you mentioned that the BBC environment remains challenging out there and MSSP is expected to be flat.
Speaker Change: Any changes contemplated to any of the at-risk MA contract you have today, should we expect the mix shift to further decline towards FFS? And if so, it would be helpful to decide that any potential decline in the mix actually will pass it. Thank you.
Speaker Change: Yeah, I appreciate the question. So yeah, we don't anticipate any changes, you know, we renegotiated whatever we had to beginning of last year.
Speaker Change: We are continuing with the capitated book we have. It's a pretty small piece of the business.
Speaker Change: like we said we're solving for positive contribution margin and you have to recognize I mean just going from full risk to partial risk It's all revenue recognition
Speaker Change: The doctors don't go anywhere. The lives don't go anywhere. Our ability to manage those lives does not change.
Speaker Change: So, you know, that that decline was fundamentally the way top line gets recognized if you take full risk versus you don't take full risk. So we're solving for positive care margin, positive contribution margin, positive EBITDA, positive free cash flow. But there's no change contemplated from the book we have today.
Thank you. Bye-bye.
Speaker Change: Your last question comes from the line of Craig Jones with STFL. Please go ahead.
Speaker Change: Thank you. Thanks for this one. Let me ask a question here.
Speaker Change: I wanted to hit on free cash flow conversion. You know, you've been over 100% for the last
Speaker Change: you know, a handful of years here, got into 80%, I think, from a combination of working capital, maybe, and then starting to pay cash taxes. So, as you look at maybe more in a normalized year, where you're full cash tax and let's just say no working capital, where does that conversion kind of shake out? Thanks.
Speaker Change: We do not have any more questions at this time. Gentlemen, you may continue.
Speaker Change: Thank you all for listening to our call today. We appreciate your continued interest and support of PREVIA and look forward to speaking with you again in the near future.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.