Q1 2025 Privia Health Group Inc Earnings Call
Dee: Thank you for standing by. My name is Dee and I will be your conference operator.
Dee: At this time, I would like to welcome everyone to the previously held first quarter conference call.
Speaker Change: We drove question breast star one again, thank you I would like turn the call over to Robert Archer Senior Vice President of Investor and Corporate Communications. Please go ahead Sir.
Speaker Change: Thank you Dan and good morning, everyone. Joining me are part of the road trial, our Chief Executive Officer, and David Mountcastle, Our Chief Financial Officer.
Speaker Change: This call is being webcast and can be accessed at Investor relations. Thank you you are pretty health Dot com, along with today's financial press release and slide presentation.
Speaker Change: Following our prepared comments, we'll open the line for questions. Please limit yourself to one question only returned to the queue. If you have a follow up so we can get to as many questions as possible today.
Speaker Change: The financial results reported today are preliminary and are not final until our Form 10-Q for the first quarter ended March 31, 2025 is filed with Securities and Exchange Commission. Some statements. We will make today are forward looking in nature based on our current expectations in view of our business as of May eight 2025, such statements, including those related to our future financial and operating performance.
Speaker Change: And future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially as a result. These statements should be considered along with the cautionary statements in today's press release and the risk factors described in the company's most recent SEC filings.
Speaker Change: Finally, we may refer to certain non-GAAP financial measures on the call and reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website.
Speaker Change: So now I'd like to hand, the call over to our CEO part borough Tret.
Speaker Change: Thank you Robert and good morning, everyone.
Speaker Change: Have you held stock started 2025 with strong growth and momentum as we continue to execute very well across all aspects of our business.
Speaker Change: This morning, I'll cover our first quarter performance and recent business highlights.
Speaker Change: And then David will discuss our market presence.
David Mountcastle: Results in our 2025 guidance update before we take your questions.
Previous growth theme has continued to deliver strong new provider signings across all of our markets, which underpins our visibility through 2025.
David Mountcastle: Implemented provide a growth of 11, 7% and.
David Mountcastle: And value based attribution growth of 11, 1% year over year helped drive total practice collections growth of 12, 8%.
David Mountcastle: Adjusted EBITDA increased 35, 1% with EBITDA margin, expanding 460 basis points year over year, while we continue to invest in growth and expansion.
David Mountcastle: This highlights the scale and strength of our business model.
David Mountcastle: In early April we announced the entry into the state of Arizona as we pursue disciplined growth to complement our organic sales engine.
David Mountcastle: Following this outstanding overall performance in the first quarter.
David Mountcastle: We're raising our 2025 outlook to the mid to high end of our initial guidance.
David Mountcastle: Attributed lives guidance remains unchanged.
David Mountcastle: This guidance range early in the year is being driven by our excellent operating execution and continued exceptional performance by all of our provider partners and the current health care services environment.
David Mountcastle: We announced a partnership in early April with IMS as our anchor practice to enter the state of Arizona.
David Mountcastle: IMS is one of the largest independent multi specialty practices in Arizona with approximately 70 providers.
David Mountcastle: This is a very strategic market and people trivia as the demographics of Arizona offer a compelling value based care opportunity.
David Mountcastle: IMS has more than 28000 value based care attribute it lives across commercial Medicare and Medicaid programs.
David Mountcastle: The transaction value was $95 million at closing.
David Mountcastle: We have a health <unk> medical group entity, and a management services organization in Arizona.
David Mountcastle: IMS remains physician known and will operate with significant clinical autonomy.
David Mountcastle: We expect the Arizona market to be EBITDA positive in the fourth quarter. This year following a message implementation on the Premier platform.
David Mountcastle: We also expect it to meaningfully contribute it contribute to adjusted EBITDA in 2026, giving us confidence in our ability to continue to target, 20% EBITDA growth.
David Mountcastle: We look forward to building on the IMS culture of delivering high quality community care as we continue to align with like minded providers across the United States.
David Mountcastle: Now I'll ask David to review our market position recent financial results balance sheet and discuss our 2025 guidance outlook in more detail.
David Mountcastle: Yeah.
David Mountcastle: Thank you park with.
David Mountcastle: With the addition of Arizona Trivia Health now operates across 15 states in the district of Columbia.
David Mountcastle: Our footprint of high quality community based medical groups at risk entities comprises 4871 implement it providers caring for over $5 2 million patients in more than 1200 care center locations.
David Mountcastle: Caribbean now serves one $2 7 million attributed lives across more than 100, commercial and government value based care programs.
David Mountcastle: This breadth and geographic reach positions us as a highly diversified and balanced value based care organization.
David Mountcastle: Okay.
David Mountcastle: Total attribute of lives at March 31 increased 11, 1% from a year ago.
David Mountcastle: This was driven by new provider growth as well as new value based care contracts in certain programs.
David Mountcastle: Commercial attributed lives increased 13, 6% from last year to reach 779000.
David Mountcastle: La is attributed to the Medicare shared savings program were up almost 5% medical.
David Mountcastle: Medicare advantage and Medicaid attribution increased more than 8% and 11% respectively from a year ago.
David Mountcastle: 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 or contract.
David Mountcastle: We remain highly focused on generating positive contribution margin in our value based care contracts as we pursue attribution growth manage risk and implement clinical and operational enhancements and our partner practices.
David Mountcastle: We continue to evaluate moving to greater downside risk when we believe contract economics appropriately compensate our physician partners for the level of risk incurred.
David Mountcastle: Ultimately our goal is to achieve consistent and sustainable earnings growth for our medical groups and shareholders.
David Mountcastle: Privy health executed very well to start 2025 with strong growth and momentum across all our markets.
David Mountcastle: Implemented providers grew 82 sequentially from Q4 to reach 4871 at March 31.
David Mountcastle: An increase of 11, 7% year over year.
David Mountcastle: The growth and implemented providers, along with strong ambulatory utilization trends and value based performance led to practice collections, increasing 12, 8% from Q1, a year ago to reach $798 6 million.
David Mountcastle: Adjusted EBITDA, which is reconciled to GAAP net income in the appendix increased 35, 1% over first quarter last year to reach $26 9 million, representing 25, 6% of caremark.
David Mountcastle: This is a 460 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.
David Mountcastle: We ended the first quarter of 2025 with $469 million in cash and no debt. Following typical quarterly cash outflows early in the year related to employee bonuses and value based care payments to providers.
David Mountcastle: This does not reflect the $95 million deployed in April for the Arizona acquisition.
David Mountcastle: Our healthy balance sheet continues to position us with significant financial flexibility to deploy capital for business development and take advantages of opportunities in the current market environment.
David Mountcastle: We are raising our full year 2025 guidance to the mid to high end of our the initial ranges due to the strength of our first quarter performance and visibility throughout the remainder of the year.
David Mountcastle: Guidance for attributed lives remains unchanged.
David Mountcastle: We are maintaining a robust pipeline of existing market expansion and potential new market opportunities. However, our 2025 guidance does not assume any additional business development activity beyond Arizona.
David Mountcastle: Capital expenditures are expected to be de Minimis again, this year as part of our capital light operating model. We continue to expect at least 80% of our full year adjusted EBITDA to convert to free cash flow.
Speaker Change: <unk> has delivered consistent growth and profitability across economic healthcare and regulatory cycles over the past seven years.
Speaker Change: The power of our business model and consistent execution is evident in how we have compounded all key metrics over time.
Speaker Change: Our 2025 guidance demonstrates our expectation for another year of strong EBITDA growth and free cash flow conversion.
Speaker Change: We look forward to continuing to serve our physicians providers and health system partners and in turn creating value for our shareholders as previous <unk> large scale primary care centric delivery networks across the nation.
Speaker Change: Operator, we are now ready to take questions.
Speaker Change: Thank you we will now begin the question session. If you have <unk> I would like to ask a question. Please press star one on your telephone keypad to raise your hand in China. Thank you.
Speaker Change: If you would like to withdraw your question. Please press star one again, if you are called upon to answer a question are listening via the loudspeaker on your Dubai. Please pickup your handset and ensure that your phone is now can you when you ask questions.
Speaker Change: First question comes from the line of C. J Landra. Please go ahead.
Speaker Change: Yes. This is until interest income tourists.
Speaker Change: Bill Congratulations on the strong quarter and of course on the Arizona market entry fee can you take some time to talk about the IMS transaction and prospects you're seeing that market. What differentiated. This asked from once you have done in the past and how much factors collection, an EBITDA benefit including in your guidance right now thank you.
Speaker Change: Yes, thanks for the questions.
Speaker Change: Well look IMS as we said Arizona.
Speaker Change: Pretty important health care state.
Speaker Change: Big Dam.
Speaker Change: Good demographic trends.
Speaker Change: IMS has been.
Speaker Change: Operating for many years and came out of a health system.
Speaker Change: A few years ago and establish itself as an independent practice.
Speaker Change: A lot of cultural alignment.
Speaker Change: With what we are trying to do.
Speaker Change: Very large practice good size.
Speaker Change: Many locations really well established patient panels.
Speaker Change: So overall.
Speaker Change: A really good partner to have.
Speaker Change: And pursuit of <unk> mission and that stayed.
Speaker Change: Pretty important transaction.
Speaker Change: Relative to the value pretty significant EBITDA contribution.
Speaker Change: Given the nature of the deal we're not disclosing specifics on the deal.
Speaker Change: Our specific EBIT contribution specifically.
Speaker Change: Allocated to Arizona or to IMS, it's all embedded in our guidance.
Speaker Change: But as we've noted in our prepared remarks, this will be EBITDA positive.
Speaker Change: From the first day that they implemented pretty significant contribution next year and that gives us a lot of confidence to keep growing EBITDA, 20% into next year.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Josh Raskin from Nephron Research. Please go ahead.
Josh Raskin: Hi, Thanks, I'm going to follow up on Arizona, as well I guess I'm, specifically interested in sort of that PCP versus specialist mix that IMS has maybe relative to your existing provider.
Josh Raskin: Anything we should be thinking terms of differences in collections per physicians in may.
Josh Raskin: Maybe how ims's position, but the larger payers in the market and then finally did that strong value based care up opt.
Josh Raskin: Opportunity that you guys talk about.
Josh Raskin: Did that make the transaction more attractive less attractive how are you thinking about that in the context of the broader Caribbean.
Josh Raskin: Yes. Thanks for the question Josh So there are multi specialty practice and you can go on their website and they've listed every single specialty and providers. So it's all public info.
Josh Raskin: Slightly more skewed towards specialists versus primary care, but pretty healthy mix.
Josh Raskin: You see we disclosed the attributed lives of 28000. So that's that's all attributed to the Pcbs.
Josh Raskin: Again, it's very similar to some of our other states, it's not skewed one way or the other.
Josh Raskin: In one direction.
Josh Raskin: And it's a multi specialty practice.
Josh Raskin: Covering all the specialties, so slightly higher.
Josh Raskin: Practice collections per provider as you would expect from that perspective.
Josh Raskin: And then I think from there from an opportunity perspective, there's a day one opportunity with the with the group with 28000 lives, but then more importantly.
Josh Raskin: I think Arizona is a pretty important state as far as the MAA is concerned the demographic trends are concerned.
Josh Raskin: The availability of independent providers. So I think we can have a pretty good presence over the next four or 510 years, that's always a playbook as we entered the states. It's not a one two year play we're looking to establish a pretty large medical group over time and I think the Tam opportunity is there for.
Josh Raskin: For us to go get in Arizona, So we're pretty excited about that.
Josh Raskin: Thanks.
Speaker Change: Our next question comes from the line of Bruce Shrunk close with Canaccord. Please go ahead.
Speaker Change: Yes, congratulations thanks.
Speaker Change: Thanks for the questions.
Speaker Change: When you guys are calling out strong ambulatory utilization can you provide some perspective in terms of how it came in versus maybe what was baked into your guidance.
Speaker Change: And your thoughts on utilization throughout the rest of the year and maybe how that factored into the updated.
Speaker Change: Commentary on guidance.
Speaker Change: Yeah. Thanks for the question Richard So I think it's been pretty strong.
Speaker Change: The flu season varies every year.
Speaker Change: We have a pretty significant portion of our providers as Peter editions as PCB. This family Medicine as you know so given the which months the flu season hits.
Speaker Change: Call. It November through March timeframe or April timeframe.
Speaker Change: Some years, it's early or somebody else. It's later, so we kind of normalize for that in our in our guidance over the years.
Speaker Change: We've expected and experienced pretty pretty strong trends continue and that's reflected in practice collections.
Speaker Change: And I think we're going to continue to see those trends going forward I mean, we've said that pretty consistently.
Speaker Change: Utilization continues to be at this elevated level and.
Speaker Change: I think that bodes well for our fee for service business.
Speaker Change: It's also great for the value based business, because we are seeing the patients much more frequently.
Speaker Change: So our guidance fully reflects.
Speaker Change: Those trends continuing.
Speaker Change: Thank you. Our next question comes from the line of Matthew <unk> with Keybanc. Please go ahead.
Speaker Change: Okay. Thanks for the question.
Speaker Change: I just wanted to ask a clarification on IMS and the guide.
Speaker Change: Are you absorbing any new market entry costs as it relates to Arizona within the guide and then also can you just remind us in terms of how the accounting works do you recognize any revenue prior to them being implemented on the on the 30th platform. Thanks.
David Mountcastle: Yeah. Thanks for the question, Matt So I'll start and then David will take the accounting question.
David Mountcastle: So we are we always have new market entry costs, because as we as you know the model we entered a state.
David Mountcastle: And we establish our sales team implementation teams.
David Mountcastle: Our operations to go get.
David Mountcastle: Other providers in the state to join our platform. In addition to the anchor practice. So our guidance assumes absorbing those costs starting this year and then going into next year and so obviously that highlights the.
David Mountcastle: The merits of this transaction that despite absorbing those costs, we expect the transaction to be positive EBITDA. This year upon implementation and pretty significantly next year and.
David Mountcastle: And that was really attractive to us.
David Mountcastle: I'll, let David handle the accounting question.
David Mountcastle: Yes, so from an accounting perspective, because we acquired the medical group.
David Mountcastle: As soon as we acquire the medical group, we get revenue and practice collections from that entity.
David Mountcastle: However, the deal works, where we don't get care margin and adjusted EBITDA until we implement them on the Athena platform, which we expect to happen in Q4 this year.
Speaker Change: Our next question comes from the line of Jesse guys question with Piper Sandler. Please go ahead.
Jesse: Hi, guys and thanks, so much for taking my question and congrats on Arizona on the strong quarter.
Jesse: I was hoping maybe you could talk a little bit about the growth in <unk> quarter over quarter was that growth just population growth within existing contracts and then any perspective on on Medicare advantage in 2026, just whether you're interested in expanding with <unk> with <unk>.
Speaker Change: New health plans or expanding the scope of your.
Speaker Change: Capitation contracts any color on just how youre thinking about 'twenty six in light of the rate.
Speaker Change: So great announcement thanks.
Speaker Change: Yes, thanks for the question Geoff So yes the.
Speaker Change: Growth was pretty much organic and the cat book.
Speaker Change: Either existing in the same existing contracts so existing providers participating seeing few more patients and expanding the panels and then some new providers joining.
Speaker Change: At the same contracts in those geographies and in patients coming with those new providers. So it was a few thousand lives and that sort of objective. Once we enter these contracts that we want to improve performance. We Wanna add attributed lives and continue to expand that book of business. If we think we can.
Speaker Change: And to do well.
Speaker Change: And then on your second question.
Speaker Change: Our our view on M&A remains pretty much the same as we discussed at length on the last earnings call.
Speaker Change: I think we are in the three four year period, which is going to be pretty challenging for Ma.
Speaker Change: For all of the factors that you all know pretty well and we've articulated in the basketballs we.
Speaker Change: We will continue to pursue our strategy of.
Speaker Change: Of sharing risk with the payers and contracts. So we would look to grow our book.
Speaker Change: Grow our attributed lives in EMEA.
Speaker Change: Would not expect us to get into.
Speaker Change: Full GAAP or 100% risk deals our preference is to continue to enter into shared risk arrangements with the payers just given the environment and we actually think thats the law.
Speaker Change: As long term sustainable model.
Speaker Change: If we are able to underwrite any deals where we think we're going to get significantly compensated for the level of risk.
Speaker Change: Full GAAP kind of contract we will look to add those but at this moment you should not expect us to enter fresh new fully 100% GAAP a dated contracts.
Speaker Change: But we'll continue to grow the book with both existing players and look for new payers in existing or new states.
Speaker Change: And growing that book.
Speaker Change: Our next question comes from the line of with.
Speaker Change: <unk>.
Speaker Change: Barclays. Please go ahead.
Speaker Change: Hi, This is Alberto Masih on for Matt Thanks for taking the question.
Speaker Change: We're about halfway through it would be 28 now are there any surprises with the implementation versus expectations in MSP.
Speaker Change: Would be curious about any changes in practice care management strategies.
Speaker Change: Yes, thanks for the question Alberto So it doesn't impact MSP.
Speaker Change: As much per se, it's mainly related to M&A I mean, the average risk Gordon MSB is.
Speaker Change: Around one in risk coding.
Speaker Change: While play some role it's not it's not a big factor in our performance and as far as the MA book is concerned it's playing out as we expected. We we took a very conservative view since.
Speaker Change: Since the beginning of last year, when we exited two capitation contracts.
Speaker Change: We think it's a pretty significant headwind.
Speaker Change: To the industry to the MA business.
Speaker Change: Both for the payers and then provide us downstream.
Speaker Change: It's playing out as we expected youre seeing pressures on different payers at different points of time, either last year or this year, you've seen pressures on the provider groups. So I think we continue to be pretty cautious and see how it plays out and again.
Speaker Change: Fundamentally we've got to get paid to take additional risk in EMEA and we'll keep looking for those opportunities as we just said.
Speaker Change: Our next question comes from the line with AJ Rice with UBS. Please go ahead.
Speaker Change: Okay.
AJ Rice: Hi, everybody.
Speaker Change: Maybe just broaden out.
Speaker Change: A discussion there has been some speculation in some of the trade press that.
Speaker Change: Trump administration might look it changes.
The program that they were largely supported in the FERC review or anything along those lines and maybe more broadly with all the discussions about.
Speaker Change: Medicaid changes I know thats about your government lives.
Speaker Change: But it sounds like you've only got upset arrangements.
Speaker Change: Thoughts about any of that and whether it will present opportunities and maybe just last one the government stuff.
Speaker Change: They haven't been able to get the Doc fix legislation this year does that have.
Speaker Change: Any impact on you I assume some of your providers are impacted by that but any comment on that.
AJ Rice: Yeah. Thanks for the question AJ, So I'll take them in order.
AJ Rice: We haven't heard anything new since last quarter, I think we covered it pretty extensively.
AJ Rice: MSS continues to be.
AJ Rice: Pretty well established program one of the most well established programs out of CMS I think they understand it the folks in the administration understand it.
AJ Rice: And we continue to expect it to.
AJ Rice: <unk>.
AJ Rice: Ste.
AJ Rice: The level that it is today, if you hear anything differently.
AJ Rice: They will make an announcement then obviously, we'll comment on it but we haven't heard anything to you.
AJ Rice: On any potential changes to MSP.
AJ Rice: To your second question I mean, it's all fully baked in our guidance like on the Medicaid side.
AJ Rice: It's we don't take any risk as you as you mentioned, it's about 100000 lives. It's upside only we get some care management fees were kind of manage those lives without taking risk.
AJ Rice: It's not a big part of our fee for service business, So and I think what's important to recognize it.
AJ Rice: We have an ambulatory care delivery network with community based providers. So.
AJ Rice: That's the frontline of healthcare with some of these Medicaid patients.
AJ Rice: Doctors into community has taken care of.
Speaker Change: Children mothers.
Speaker Change: Have any members and I think that's a pretty important aspect of.
Speaker Change: The level of care in that population. So we don't expect that it will be impacted.
Speaker Change: That significantly from from cuts if anything.
Speaker Change: Folks will likely hopefully Steve.
Speaker Change: That level of frontline care.
Speaker Change: So some of the more acute care that could be impacted downstream.
Speaker Change: From some potential thoughts, but again, we'll see how it plays out.
Speaker Change: And your last question, yes, I mean, there may be some impact, but again, it's a we have a pretty big diversified book, it's all factored in our guidance and no nothing nothing material to call out on that particular legislation.
Speaker Change: Our next question comes from the line of.
Speaker Change: Barclays. Please go ahead.
Speaker Change: Hi, This is Thomas Walsh on for Andrew.
Speaker Change: Hoping you could comment on if you've seen any behavioral change in patients using their coverage this year, whether thats induced by premium increases or changes in patient cost responsibility.
Speaker Change: No nothing nothing out of the ordinary that's worth calling out it's.
Speaker Change: Again, we have a pretty diversified book five plus million patients. So we haven't seen any fundamental fundamentally different.
Speaker Change: Levels.
Speaker Change: Activity.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Brian Langston PPD Colin. Please go ahead.
Speaker Change: Hey, thanks.
Speaker Change: Just to go back to the guidance, obviously updated it this quarter or last couple of years in the first quarter you simply just reiterated the guide most other companies this quarter maintained guide as well so it sounds like Youre, a little bit more confident in some of your peers based on your prepared comments is this mostly just the IMS pick up in the guide or is really just what youre seeing.
Speaker Change: And the underlying business performance driving that guidance increase.
Speaker Change: Yes, I appreciate the question I think it's a combination of both I mean Q1, there was no <unk> impact and you're seeing the outperformance across the board on all our metrics all the way down to EBITDA.
Speaker Change: So that that has no impact from Arizona and then.
Speaker Change: As we noted in our prepared remarks, all of that impact starts in Q4.
Speaker Change: At least a care margin downwards on our on our P&L.
Speaker Change: So I think it's a combination of both.
Speaker Change: We saw a pretty good results this quarter.
Speaker Change: Youre right, we havent, it's still early in the year, but given the strong performance given the impact of the transaction, we feel pretty confident for the rest of the year, we'll see how the year plays out.
Speaker Change: And then update guidance further but at this point, we felt pretty comfortable going in.
Speaker Change: Given given the strong start to the year.
Speaker Change: Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Please go ahead.
Elizabeth Anderson: Hi, guys. Thanks for the question I would like to partner for me one not to beat a dead horse, but the attributed lives for IMS come in and which quarters I just want to make sure I have that down correctly and then two you had a nice obviously organic improvement in G&A in the quarter is that should we just think of that as continuing.
Speaker Change: Right.
Speaker Change: So we sort of be smoothly across the year or anything sort of onetime you did call out that would impact the cadence of the rest of the year.
Speaker Change: Yeah. Thanks, Elizabeth So the attributed lives will.
Speaker Change: Flow through in the following quarters. So that's not that's not yet reflected in the March 31st number for IMS.
Speaker Change: And that's why you're seeing we've while we've kept that that piece of the guidance unchanged.
Speaker Change: We're still at the below the low end of the guidance, which is very typical for Q1.
Speaker Change: Where you know.
Speaker Change: Some of the lives.
Speaker Change: Some of the employers change their carriers on the commercial book.
Speaker Change: I'm a member exchange plans and so if you look at past years. It is very typical for us too.
Speaker Change: Have that chart the patient is not going anywhere the doctor is not going anywhere, but it's just.
Speaker Change: Just the movement of different health plans and so we'll pick up all that attribution going forward.
Speaker Change: And then.
Speaker Change: Sorry could you repeat your second question again.
Speaker Change: Does the G&A question.
Speaker Change: Yes, I think the second question was around G&A and I'll take that part.
Speaker Change: From a G&A perspective.
Speaker Change: We saw a sequential decline in G&A from the fourth quarter, mainly attributed to what we accrue for bonuses and our contractor expenses early on in the year, we pretty much just say stay pretty consistent bonus accruals I don't look to increase that until we get further on in the year. So just those two things and yes, I think you were asking about throughout the rest.
Speaker Change: Of the year I would say follow similar trends to previous years.
Speaker Change: Is what we're expecting.
Speaker Change: Hi.
Speaker Change: Our next question comes from the line of <unk> <unk> JMP. Please go ahead.
Speaker Change: Thanks.
Just following up on Arizona, what made them move to.
Speaker Change: Partner with you in this type of transaction and what was important to them with respect to what previous check the boxes on maybe relative to some other.
Speaker Change: Platforms are options they may have evaluated and then.
Speaker Change: Just given their higher sort of mix of value based lives relative to the number of tcp's. They have are they moving away from our prior enablement partner. Thanks.
Speaker Change: I appreciate the question gods of being so.
Speaker Change: I think it's pretty important question that highlights the strength of our platform.
Speaker Change: Any practice that size.
Speaker Change: As we've stated in previous calls has been approached by everybody you can imagine.
Speaker Change: Health systems private equity.
Speaker Change: Bigger players.
Speaker Change: Consolidated or so on so forth other enablement companies.
Speaker Change: I think what was key to them.
Speaker Change: Partnering with us as number one we just have a unique model that.
Speaker Change: Cater to the entirety of the practice all specialties.
Speaker Change: Every single patient every single line of business and repair.
Speaker Change: Comprehensive stack services platform.
Speaker Change: And that coupled with an ability to maintain.
Speaker Change: Clinical autonomy in a model like Privy aware youre not getting.
Speaker Change: Employed by another entity.
Speaker Change: From from from your compensation perspective, Youre able to make the decisions and day to day working at the clinic and how you practice medicine I think that was immensely important to.
Speaker Change: The physician leadership there they came out of a health system and so obviously the group was <unk>.
Speaker Change: Fiercely independent and believes in.
Speaker Change: Autonomy of private practice.
Speaker Change: Which which leads us to having a pretty strong cultural alignment.
Speaker Change: And I think we can have a great business in Arizona with their help.
Speaker Change: And grow that business grow their clinics as well as grow around them.
Speaker Change: So I think it's a combination of all of those.
Speaker Change: They did partner with other enablement.
Speaker Change: Companies and I think we just evaluate those contracts over time, but.
Speaker Change: We fully own the medical group.
Speaker Change: And the MSR, where entities and so we just evaluate how we move some of those contracts over time.
Speaker Change: And that again highlights the importance ware.
Speaker Change: Even though some of these practices can partner with other entities once we come in with a comprehensive solution.
Speaker Change: That over ways.
Speaker Change: Brian decision. So, we'll just see how those play out and.
Speaker Change: And what the contractual terms are and how they're performing and take it from there.
Speaker Change: Our next question comes from the line chat.
Speaker Change: Absolutely we would.
Speaker Change: Please please go ahead.
Speaker Change: Hey, Thanks for taking my question and congrats on a really strong quarter two.
Speaker Change: Two parter, one one just to clear this out.
Speaker Change: Are they participants in MSS PRA CRH currently and when you say that they've got other enablement agreements.
Speaker Change: Presently is that what you're referring to and then the second one really just thinking more about how we look at.
Speaker Change: Fee for service utilization in 2025.
Speaker Change: United Call out was that AWP ran really really hot I would thank you.
Speaker Change: Would benefit from similar trends in the first quarter, but I'm just trying to get a sense of sort of what you've seen year to date in.
Speaker Change: In terms of PCP or primary care provider.
Speaker Change: Alization versus specialist in your book and is there an expectation that that.
Speaker Change: Sort of front running of AWP might bring some upside throughout the year.
Speaker Change: As you sort of trend downwards towards the downstream towards the rest of the specialist and the.
Speaker Change: Ecosystem. Thanks.
Speaker Change: Yeah. So on the first question the short answer is yes, they do participate in.
Speaker Change: And MSP slash ACO reach or one of those programs are not going to comment on which one in how many lives, but they do participate currently and so we'll inherit that book.
Speaker Change: The second one yes, I think as we said previously.
Speaker Change: I wouldn't categorize it just awb's per se, but.
Speaker Change: We've experienced pretty pretty strong ambulatory utilization at RPC PSP mutations obgyns.
Speaker Change: Even some of the specialists so we've seen in.
Speaker Change: In office community based physician utilization to be pretty strong.
Speaker Change: That's reflected in our practice collections.
Speaker Change: And we don't see any reason to believe that that would not.
Speaker Change: Continuing for the rest of this year, we'll just see how it plays out.
Speaker Change: But thats reflected in our guidance and we'll update that as we go forward.
Speaker Change: Our next question comes from the line of Chatham Garner with Stephens. Please go ahead.
Chatham Garner: Yeah. Good morning, Thanks for taking my question.
Chatham Garner: I want to go back to the fall of 2023, you had announced an AI partnership that target targeted physician productivity. So I was hoping for an update on how adoption has been of that solution by your providers and what kind of productivity gains you've realized thanks.
Chatham Garner: Yes, I appreciate the question so.
Chatham Garner: The utilization has been great I mean, we've adopted that pretty significantly across our provider base.
Chatham Garner: We continue to innovate with that with a partner.
Chatham Garner: Nine.
Chatham Garner: And we think it's a great solution.
Chatham Garner: You know that streamlines.
Speaker Change: Clinical documentation prevents errors hi.
Speaker Change: Highlights care gaps at the point of care.
Speaker Change: To the PCB.
Speaker Change: Right right when they are seeing the patients. So I think it's another way, where we are continuously evaluating where AI and other dual scan improve the workflow.
Speaker Change: Reduce the time that is spent we have a case study out that I think is public on our website. So we can send it to you after the call that highlights all the stats on this particular.
Speaker Change: Partnership I think they also showcased at HIMSS recently so.
Speaker Change: We're all pretty happy.
Speaker Change: And we'll continue to improve.
Speaker Change: As in other areas with the adoption of AI.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line when Ryan Daniels.
Speaker Change: Sir Please go ahead.
Ryan Daniels: Yes, thanks for taking the question guys I guess most of the big ones have been answered just wanted to do a follow up there and just ask.
Speaker Change: Any other big IP initiatives or <unk> initiatives.
Speaker Change: He is looking at for the next six to 12 months, we've heard a lot on AI, but also more on specialty referrals and things like health care. So curious kind of what's on the agenda for the team.
Speaker Change: Yes, I appreciate the question Ryan So we have as you know we have a very comprehensive.
Speaker Change: <unk> Tec Tech service platform across all lines of business, both FIFA service Rev cycle.
Speaker Change: Value based care.
Speaker Change: So we are continuously looking to improve.
Speaker Change: The value based care is a big big area, obviously bolt on <unk>.
Speaker Change: Improving the clinical workflow decision, making.
Speaker Change: How the data comes in from different payers different contracts we have.
Speaker Change: 100, plus value based contracts and to take risks do you want to make sure youre getting real time data as a responsible or with minimal lag we have a lot of visibility into it but there's a lot of effort just to keep improving those I think we've had.
Speaker Change: Our good performance is reflective of the stack we have currently.
Speaker Change: You need to have in place, but there's always a scope for improvement. So that's a big area for us to focus and then on the.
Speaker Change: On the regular workflow as a patient.
Speaker Change: It comes in.
Speaker Change: And through their lifecycle with the doctor during the year or over many years I think we've continuously looked at different solutions that are improved getting improve now whether it's.
Speaker Change: On on Scribing.
Speaker Change: RCM workflows on and just improving again accuracy timelines.
Speaker Change: Speed and so we have a bunch of things that are in the works that get implemented on the platform pretty good on a continuous basis with our clinical IP Committee, which which is chaired by a lot of the providers.
Speaker Change: We practice with I think the interesting thing is we eat our own cooking. We are we are the medical group.
Speaker Change: And the service provider all in one so so there's a very good feedback loop.
Speaker Change: I think thats the strength of our platform, where we can implement things.
Speaker Change: That can be really used by provider that they want.
David Larsen: Our next question comes from the line of David Larsen <unk> BPI. Please go ahead.
David Larsen: Hey, congratulations on the good quarter, and partly I always like how you're very careful around which risk contracts you get into.
David Larsen: I did see cappuccino revenue increased pretty significantly sequentially and then also your I think your medical loss ratio contracted by about 150 basis points sequentially can you maybe just talk about.
David Larsen: The growth in cap revenue I think you said it is organic how much visibility do you have into those physicians and those members are these groups that have been on your platform for a couple of years, so youre very comfortable with them bearing risk with those new members and then just any thoughts on the cap EBITDA would be would be very helpful. Some of your peers.
David Larsen: <unk> had some pressures on the side of the thing I side of the house, which is why I'm asking thanks a lot.
David Larsen: Yes, I appreciate the question. So yes, we did see some I think the question asked before like we saw a few thousand lives increase in the in the GAAP book.
David Larsen: Pretty much all organic.
David Larsen: Either existing doctors seeing more patients or a few more doctors joining with new panels in that contract. So that's reflected in the GAAP book.
David Larsen: I mean, you can see from the disclosure in the press release.
David Larsen: It's still early days in the year end.
David Larsen: It's not like we're making many significant EBITDA, yet, but our hope is that I mean, it's still positive contribution pretty slightly but as the year progresses. Our expectation is we'll continue to hopefully do well and this will be this will be positive margin otherwise, there's no point in doing capitation to lose money.
David Larsen: And I think that's gonna be R. R.
David Larsen: Our strategy, we've articulated it pretty carefully.
David Larsen: We want to take risk when we're getting paid to take risk.
David Larsen: Especially in this environment with all the pressures in Ma.
David Larsen: And and I think we'll continue to do that otherwise, we're just happy to have back.
David Larsen: Pathway to risk 50, 50, with sharing with the Payors and keep expanding our MMA book from that perspective, but I think the growth was in that one particular contract that we have.
David Larsen: Pretty much organically.
David Larsen: Okay.
Speaker Change: Our next question comes from the line of Matt Sheehan.
Speaker Change: Needham. Please go ahead.
Matt Sheehan: Hey, good morning, Thanks for taking the question and congrats on the Arizona expansion.
Matt Sheehan: Pretty significant practice or significant EBITDA contribution in fact, we burn some cash.
Matt Sheehan: In the first few years, given the new market entry costs.
Matt Sheehan: And then the market towards profitable and in other cases, a market comes with a pretty significant book of business.
Matt Sheehan: That can be EBITDA positive. So I think it just depends on the nature of the transaction which market.
Matt Sheehan: There's no other new markets in our guidance for.
Matt Sheehan: This year other than Arizona, So if we end up deploying more capital and enter any new states, we'll update guidance accordingly.
Matt Sheehan: Like we've said previously if you are putting significant capital to work, we're going to be pretty disciplined and make sure. We're focused on EBITDA and free cash flow. So.
Matt Sheehan: I think we'll just continue to do that the way, we have done and keep compounding EBITDA here.
Speaker Change: Our next question comes from the line of Jami Christina Lake clothing men's <unk>. Please go ahead.
Speaker Change: Hey, Thanks, good morning.
Speaker Change: On the operating leverage you showed here in the first quarter. So cost of platform has been up mid teens for the last two years I think that reflects some of the infrastructure buildout, you've done and in new markets that you've entered over that period here in the first quarter cost of platform was up 10% versus 13% practice collections growth here.
Speaker Change: Getting operating leverage there. So the broader question is just how to think about cost of platform investments in 2025, and then more specifically or some of these new markets you've entered over the last couple of years now at a point, where the infrastructure is in place and as you grow Youll see a lot of operating leverage there.
Speaker Change: Yeah, It's a great question, David I appreciate you asking it.
Speaker Change: I think I think it was going to go back to slide 11, and if you see our EBITDA margin as a percentage of care margin. We've just grown that significantly over the past four or five years six years. Despite entering some of the new market. So some years, we get some leverage some years ago investing you saw that 'twenty two to 'twenty three.
It was pretty flattish EBITDA as a percentage of the care margin and then you see the operating leverage in the subsequent years.
Speaker Change: I think our long term margins.
Speaker Change: We've guided to.
Speaker Change: Previously is around <unk>.
Speaker Change: 30% to 35%.
Speaker Change: We are sitting at very close to 25% with our guidance we were over 25% in this quarter and if you look at our midpoint of our guidance.
Speaker Change: Kind of a 2024, 6%.
Speaker Change: So we are pretty significantly there and this is fully expensing.
Speaker Change: All of G&A public company costs, a full sales and marketing all of our technology development as you know we don't capitalize much at all.
Speaker Change: And I think youre seeing the strength of the business model that as we've scaled and grown our medical groups got on some of these markets too.
Speaker Change: Even come out of that initial wanted to your initial ramp up phase we start to see operating leverage.
Speaker Change: All the way down to the EBITDA and then conversion 80 plus percent conversion to free cash flow. So.
Speaker Change: We continue to be pretty excited and how we've delivered this our guidance reflects for the rest of the year, what we expect.
Speaker Change: But again, if we perform better.
Speaker Change: At the high end it could be it could be better than what we have we'll just see how the year plays out.
Speaker Change: And I think it's also important to understand like we are delivering this despite pretty significant headwinds in the value base.
Speaker Change: I mean as you know we are management fee structure is.
Speaker Change: It's pretty significantly skewed towards moving lives into risk arrangements.
Speaker Change: All shapes and sizes, and that's where we earned 40% of those shared savings.
Speaker Change: So despite having a period where value based care.
Speaker Change: Shared savings is flat year over year.
Speaker Change: We're still delivering on operating leverage so I think we feel really good about.
Speaker Change: The rest of the business progress of the cost structure.
Speaker Change: As we add more lives more providers.
Speaker Change: I think the existing infrastructure scales really well and I don't I mean, once we get to.
Close to 40% I think youll see some stability, but our endeavor is to continue to keep expanding that EBITDA margin over time.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Danielle Crossline Citi. Please go ahead.
Danielle Crossline: Hi, Thanks for taking the question and congrats on the strong start to the year.
Speaker Change: I'm just curious how your conversations with providers have changed if at all.
Speaker Change: This year are they more or less receptive to joining the previous platform, particularly as it relates to potentially moving into some of these value based care.
Speaker Change: Range mention right you mentioned that at least in IMS. They had been approached by everyone under the Sun just given their size I'm curious with with other smaller providers is it a similar dynamic where most folks now have been approached by someone to do something like what premier is doing or are you still really kind.
Speaker Change: Chatting with us where this is.
Speaker Change: More new to that thanks.
Speaker Change: Yeah. Appreciate the question that I think is really important question.
Speaker Change: I think you know the <unk>.
Speaker Change: Comprehensiveness of our platform.
Speaker Change: Across all specialties, all lines of business all pairs.
Speaker Change: Joining a medical group versus just partnering with a company on one particular risk contract.
Speaker Change: I think it's very attractive to a lot of small providers they.
Speaker Change: <unk> been approached by some one or the other so it's very rare that even a small practices just totally independent and did everything themselves and has never spoken to anybody.
Speaker Change: Either the physician enablement space or some hospital or private equity or whatever have you depending on their size.
Speaker Change: Our sales team is performing really well as we said in our prepared remarks.
Speaker Change: Last two or three years, we've we've seen a lot of great momentum.
Speaker Change: I think we have one of the survivors in this industry given all the shakeout that's happening.
Speaker Change: I think we were operating from a position of strength. The results are therefore, everybody to see.
Speaker Change: And so I think our performance speaks for itself.
Speaker Change: Ultimately our existing physician base as our best.
Speaker Change: Sales team.
Speaker Change: As we enter a state the flywheel just snowballs.
Speaker Change: And runs where existing practices that have been live for 2345 years Act as a great referral.
Speaker Change: Two new practices and doctors speak with doctors as you know so I think even in some of our mature markets, we are seeing where.
Speaker Change: A lot of the top of the funnel activity is referral from our existing providers.
Speaker Change: And that's that had that comes at a very high conversion rate. So.
Speaker Change: I think the fact that we have.
Speaker Change: You know really performed well in this model this model works.
Speaker Change: Physicians are able to stay independent autonomous and yet to be part of something bigger I think it really resonates for the totality of the practice.
Speaker Change: We're not going in doing anything artificial giving them money protecting downside risk.
Speaker Change: Giving them equity like all of those things run their course over some period of time.
Speaker Change: And so I think from a sustainability perspective.
Speaker Change: This is the right long term partnership model that we think.
Speaker Change: Obviously, I'm biased, but I think all of those things over time, just help you continue to grow this business. So I think we're seeing some of that across all of our states.
Speaker Change: Our next question comes from the line of Mike <unk> with Baird. Please go ahead.
Mike: Thank you just quickly first I'm not sure if you'll comment on this but how many of the 28000 IMS lives are almost competition than in terms of earning seasonality for this year, just given our first quarter of quite meaningful outperformance in historically it looks like <unk> is generally soft.
Speaker Change: Or in terms of full year earnings contribution.
Mike: If we should be how we should think about the remainder of the year.
Mike: We expect anything different versus historical any different trend is new Arizona costs and lash.
Mike: Last question and with some of your larger value based care for us.
Mike: <unk> in the market facing some pretty meaningful issues this year.
Mike: When you see all this plus youre consistently scanning the country for profitable Catholics data providers, but love to hear if you've seen anything noticeable in terms of <unk>.
Mike: <unk> 28 impact of Chad, maybe more specifically in your view if you think the cohort economics.
Mike: Over the past five years, but these provider models might now be structurally impaired. Thank you.
Mike: Yeah. Thanks for the question Michael So three in one I'll try and take them by in order so on IMS.
Mike: We don't usually disclose but none of the lives of cap of data. So that's the short answer of the 28000.
Mike: On the second one again, it's early in the year.
Mike: You Shouldnt expect anything different from a seasonality perspective.
Mike: So we've entered the year pretty strong.
Mike: And we will update guidance.
Mike: As the quarters go by.
Mike: But we don't expect any anomaly this year versus previous years from a quarterly cadence perspective on how the how the P&L it shouldn't should run its course.
Mike: We'll see we'll see again the biggest variable as you know is the value base book and as we get more data, we'll update our accruals and see how it all plays out, but we feel pretty pretty comfortable updating our guidance the way we did.
Mike: The third one I think that's a pretty interesting question I think there've been a lot of models public and private.
Mike: Try to get these providers.
Mike: You know in some way shape or form in contracts.
Danielle Crossline: Certain daniela.
Danielle Crossline: They havent performed as it is pretty obvious and full risk and I think overtime to providers. They provide a practices will make the decision on whether to stick with their.
Danielle Crossline: Their existing partner or look for a switch.
Danielle Crossline: We've again said that we're not out there hunting for capitalized I mean, that's just the nature of a financial contract between the payer and an entity like US I think it's important to do value based care and MAA risk thoughtfully.
Danielle Crossline: In a in a manner, where all three entities the Bayer.
Danielle Crossline: And enablement company like Libya, and the Doctor.
Danielle Crossline: Or the physician group all have skin in the game it is long term sustainable.
Danielle Crossline: You're not doing anything artificial.
Danielle Crossline: Just for the sake of doing competition and people are getting paid to take their risk and paid to do the pizza job that they're supposed to do and I think a lot of these companies are you know.
Danielle Crossline: Uh huh.
Danielle Crossline: Entered into some contracts that that didn't validate that thesis.
Danielle Crossline: And financially now.
Danielle Crossline: Some of these contracts are structures might be embed just.
Danielle Crossline: Unsustainable from a payer enablement company perspective, or unsustainable from the relationship that they have with the provider group that they signed in terms of economic sharing overall opportunity to warn shared savings. So on so forth as all of these impacts happen on on the MA book from <unk> 28 in star scores utilization so on so.
Danielle Crossline: So.
Danielle Crossline: I think all of that should bode well for US I think we'll continue to see some disruption. We've said previously we look to take advantage of that.
Danielle Crossline: And get these groups and hopefully which is a model that is much more sustainable like ours. So.
Danielle Crossline: Organically and then also inorganically.
Speaker Change: Your last question comes from the line of Glenn Joanna <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, good morning, Thanks for squeezing me in.
Speaker Change: So actually I wanted to ask about that M&A pipeline.
Speaker Change: So with all that cash that you have now on the balance sheet would you look to do more deals immediately or it's more like the you know first to kind of digest the Arizona before you move on because also.
Speaker Change: What I'm getting asked just curious I guess.
Speaker Change: How much related to final question.
Speaker Change: I've found you know out there a lot of interests from practices right Easter activity. There you know in terms of deals just floating around but I see at.
Speaker Change: The point of the question is around valuations how should we think about you know what you typically pay in terms of multiples for for deals of that size. Thank you.
Speaker Change: Yeah. Thanks for the question Joanna So the pipeline remains really strong.
Speaker Change: Again, you can see slide 11, we've entered one two or more states every year pretty consistently some years, it's more state somebody exits last.
Speaker Change: It just depends on when we do the deal.
Speaker Change: We are still in 15 states.
Speaker Change: 35 to go and so are our view is we'll keep looking for opportunities to enter different states also increased density in existing states and we've done all kinds of deals.
Speaker Change: As you know we bought.
Speaker Change: Medical group entities risk entities, NSO entities combination of them and so it just depends on what kind of deal refined where given our unique model.
Speaker Change: There, it's a pretty comprehensive platform again catering to all specialties, all payors all patients all all lines of business and so the valuation than just is reflective of the entities, we buy the earnings stream from that.
Speaker Change: We're pretty disciplined buyers focused on EBITDA free cash flow so.
Speaker Change: You know if you are putting significant capital to work like we did in the Arizona deal you should expect pretty significant.
Speaker Change: EBITDA contribution if it's a smaller deal.
Speaker Change: We may be just entering a stage buying at that site E buying risk entities, so on and so forth and playing the long game. There. So it just depends on the nature of the transaction.
Speaker Change: But we'll continue to be pretty disciplined if you are putting significant capital.
Speaker Change: You should expect that they'll come with hopefully good earnings contribution and.
Speaker Change: Lastly, I would say again this environment, we are in a position of strength with our balance sheet and our free cash flow generation to take advantage of.
Speaker Change: As many opportunities that arise.
Speaker Change: You know obviously you don't have billions of dollars, but I think we are hopefully a partner of choice both given our business model the ability to partner with different kinds of provider groups.
Speaker Change: They make a as they make a decision whether to join us or a private equity group or or any other pair. So I think I think it's a pretty unique time to be in this space and we're glad to be operating from a position of strength.
Speaker Change: Yeah.
Speaker Change: We have no further questions maybe Schmidt please 15 year.
Speaker Change: Thank you for listening to our call today. We appreciate your continued interest and look forward to speak with you again in the near future have a great day.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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