Good day, and thank you for standing by. Welcome to the Privia Health Group Fourth Quarter 2023 Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the call over to Robert Borchert, SVP, Investor and Corporate Communications. Please go ahead.

Thank you, Shannon, 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. Today's financial press release and slide presentation are posted on the Investor Relations pages of priviahealth.com. Following our prepared comments, we will open the line for questions. Please limit yourself to one question only, and return to the queue if you have a follow-up, so we can get to as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10-K for the year ended December 31, 2023 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 27, 2024. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our Company's most recent SEC filings. Finally, we may refer to certain non-GAAP financial measures on the call. 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 will turn the call over to Parth.

Thank you, and good morning everyone. Privia Health closed 2023 with another quarter of strong performance. We extended our market reach and continued to execute at a high level on multiple fronts with a focus on growth and profitability. This morning, I’ll briefly highlight our 2023 performance, discuss our core focus areas for 2024, and cover some key business highlights. Then David will review our recent financial results, our balance sheet and capital position, and our business and financial outlook for 2024 before we take your questions. 2023 was another outstanding year of growth for Privia Health. I am extremely proud of our employees and provider partners, whose contributions drove results that met or exceeded our updated guidance across all key metrics. We had a record year of new and same-store provider sales as we continued to build one of the largest ambulatory provider networks in the nation. We added 200 implemented providers in the fourth quarter and a total of 699 implemented providers in the year, meaningfully increasing density in existing states. The ongoing success of our model is underlined by our gross provider retention of over 98% in 2023. We were also pleased with our Practice Collections growth for the year following the restructuring of one capitation agreement announced in the first quarter of 2023 that led to an approximate $110 million headwind to our initial guidance. A combination of accelerated implementations from organic sales, strong fee-for-service and value-based care performance, and new market launches contributed to actual Practice Collections ending the year near the high end of guidance. We entered three new states this past year with the addition of Connecticut, South Carolina, and Washington. Our business development efforts continue to expand our total addressable market and bring the Privia model as a differentiated alternative for community…

Thank you Parth. Privia Health’s strong operational execution and financial performance continued through the fourth quarter of 2023. We added 200 providers since the end of September, bringing our implemented provider count to 4,305, up 19.4% year-over-year. Combined with solid ambulatory utilization trends, this led to Practice Collections increasing 19.2% from Q4 a year ago to $757 million. Platform costs and SG&A expenses grew slower than our topline, and this operating leverage helped drive adjusted EBITDA up 21.1% over Q4 last year to $17.3 million as we continue to grow in more mature and newer markets. As Parth noted, we met or exceeded guidance for all key operating and financial metrics for full year 2023. Practice Collections increased 17.1% from a year ago to $2.84 billion. Care Margin was up 17.5%, and adjusted EBITDA grew 18.7% to reach $72.2 million despite absorbing new market entry costs. Our business model continues to generate very strong cash flow and we ended the year with no debt and a cash balance of approximately $390 million. Free cash flow for the year was almost $81 million, or more than 100% of adjusted EBITDA, due to timing differences. We generated net cash of $41.5 million in 2023 after investing $43 million of cash for business development activity to enter new states. We also have an undrawn and available $125 million credit facility, and plan to continue maintaining a conservative balance sheet. Privia’s strong 2023 performance, business momentum, and diversified book of business has positioned us well heading into this year. Our focus in 2024 is three-fold: drive organic provider growth to increase density and scale in existing geographies; limit downside risk arrangements for more favorable contract structures and margin contribution; and drive operating leverage for adjusted EBITDA growth. Using the midpoint of our 2024 guidance,…

Thank you. [Operator Instructions]. Our first question comes from the line of Joshua Raskin with Nephron Research. Your line is now open.

Hi, thanks. Appreciate the question. Can you talk about the negotiations with payers around taking risk, I am specifically interested in why they are okay with you sort of titrating risk back when you see utilization and other changes and how receptive you think they are going to be in the future when you come back and say we want to resume capitation when things sort of calm down?

Yeah, thanks for the question Josh, it is a great question. So, there are few things. Number one, we have built a very conscious model from day one that can take risk in different flavors and do value based care across the spectrum as you know. So, we're doing fee-for-service with upside-only shared savings and bonus payments. We're doing upside/downside risk arrangements. We're also doing capitation, and we're doing that across commercial, MA, and MSSP. So that value proposition is fairly broad for any payer in the industry, public or private. When we discuss the capitated book specifically to your question with payers, they are seeing utilization trends that everybody is seeing. It's impacting their book. And at the end of the day, they understand that this is a long-term partnership with Privia. If they have given us MLR targets that are no longer supported given recent historical trends, we've tried to make sure that they have certain skin in the game in every payer contract, and if that leads to adjusting those levels appropriately, we can have that discussion. To be clear, we are still taking pretty substantial risk in these contracts, 50% or higher. It's just that we're dialing it down with a certain higher MLR threshold, and it's a one to three-year arrangement that changes over time of the ability for us to take risk changes over time, and then we've just got to deal with the realities that we are seeing in the marketplace. So, I think it speaks to our strength of the business model and how we can work with the payers and the long-term nature of the contract.

Great, thanks.

Thank you. Our next question comes from the line of Brian Tanquilut with Jefferies. Your line is now open.

Hey, good morning. It's Jack Levinon [ph] here. Thanks for taking the question. I guess, looking at the numbers there's a little bit of optical impact, I think, from the strong print on implementer providers in Q4, and I'm shaking out at somewhere in the 14% to 15% average provider growth for 2024, based on the guidance range. I guess one, is that the right way to think about it, and then two, as you think about jumping off from 2024, given the change in operating leverage from platform contribution to EBITDA in the guide, how should we think about where provider growth and attributed lives growth needs to be off of 2024 to sustain a growth rate in the same range that you've guided to for the year? Thanks.

Thanks for the question, Jack. So, I'll answer them in order. So, number one look, we've always said we're going to target 400 to 500 new implementer providers every year. As we get into new states our time expands, and ideally we like to exceed that number. 2023 was an outstanding year. We implemented close to 700 providers as we noted. So, there's always some timing difference, all else being equal, we'll try and implement them as soon as possible. Some of the new markets also come with implemented providers day one, and that's what happened in 2023. So, the right way is just to normalize that over a two or three-year period of time, but given the time we have, our low penetration, even in the existing states we think we can continue to add 400 to 500 implemented providers in just the existing footprint without adding a single new market. Then those providers come with attributed lives. We move them into value-based arrangements, and then that flows down the P&L, and you can see 2024 is a perfect example where we are not assuming any accretion in shared savings, just given the current utilization trends across the value-based book. We're not assuming any new market entries in 2024. We still have three or four markets that are negative EBITDA that we entered recently, and despite that we are able to generate operating leverage and grow EBITDA 20%-plus at the midpoint of the guidance. So, I think as we move forward into 2024, if we keep adding at that level of clip implemented providers and lives, and those are the two units that drive the business, we think the inherent unit economics and operating leverage in the business just magnifies and we like to keep increasing the operating leverage to grow EBITDA at least 20%-plus in the existing footprint. The marginal provider that joins and the life that joins is highly accretive, and the beauty of the business is we've already proven the unit economics and operating leverage today.

Thank you. Our next question comes from the line of Lisa Gill with J.P. Morgan. Your line is now open.

Thanks very much and good morning, Parth. I want to go back to how you're seeing the market right now. And you talked about minimal increases in shared savings as we think about 2024. You talked about renegotiating some of these risk contracts. But when I think about, for example, the minimal increase in shared savings, is that utilization, is that the risk model changes, and how do we think about the timeline of you coming back into more capitated type of relationships, is that several years away or do you think like we just need to get through 2024 and have a better baseline, just any thoughts that you have on how we should think about this?

Yeah, thanks for the question, Lisa. So just from a macro perspective, look, we've had a little bit of a contrarian viewpoint over the last two years on the MA and capitated space. And we've been -- that viewpoint has been against the grain, which has been hard when both public and private investors have focused on risk-taking businesses without regard to in-year profitability or free cash flow.

And you were right. I will say that. You were right. I mean, if we look back now, right, I would be on the record.

It's hard to do. And yeah, and kudos to our healthcare economics team and data analytics team. We have some of the best in the industry that see these trends and keep us out of trouble. We think some of these regulatory changes would have pretty significant impact. You've heard it from all the payers. We think V28 would be a pretty significant impact. I think you're seeing some of that in 2024 when payers have reset expectations. We do think 2025 would be the first year where you'll actually see the impact downstream in the provider groups. And knowing that, we've actively restructured our book and protected the downside risk for both our providers and our shareholders, I think. Look, our view is we're on the right side of history. We are building multi-specialty medical groups at scale with community doctors, which are lowest cost setting in the communities that we serve. Any payer wanting to do value-based care at the end of the day would rely on such a network. And we just think you're in an environment where obviously everybody protects their turf. The payers are going through a pretty challenging phase. Things do normalize. The MA business goes in cycles. We've seen this over the last 20 years and we think once we get through 2024-2025, things will normalize. Our ability to work with the payers and make sure we do the right thing by providers that are actually undertaking total cost of care management and helping the payers lower total cost across different books of business, including commercial, is very differentiated. And the payers are willing to work with us. So I do think to answer your question directly, once we get through 2024-2025, we should see some normalization.

Great. Thank you.

Thank you. Our next question comes from the line of Ryan Daniels with William Blair. Your line is now open.

Hey, thanks, guys. This is Jack Senft, I am calling for Ryan Daniels. Thanks for taking the question. Just kind off of the provider question asked earlier, I guess, in terms of the implemented providers and as you previously alluded to, you're looking to add about 400 providers in 2024. And in 2023, the provider adds was a bit more back half-weighted. Can you just discuss the cadence you expect for added providers over the year like, should that be more linear and kind of weighted equally or maybe back half-weighted and similar to 2023? Thanks.

Yeah, absolutely. So usually, they should be pretty linear with the exception of new market entries. So what happened in 2023 was we entered South Carolina, we entered Washington, both of those came with some implemented providers day one. And so that led to that increase. And then obviously, we blew through the numbers. 699 was one of the best years we've had. That just speaks to the strength of the model and the momentum that we have. But other than that, we should expect it to be pretty linear. We are not including any new markets in our guidance as we've done previously in previous years. So as and when we enter new markets and if that comes with implemented providers, that would be additive to the guidance we've given.

Thank you. Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is now open.

Hi, guys. This is Sameer on for -– Sameer Patel on for Elizabeth Anderson. Thanks for the question. I just wanted to confirm, as it relates to you guys moving the capitated contract, those lives over, are there any like fee-for-service economics that you're going to be now gaining on this, or is this strictly like shared savings?

Yeah, thanks for the question, Sameer. So there's always fee-for-service economics even when we move lives into capitation because we are deeply in the workflows and processing claims. So we earn a fee-for-service administrative fees on any claims that go through even when the lives move into capitation. What happens is the fee-for-service spend is captured also as medical expense if we are getting capitated payments up top. So that's the nature of the business, but we do earn fees on both the fee-for-service book and then any shared savings on the value-based book on the same patient. I do think that differentiates ourselves and we're able to get pretty good unit economics on the same life if we can process both fee-for-service and value-based care payments.

Thank you. Our next question comes from the line of David Larsen with BTIG. Your line is now open.

Hi, congrats on the good quarter. Can you talk a little bit about your relationship with BASS Medical and I'm assuming your retention levels with your groups are high and maybe talk a little bit about your choice to exit Delaware? Thanks very much.

Thanks, David. So on the first one, we have a pretty good relationship with BASS Medical Group, long-standing relationship where we are helping the group grow and we obviously have a joint venture MSO entity. So that relationship remains pretty strong. They were looking for a joint venture partner to establish a California risk-bearing organization that took delegated risk downstream from the payers. It's not a business Privia is in. We do work with other such entities that do that. As an example, we work in North Texas with WellMed that is owned by Optum for certain MA contracts. Our economics are unchanged. We continue to get 40% of shared savings on all providers participating in value-based arrangements. And so we've been discussing that with the BASS Medical Group and we respect the decision to establish such an entity and we expect to participate in some of those contracts and hopefully that helps the group to grow. The Delaware question, look, it was purely an economic decision. We underwrite some of these businesses looking at the utilization trends. And if that changes, as we noted in our prepared remarks, given what we were seeing in the marketplace, we didn't think that ACO would have generated any shared savings for our provider partners or EBITDA for previous shareholders for the foreseeable future. Sometimes that happens. And the flexibility in our model is that we can prudently dial back risk or exit these ACOs when we can in an appropriate manner. And we'll keep monitoring the situation. If the opportunity arises in the future, we'll enter back in.

Thank you. Our next question comes from the line of Jess Tassan with Piper Sandler. Your line is now open.

Hi, guys. Thank you for taking the question and congrats on the quarter and the guide. So I just wanted to kind of clarify, where are you experiencing new market entry costs in 2024 and then just maybe if you could articulate when you expect to lap those headwinds, I know you said 10 million to 12 million, but can you remind us which states those headwinds are attributable to? And then is the Delaware exit effectively a tailwind to EBITDA on 2024 because you won't have those new market entry costs associated, assuming you wind down the ACO? Thanks.

Thanks for the question, Jess. So on the first piece, as we've stated consistently, when we enter a new state we first start with the spend at the sales and marketing line. So a lot of the spend in 2023 was building out our sales team and the infrastructure to go add providers in those new states. That continues to be there in 2024. However, once we start implementing providers, some of the spend also increases in the cost of platform. So you're seeing a majority of the 10 million to 12 million spend is now incremental in the platform cost to support implementing and working with these providers as we ramp them up. So that shift happens and these are the recent new markets, as you would expect, between Connecticut, North and South Carolina, as well as Ohio. Some of those are still EBITDA negative, and we would expect to breakeven over the next couple of years. Obviously, it depends on the provider growth, but that's our trajectory. From a Delaware perspective, we did not have any implemented providers. As you recall, this was a care partners deal with a health system. So those providers were not on our platform. So there were not substantial sales and marketing or implementation costs in that market. However, we've exited the ACO, and that prevents a negative care margin and EBITDA impact that we would have faced had we not shut down the ACO.

Got it. Thanks.

Thank you. Our next question comes from the line of Gary Taylor with Cowen. Your line is now open.

Hi. Good morning. Most of my question has been answered. Just a couple maybe follow-up. Just following up on Delaware and BB, which when you announced with a couple hundred physicians, is there still some commercial shared savings, risk-taking activity happening in that market or was MSSP the only thing that you were doing with that group?

Hi, Gary. It was only MSSP. So they were not on our platform. There was no fee-for-service work that we were doing, and there was no other line of business, so only MSSP.

Got it. And my other quick one was on the capitated book, prior development swung to a positive $3.3 million in the fourth quarter. First half of the year you had some headwinds from negative development, and I'm just trying to intuitively understand that, is there a quick explanation for that?

Yeah. Hey, Gary. This is David Mountcastle. Thanks for the question. Yeah, it's -- the payers go back and sort of reassess the attributive lives from time to time, and that was just some reassessment from one of our payer groups. The overall impact was de minimis when you got the care margin. It essentially took out the same amount of revenue and costs, so no real impact overall. It's just sort of an attributive life audit from one of our payers.

Okay. Thank you.

Thank you. Our next question comes from the line of Richard Close with Canaccord Genuity. Your line is now open.

Yeah, thanks for the question. I realize that you don't have new markets in the 2024 guidance, but Parth you mentioned something about disruption in the provider market, and just curious what specifically you're meaning by that and what that means for Privia as a potential opportunity?

Yeah, I appreciate the question, Richard. Look, I'll just keep my comments generic. You're obviously seeing some Chapter 11 filings. You're seeing significant earnings revisions and business models that are single-line focused, facing some headwinds in this market environment, both public companies as well as privately held companies. We think there was a lot of capital that chased this pace in the past four or five years, and as things normalize we think there will be opportunities both organically for us, where provider groups may have partnered with an entity that may not be optimal, and they get out of those arrangements and can join the Privia model, which is well-proven and established. And there will be some opportunities from a business development perspective where we could see entities that may be struggling, where there's opportunity for us to both increase our density in existing states or enter new markets. At the end of the day, we're looking to add to our two units, add implemented providers, add attributed lives. And so if we can go get some lives in an arrangement where they may be struggling in the current structure that they might have in the current environment, I think given our strong balance sheet and capital position, we'll be willing to go at that pretty aggressively to grow.

Thank you.

Thank you. Our next question comes from the line of Whit Mayo with Leerink Partners. Your line is now open.

Thanks. Good morning. Just one quick clarification and a real question. I just want to make sure I get this right. The $10 million to $12 million in startup costs, is that all incremental to 2023 or is that cumulative for the investments that you made last year?

Yeah, I would consider those to be cumulative. There are some incremental costs because we added, like I said, predominantly in 2023 it was sales and marketing related expenses. Towards the end of the year, we started some implementation and performance consultants and our infrastructure in the states. A lot of the incremental would come in on the platform cost line. But these are costs that are established. They're not one time, as we've said. They get established in the market. And then as we add providers, the business scales pretty rapidly and gets to breakeven. So the $10 million to $12 million, you should say that if we would have not entered these states, you could simply, we could take those cost out as a proxy for what we are adding. Now all of that is embedded in our guidance. But we give that rationale given the states that we're having a meaningful level of spend that are negative EBITDA states for us today.

Okay, that makes a lot more sense. Okay, helpful. And I think it was, a year or so ago that you guys acquired an ACO maybe in Connecticut, had kind of a whole value-based care book to it, just was kind of looking for an update around just the performance of that and kind of how you're thinking about other opportunities to maybe deploy capital into opportunities like that?

Yeah, that was a great transaction for us. The Connecticut Community Medical Group, they've been great partners. We think we can build a pretty big business in Connecticut. It's performing really well, and we are seeing a lot of momentum in the state with community providers implementing a full-scale model at the back of the ACO or the IPA entity that we bought. And I think that's a great playbook for us, if we can find like-minded partners and other such IPAs, we're going to go and acquire them given the strong balance sheet that we have. So that's a big part of the playbook.

Okay, thanks, guys.

Thank you. Our next question comes from the line of Jeff Garro with Stephens, Inc. Your line is now open.

Yeah, good morning. Thanks for taking the questions. I'll try to lump together a few on shared savings. So first for 2024, I was hoping you could add some more specifics on how many Privia providers are participating and beneficiaries are expected to be attributed to Privia MSSP ACOs? And then I was hoping you could also dig into visibility into 2023 MSSP performance versus expectations for 2024, and definitely view 2024 shared savings expectations in the guidance [indiscernible] for final 2023 results? Thanks.

Yeah, thanks Jeff. I may ask you to repeat a question, given there were a handful. So we don't disclose the number of providers. Typically, 60% of our providers are gatekeepers, including PCPs and family medicine. A large part of those get the access… [Call Ends Apruptly]