Privia Health Group, Inc. (NASDAQ:PRVA) Q1 2024 Earnings Call Transcript

Privia Health Group, Inc. (NASDAQ:PRVA) Q1 2024 Earnings Call Transcript May 11, 2024

Privia Health Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Privia Health First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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 conference over to your speaker, Robert Borchert, SVP of Investor and Corporate Communications. Please go ahead.

Robert Borchert: Thank you, Tana, 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, 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. We ask that you please limit yourself to one question only, and return to the queue if you have a follow-up, so we can get to as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10-Q for the first quarter ended March 31, 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 May 9, 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'd like to turn the call over to my CEO, Parth Mehrotra.

Parth Mehrotra: Thank you, Robert, and good morning, everyone. Privia Health delivered solid first quarter results to start 2024 as we continue to drive towards our long-term vision to build one of the largest ambulatory care delivery networks in the nation. This morning, I'll cover some key highlights and provide a business update. And then David will discuss our recent financial performance and our 2024 guidance outlook before we take your questions. During the first quarter, Privia Health continued to execute at a very high level with a focus on growth and profitability. As we noted on our February earnings call, we were able to nimbly respond to the changing Medicare Advantage reimbursement environment and protect our earnings power by restructuring certain MA capitation contracts.

We believe these actions demonstrate the flexibility, diversity and differentiation of the Privia business model. Our Q1 practice collections increased 7.4% year-over-year, which includes the impact of restructuring certain MA capitation contracts for more favorable terms. Our top line performance continues to reflect steady growth of same-store and new provider additions. Adjusted EBITDA was up more than 18% as we continue to benefit from operating leverage. This was despite absorbing incremental investment in new markets we've entered over the past 18 months. We are also being prudent and assuming minimal increase in accrued shared savings in 2024 versus 2023. Our sales pipeline is strong across all our markets, and we have a robust business development pipeline of new market opportunities.

Our strong balance sheet and free cash flow profile allows us the flexibility to take advantage of any dislocations in the physician enablement space. So overall, we feel really good about our business momentum and operating execution in the current environment. We are closely monitoring medical cost trends and claims data so that we can be proactive in our actions. We feel very positive about the moves we've made in the past two quarters to mitigate the downside risk in our Medicare Advantage book and are reiterating our full year 2024 guidance. The combination of our diversified value-based book and strong underlying fee-for-service business serving the entire physician practice continues to be a key differentiator. Privia's national footprint continues to expand as we build one of the largest primary care-centric delivery networks in the country.

At the end of Q1, we had 4,359 implemented providers caring for over 4.9 million patients in 13 states and the District of Columbia. As of March 31 of this year, we estimate Privia serving approximately 1.14 million attributed lives across more than 100 value-based care contracts in commercial and government programs. The total attributed lives increased more than 10% from Q1 a year ago. This positions our business as one of the broadest and most balanced value-based care platforms in the industry. Our commercial attributed lives increased 8% from last year to 685,000. As we noted last quarter, our ability to earn care management fees and shared savings that are incremental to our highly predictable fee-for-service management fees offers a very unique value proposition to our medical groups in the commercial book of business.

Core to our long-term strategy is to thoughtfully move lives into increased risk arrangements over time when we are confident it will provide significant opportunities for adjusted EBITDA and free cash flow growth. Our strong and stable performance is a testament to Privia's proven ability to manage risk across a diverse set of 100-plus value-based contracts. We leverage our clinical operations, performance management, actuarial expertise and close alignment with our physician partners to manage patients across the risk spectrum. In aggregate, Privia's ACOs or risk entities are managing approximately $9 billion of medical spend in 2024 across commercial, MSSP, Medicare Advantage and Medicaid programs. The current environment, scale of our medical spend and potential variability of shared savings require us to be particularly thoughtful in our risk taking to maintain our earnings power for both our provider partners and our shareholders.

We are well positioned to opportunistically increase our attribution in various risk arrangements over the next 24 months to drive future earnings growth. Now I'll ask David to review our Q1 financial results and 2024 guidance outlook.

David Mountcastle: Thank you, Parth. Privia Health delivered another solid quarter of performance in the first three months of 2024. Our implemented provider count of 4,359 was up 17.3% year-over-year. Solid ambulatory utilization trends, new implemented providers and additional attributed lives led to practice collections increasing 7.4% from Q1 a year ago to reach $707.7 million. As we noted in February, the balance and flexibility of our operating model enabled us to shift attributed lives out of capitated agreements for improved contribution margin. Most importantly, we continue to invest in existing and new market growth while generating operating leverage. Our adjusted EBITDA was up 18.1% over Q1 last year to reach $19.9 million.

Following our solid Q1 performance, we are reiterating our full year 2024 guidance. Our business momentum and diversified book of business has positioned us well to drive organic provider growth, limit downside in risk arrangements and increase operating leverage for adjusted EBITDA growth in 2024. Implemented providers are expected to increase 9.2% year-over-year to reach 4,700 by year-end at the midpoint of our guidance. As we noted in late February, we are also assuming a minimal increase in shared savings year-over-year as part of our prudent accruals. This implies expected 2024 growth in fee-for-service practice collections of approximately 10% driven by implemented provider growth in our more mature markets in 2023 as well as early provider growth momentum in newer markets.

Adjusted EBITDA growth of approximately 21% at the midpoint of our guidance is expected to be driven by operating leverage in our more mature markets, which should more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth in providers, attributed lives and adjusted EBITDA in the future. Our full year guidance assumes a reduction of approximately $198 million in our top line from 2023, given lower risk exposure from MA capitation agreements. As we continue to invest across our business enterprise, our 2024 adjusted EBITDA guidance absorbs approximately $10 million to $12 million in new market platform investments. We expect to scale our new market significantly in the coming years as we grow our provider base and attributed lives in these new states.

Our balance sheet and capital position continue to be very strong with cash of $351 million and no debt. Similar to previous years, Q1 is typically our lowest cash flow quarter. Our cash balance declined sequentially due to timing differences in cash received at the end of Q4 with the related outgoing payments occurring in January 2024. We also paid our annual employee cash bonuses in March. We expect capital expenditures to be less than $1 million this year as part of our capital-light operating model. This should lead to approximately 80% of our full year adjusted EBITDA converting to free cash flow. Finally, we have an undrawn and available $125 million credit facility and plan to continue maintaining a conservative balance sheet. Privia Health remains focused on profitably growing and expanding our business for many years to come and investing to support this growth as we build our national footprint.

We would like to thank our physician partners and employees for their dedication and hard work to deliver consistent solid results quarter-over-quarter, especially in the current environment. We are now ready to take your questions.

See also

13 Penny Stocks with Insider Buying in 2024 and

Billionaire Ken Fisher Loves These 10 AI Stocks.

To continue reading the Q&A session, please click here.