Privia Health Group, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Privia is a technology-enabled physician-enablement company operating across 13 markets, supporting medical groups and providers with practice management and value-based care (VBC) services.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $413.4 million | $335.5 million | $799.6 million | $649.3 million |
| Gross profit | $90.2 million | $75.4 million | $173.2 million | $146.2 million |
| Operating income (loss) | $7.0 million | $(5.3) million | $13.7 million | $(16.8) million |
| Net income (loss) attributable to Privia | $7.3 million | $(10.5) million | $14.6 million | $(28.0) million |
| Adjusted EBITDA (non-GAAP) | $19.3 million | $15.5 million | $36.2 million | $30.3 million |
- Q2 revenue rose 23.2%; growth reflected higher capitated revenue (+50.2%), shared savings (+64.7%), and fee-for-service patient-care revenue (+9.3%). Management attributed growth to new VBC arrangements, more attributed lives, provider additions, and increased visit volume.
- VBC revenue was 37.0% of Q2 revenue, versus 29.6% a year earlier. Implemented providers increased 9.3% to 3,870; attributed lives grew 26.6% to 1.084 million.
- Q2 gross margin was approximately 21.8% of revenue, versus 22.5% a year earlier. Care Margin, a non-GAAP measure, rose 20.2% to $91.6 million; as a share of revenue it declined to 22.2% from 22.7%, which the company attributed to new at-risk capitation arrangements. Platform Contribution increased 19.0% to $44.6 million; its margin was 48.7%, versus 49.2%.
- Cash and cash equivalents were $317.9 million at June 30, down from $348.0 million at year-end 2022. Six-month operating cash flow was $(5.8) million, versus $1.9 million provided in the prior-year period. Accounts receivable increased $130.2 million; management linked the increase to new at-risk capitation arrangements and revenue growth.
- Provider liability was $306.4 million, up from $208.4 million at year-end. Current assets were $654.0 million and current liabilities $358.4 million. The company reported no borrowings or letters of credit and terminated its SVB credit agreement in March 2023.
- Six-month investing cash outflow was $24.9 million, primarily the $24.9 million cash paid for the Connecticut acquisition. No material commitments or contingencies were reported.
Changes, outlook, and risks
- In February 2023, Privia acquired majority ownership of Privia Quality Network Connecticut (PQN-CT), entering Connecticut. Consideration was $25.2 million, including $24.9 million cash; the acquisition added a $41.3 million payer-contract intangible and $8.1 million goodwill. Its pro forma results were not presented because management deemed them immaterial.
- Management expects VBC revenue to increase as a share of revenue with growth in attributed lives and risk-bearing arrangements, and expects platform costs to grow more slowly than revenue. It believes cash, together with operating cash flows, is adequate for anticipated needs, but notes future capital requirements depend on growth and spending. The filing provides no formal quantitative earnings or revenue guidance.
- At-risk capitation exposes Privia to medical-cost and claims-estimation risk. Provider liabilities include estimates of incurred but not reported claims, which may be revised as claims data develops.
- Six payers accounted for approximately 74% of payments for medical services in both periods; six payers represented 71% of accounts receivable at June 30, 2023. Cash balances may exceed federally insured limits. The filing discusses financial-sector disruption and notes Privia currently has no revolving credit facility.
- Other stated risks include healthcare regulation and compliance, reliance on medical-group and payer relationships and athenahealth’s EMR, competition, expansion execution, reimbursement and payer-mix changes, privacy and cybersecurity, and workforce availability and costs. Management said there were no material changes to previously disclosed risk factors other than the financial-services risk disclosure.
- Management reported effective disclosure controls as of June 30, 2023 and no material change in internal control over financial reporting during the quarter. The company said ordinary-course legal matters were not expected to have a material adverse effect.
- CEO Shawn Morris adopted a Rule 10b5-1 trading plan on June 2, 2023, permitting sales of up to 2.5 million shares from October 1, 2023 through June 27, 2024. Novant Health’s share issuance agreement also provides for milestone-triggered stock issuance, subject to a 19.9% cap.
Important facts for investors to verify
- Whether the increase in accounts receivable and provider liabilities converts to cash as expected, and how capitation claims estimates develop.
- The profitability and cash-flow contribution of new markets, including Connecticut, and the economics of the company’s expanding at-risk VBC arrangements.
- How reported GAAP results compare with non-GAAP measures, particularly given stock-based compensation and the company’s Adjusted EBITDA exclusions.
- Exposure to concentrated payers and uninsured cash deposits, and whether Privia obtains replacement credit capacity if needed.
- Potential dilution from equity awards and the Novant milestone-based issuance agreement.