Privia Health Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparison is with the three months ended March 31, 2022. Privia is a technology-enabled physician-enablement company operating across 13 markets. Amounts below are in U.S. dollars.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $386.3 million | $313.8 million | +23.1% |
| Gross profit | $83.0 million | $70.8 million | +17.2% |
| Operating income (loss) | $6.7 million | $(11.5) million | Improved $18.3 million |
| Net income (loss) attributable to Privia | $7.3 million | $(17.5) million | Improved $24.8 million |
| EPS, basic and diluted | $0.06 | $(0.16) | Turned profitable |
| Adjusted EBITDA (non-GAAP) | $16.9 million | $14.8 million | +13.9% |
- Revenue growth included capitated revenue of $78.3 million, up 61.9%; shared savings of $43.9 million, up 57.1%; and FFS patient-care revenue of $227.8 million, up 11.5%. Management attributed growth to provider and visit-volume expansion, new at-risk arrangements, more attributed lives, and strong value-based-care performance.
- Implemented providers increased 10.3% to 3,716; attributed lives increased 22.3% to 1.037 million; and Practice Collections rose 17.3% to $658.9 million.
- Provider expense rose 24.8% to $302.3 million, faster than revenue. Gross profit margin was approximately 21.5%, versus 22.6% a year earlier. Care Margin, a non-GAAP measure, increased to $84.0 million but declined to 21.8% of revenue from 22.8%, which management attributed to new at-risk capitation arrangements. Platform Contribution was $41.4 million, up 18.4%; its margin was 49.3%, versus 48.8%.
- General and administrative expense decreased 28.1% to $26.0 million, primarily because pre-IPO award vesting had driven higher stock-based compensation in the prior-year period. Total stock-based compensation was $5.4 million, down from $24.9 million. Adjusted EBITDA margin was 20.1% of Care Margin, versus 20.7%; management cited new capitation arrangements and new-market investment.
- Net cash used in operating activities was $13.4 million, compared with $5.3 million used a year earlier. Accounts receivable increased $71.3 million during the quarter, while provider liability increased $51.9 million. Investing cash outflow was $24.9 million, primarily for the Connecticut acquisition. Cash declined $36.8 million to $311.2 million.
- At March 31, 2023, total liabilities were $318.8 million, including $260.4 million of current provider liability. The company reported no borrowings or letters of credit and terminated its SVB credit agreement in March; it had no revolving facility at quarter-end.
Changes, outlook, and notable items
- Compared with Q1 2022, Privia shifted from operating and net losses to profit. Revenue, gross profit, and adjusted EBITDA grew, while operating cash use increased. Revenue mix also continued toward value-based care: VBC revenue was 33.8% of revenue, versus 27.1% a year earlier.
- In February, Privia acquired majority ownership of Privia Quality Network Connecticut for total consideration of $25.2 million, including $24.9 million cash paid. The acquisition added $41.3 million of payer-contract intangible assets and $8.1 million of goodwill; results were included from the acquisition date.
- Privia launched three new ACOs in Q1, bringing its Privia-owned ACO total to ten. Management expects VBC revenue to increase as a share of revenue with growth in attributed lives and risk levels. It also expects to continue investing in sales, technology, operations, and clinical capabilities. The filing provides no numerical full-year earnings or revenue guidance and cautions that quarterly results are not indicative of the full year.
- A March strategic alignment agreement with Novant Health provides for share issuances upon specified North Carolina provider-implementation and expansion milestones. Issuances are subject to a cap of 19.9% of outstanding shares under the agreement and renewals, creating potential dilution.
- Management said available cash and expected operating cash flows should fund anticipated short- and long-term needs, but noted this assessment depends on assumptions and that future financing may be needed. The company highlighted uninsured cash exposure and financial-system risk following SVB’s closure; it holds cash at institutions in amounts that may exceed insured limits.
- Six payers accounted for approximately 73% of payments for healthcare services in Q1 and 70% of accounts receivable at quarter-end. Provider-liability estimates depend on actuarial assumptions and claims development. Other cited risks include healthcare regulation, dependence on medical-group and payer relationships, competition, expansion execution, reliance on athenahealth, reimbursement and payer-mix changes, privacy/security, and workforce availability and costs.
- The filing reported no material commitments or contingencies and no material changes to previously disclosed risk factors apart from the added financial-services risk. Management concluded disclosure controls were effective and reported no material change in internal controls over financial reporting.
Important facts for investors to verify
- Whether strong revenue growth converts into sustained operating cash generation, given the quarterly cash use and sizable receivables increase.
- Claims development and adequacy of the $260.4 million provider-liability balance, including the effect of additional at-risk contracts on costs and margins.
- Progress and economics of the Connecticut acquisition, new ACOs, and market launches, including the pace of attributed-life and provider growth.
- Cash concentration and access to funds, and whether Privia establishes replacement credit capacity after terminating the SVB facility.
- Potential dilution from the Novant share-issuance milestones and the extent to which reported non-GAAP measures reconcile to GAAP results and cash generation.