Privia Health Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Privia is a technology-enabled physician services company operating in nine markets, with fee-for-service (FFS) and value-based care (VBC) revenue. It reported one operating segment.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $342.9 million | $251.5 million | $992.2 million | $690.9 million |
| Operating loss | $(4.6) million | $(12.8) million | $(21.4) million | $(198.1) million |
| Net income (loss) attributable to Privia | $1.6 million | $(9.1) million | $(26.4) million | $(176.3) million |
| Care Margin (non-GAAP) | $77.7 million | $61.5 million | $225.6 million | $169.8 million |
| Platform Contribution (non-GAAP) | $37.0 million | $31.1 million | $109.5 million | $79.8 million |
| Adjusted EBITDA (non-GAAP) | $15.7 million | $13.9 million | $46.6 million | $33.9 million |
- Q3 revenue grew 36.3%; nine-month revenue grew 43.6%. Q3 revenue included $54.7 million of capitated revenue, versus none in Q3 2021; nine-month capitated revenue was $160.8 million. FFS-patient care, administrative services and shared savings also increased.
- Q3 Care Margin increased 26.4%, but fell as a share of revenue to 22.7% from 24.4%, which management attributed to at-risk capitation. Platform Contribution Margin was 47.6% versus 50.6%. Filing-defined Adjusted EBITDA Margin was 20.1% versus 22.6%, reflecting timing of VBC revenue recognition. For nine months, the respective margins were 22.7% Care Margin, 48.5% Platform Contribution Margin and 20.7% Adjusted EBITDA Margin.
- Cash and cash equivalents were $316.9 million at September 30, 2022, compared with $320.6 million at year-end 2021. Current assets were $579.6 million and current liabilities $304.5 million. Accounts receivable rose to $246.3 million from $117.4 million; provider liability rose to $254.3 million from $140.7 million.
- Nine-month operating cash flow was $18.0 million, down from $67.4 million. The filing cites a $128.9 million increase in accounts receivable, partly offset by a $113.6 million increase in provider liability. Investing cash use was $0.1 million; financing cash use was $21.6 million, including repayment of term debt.
- Privia repaid approximately $33.1 million, including accrued interest, on its term loan in June 2022. No debt was outstanding at September 30; the $65 million revolving facility remained available. The company reported compliance with credit covenants.
Changes, outlook and risks
- Growth reflected more providers and markets, improved visit volumes as COVID-19 restrictions eased, and expansion of VBC activity. Implemented Providers increased 27.2% to 3,595; Attributed Lives increased 11.3% to 846,000. Practice Collections, a company-defined metric that includes collections from non-owned groups, rose 52.4% in Q3 and 60.8% for nine months.
- At-risk capitated arrangements began in 2022 for approximately 23,000 Medicare Advantage beneficiaries. Privia records these payments gross and bears responsibility for covered care costs; associated revenue, claims estimates and provider liabilities are therefore important to assess. Six payers represented approximately 75% of Q3 payments for healthcare services.
- Management said available cash, operating cash flow and the revolver should fund anticipated short- and long-term needs, while cautioning that growth, spending, acquisitions or weaker results could change capital needs. No specific financial guidance was provided.
- On October 11, 2022, Privia received $62.8 million from CMS for its share of 2021 MSSP savings; approximately $37.7 million was expected to be distributed to providers. On November 3, it announced a North Carolina partnership with Novant Health Enterprises.
- Key risks include healthcare regulation and compliance, reliance on Medical Group relationships and the athenahealth EMR platform, competition and new-market execution, payer mix and reimbursement rates, privacy and cybersecurity, workforce costs, and medical claims estimation. Management reported no material commitments or contingencies and effective disclosure controls. It also flagged possible business or stock-price effects from perceptions concerning lead sponsor Pamplona and its investor relationships; the company stated it believed it complied with applicable sanctions.
- Prior-year comparisons are affected by unusually high IPO-related stock-based compensation in 2021. Adjusted EBITDA’s definition was also changed in Q3 2022 to exclude employer taxes on equity vesting and exercises. These non-GAAP measures should be considered alongside GAAP results.
Most important facts for investors to verify
- Whether the new capitated business can manage medical costs and claims liabilities; compare claims incurred, paid, reserves and subsequent development.
- Whether rising receivables convert to cash, and how operating cash flow performs as revenue and provider liabilities grow.
- How much reported growth and margin movement reflects underlying operations versus new markets, gross capitation accounting, VBC revenue timing and stock-based compensation adjustments.
- The terms, utilization and covenant triggers of the $65 million revolver, and the effects of payer concentration and provider distributions.
- Whether the CMS receipt, provider payouts and North Carolina expansion develop as described; the filing gives no quantified forward guidance.