Privia Health Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Privia is a technology-enabled physician-enablement and practice-management company operating in 14 markets, with both fee-for-service and value-based care arrangements.
Financial performance
- Q3 revenue: $417.3 million, up 21.7% year over year. Growth included capitated revenue of $88.5 million (+61.8%), FFS patient-care revenue of $245.6 million (+10.7%), shared savings of $33.5 million (+10.9%) and care-management fees of $17.8 million (+92.4%).
- Q3 earnings: Gross profit was $90.6 million, versus $76.9 million; operating income was $5.5 million, compared with an operating loss of $4.6 million. Net income attributable to Privia was $5.6 million, versus $1.6 million; diluted EPS was $0.05, versus $0.01.
- Q3 margins: Gross margin was approximately 21.7%, versus 22.4% a year earlier; operating margin was approximately 1.3%, versus a 1.3% loss. Management-reported Adjusted EBITDA was $18.8 million, up 20.0%; its reported margin, calculated as a percentage of Care Margin, was 20.4%, versus 20.1%.
- Nine-month results: Revenue was $1.217 billion (+22.6%); gross profit was $263.8 million (+18.3%); operating income was $19.2 million, versus an operating loss of $21.4 million; and net income attributable to Privia was $20.2 million, versus a loss of $26.4 million. Adjusted EBITDA was $55.0 million (+18.0%).
- Scale and operating metrics: Implemented Providers increased 14.2% to 4,105 and Attributed Lives increased 29.3% to 1.094 million. Practice Collections rose 18.2% in Q3 to $723.5 million. These are company-defined operating or non-GAAP measures.
Cash, liquidity and debt
- Cash and cash equivalents were $330.4 million at September 30, 2023, down from $348.0 million at year-end 2022. Accounts receivable rose to $350.1 million from $189.6 million.
- Nine-month operating cash flow was $16.7 million, compared with $18.0 million. Investing used $37.9 million, primarily for acquisitions; financing provided $3.7 million. Cash declined by $17.6 million over the period.
- Provider liabilities were $336.6 million, up from $208.4 million at year-end. The balance includes provider distributions and medical claims, including estimates of incurred but unreported claims.
- Privia had no borrowings or letters of credit and terminated its SVB credit agreement in March 2023. Management said cash and expected operating cash flows should meet anticipated short- and long-term needs, while noting future financing may be needed depending on growth and spending.
Changes, outlook and risks
- Revenue growth reflected provider and visit-volume growth, new at-risk capitation arrangements, more attributed lives and continued value-based care performance. VBC revenue increased to 33.5% of Q3 revenue from 27.5% a year earlier.
- Care Margin grew 18.4% in Q3, but declined as a share of revenue to 22.1% from 22.7%; management attributed the margin-rate decline to higher-revenue at-risk capitation arrangements. Platform Contribution increased 22.2% to $45.2 million.
- General and administrative expense fell 15.5% in Q3, principally due to lower stock-based compensation as pre-IPO awards had largely vested by late 2022. Nine-month stock-based compensation was $25.4 million, versus $58.2 million.
- Privia entered Connecticut and Washington through 2023 transactions; acquisition accounting remains preliminary. It also launched in South Carolina in October, after quarter-end. In October, it received $91.2 million from CMS for 2022 MSSP shared savings, of which approximately $50.5 million was to be distributed to providers.
- The filing provides no specific numerical earnings or revenue guidance. Management expects continued growth and investment, including expansion of provider networks and value-based care capabilities; these expectations are subject to execution and market risks.
- Key risks include reliance on medical-group relationships and payer contracts, healthcare regulation and privacy requirements, provider retention and workforce costs, competition, and execution in new markets. Six payers accounted for approximately 77% of Q3 healthcare-service payments and 69% of accounts receivable at quarter-end. The company also holds cash above federally insured limits and no longer has its SVB revolving facility.
- Provider-liability estimates depend on actuarial assumptions and claims development. Management reported no material commitments and contingencies and no material change to previously disclosed risk factors other than financial-services-industry exposure.
Important facts for investors to verify
- Whether accounts receivable converts to cash as expected and whether the October CMS payment and provider distributions settle as described.
- Whether capitation growth is profitable after medical claims, and whether provider-liability estimates track actual claims development.
- Whether acquisition valuations and new-market launches deliver expected returns, including any final purchase-price allocation adjustments.
- How payer concentration, cash held above insured limits and the absence of a credit facility affect liquidity resilience.
- The effects of stock-based compensation and potential dilution: 118.0 million common shares were outstanding at September 30, and unrecognized compensation expense was approximately $90.5 million.