Privia Health Group, Inc.

Good day, and thank you for standing by. Welcome to the Privia Health Group fourth quarter 2023 conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Robert Borchert, SVP, Investor and Corporate Communications. Please go ahead.

Thank you, Shannon. Good morning, everyone. Joining me are Parth Marotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and 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. 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-K for the year ended December 31, 2023 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 February 27, 2024. Such statements, including those related to our future financial 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'll turn the call over to Parth.

Thank you, Robert, and good morning, everyone. Privia held close 2023 with another quarter of strong performance. We extended our market reach and continued to execute at a high level on multiple fronts with a focus on growth and profitability. This morning, I'll briefly highlight our 2023 performance, discuss our core focus areas for 2024, and cover some key business highlights. Then David will review our recent financial results our balance sheet and capital position, and our business and financial outlook for 2024 before we take your questions. 2023 was another outstanding year of growth for Privia Health. I'm extremely proud of our employees and provider partners whose contributions drove results that met or exceeded our updated guidance across all key metrics. We had a record year of new and same store provider sales as we continue to build one of the largest ambulatory provider networks in the nation. We added 200 implemented providers in the fourth quarter and a total of 699 implemented providers in the year, meaningfully increasing density in existing states. The ongoing success of our model is underlined by a gross provider retention of over 98% in 2023. We were also pleased with our practice collections growth for the year following the restructuring of one capitation agreement announced in the first quarter of 2023 that led to an approximate $110 million headwind to our initial guidance. A combination of accelerated implementations from organic sales, strong fee-for-service and value-based care performance, and new market launches contributed to actual practice collections ending the year near the high end of guidance. We entered three new states in this past year with the addition of Connecticut, South Carolina, and Washington. Our business development efforts continue to expand our total addressable market and bring the Previa model as a differentiated alternative for community providers in new states. Growth in our more mature markets drove meaningful outperformance in platform contribution above the high end of guidance due to the operating leverage embedded in our model validating our strong unit economics. Given our strong free cash flow conversion, we ended the year with approximately $390 million in cash and no debt. Moving on to 2024, We are taking appropriate steps to manage our value-based risk arrangements, given the regulatory and utilization headwinds faced by various payers in the Medicare Advantage market. Over recent months, we have heard commentary from payers anticipating top line and margin pressure, stemming from several factors, including V28, a continuation of strong inpatient and outpatient utilization, and an expected reduction in the number of four- and five-star rated health plans. As payers look to strengthen their market position, some are adjusting plan benefit designs and setting MLR thresholds in the risk-based MA contracts that do not sufficiently compensate provider groups taking risks downstream. As we stated earlier this year, we believe that the environment today does not support overextension into downside risk or capitation arrangements. We are prudently managing our risk book for more favorable contract structures and margin contribution. Our ability to nimbly respond to the changing reimbursement environment is essential for a provider organization and demonstrates the flexibility and diversity of the Privia business model. We expect to benefit from these changes as we continue to grow adjusted EBITDA year over year in a sustainable manner while limiting downside risk in this environment in the near term. To that end, for 2024, We are renegotiating certain MA capitation arrangements and moving 19,900 attributed lives into upside-downside risk arrangements. This lowers our risk exposure and reduces practice collections by approximately $198 million year over year. With improved economic terms, we expect to benefit on a care margin basis from restructuring the contracts. Second, we notified CMS that we are exiting the Delaware ACO effective January 1st of 2024. This ACO comprised approximately 12,000 attributed lives in MSSP, and given utilization trends in that market, was expected to generate a negative contribution margin for the foreseeable future. Third, we continue to be prudent with our value-based care accruals. Our 2024 guidance assumes minimal increase in shared savings accrual across our value-based care arrangements in the aggregate. The goal of these actions is to actively manage our risk exposure like our capitation contract reevaluation in early 2023. Looking back at the past couple of years, we believe our thoughtful approach to managing risk arrangements has served our providers and shareholders well in delivering consistent, predictable EBITDA growth. As we look out into the future, Privia is exceptionally well positioned to enter new capitation arrangements when the market conditions become more favorable and present the right opportunities for Privia and our provider partners. Our long-term goals remain unchanged, to build density in existing geographies through organic provider growth, move our medical groups into value-based care arrangements at scale, and expand adjusted EBITDA and free cash flow in a durable manner. As many of our newest markets enter the next stage of their lifecycle, we expect to invest $10 to $12 million in platform costs in 2024 to continue supporting their growth. Despite this increased investment, and minimal accretion and shared savings accruals in 2024, we expect 21% adjusted EBITDA growth at the midpoint of our guidance. Adjusted EBITDA margin as a percentage of care margin is expected to increase 200 basis points at the midpoint. With minimal capital expenditure in our capital light model, we expect about 80% of our adjusted EBITDA in 2024 to convert to free cash flow. This would increase our cash position to over $450 million by year-end, excluding any business development activity. Our business development and sales pipeline for both new anchor partners and existing provider groups continues to be very robust. In addition, we are starting to see some disruption in the provider space due to the challenging environment. Given our thoughtful approach and very strong balance sheet, we look forward to pursuing opportunities that position Privia as the partner of choice for physician groups. Previa's national footprint continues to expand as we build one of the largest primary care-centric delivery networks in the country. Today, we have more than 4,300 implemented providers caring for over 4.8 million patients in approximately 1,100 care center locations across 13 states and the District of Columbia. Expansion into our new markets is picking up pace as a multi-specialty provider partnership model across all patients and all reimbursements is a key differentiator for Privia. As of January 1st of this year, we estimate Privia is serving 1.13 million attributed lives across more than 100 at-risk payer contracts in commercial and government programs. Total attributed lives increased approximately 32% from year-end 2022. This positions our business as one of the broadest and most balanced value-based care platforms in the industry. Our commercial-attributed lives increased more than 36% from year-end 2022 to 678,000. 69% of our commercial-attributed lives are in upside-only arrangements, and 31% are in arrangements with some downside risk. Our ability to earn care management fees and shared savings that are incremental to our highly predictable fee-for-service administrative fees offers a very unique value proposition to our medical groups in the Commercial Book of Business. Total lives in Medicare Shared Savings Program excluding Delaware grew 6% from 2023. Approximately 76% of the 192,000 attributed lives participating in MSSP are in the enhanced track with significant upside opportunity, as well as the greatest downside risk CMS offers in the program. As of January 1st, 75% of the 172,000 attributed lives in Medicaid Advantage are in upside-only payer contracts. 16% are in upside-downside arrangements. The remaining 9%, or approximately 16,000 lives, are expected to be in capitation arrangements down from 35,900 at the end of 2023 due to our actions to limit downside risk exposure. There remains a significant embedded opportunity for us to move our Medicaid Advantage lives into downside risk arrangements over the next few years. As we've consistently noted, core to our long-term strategy is to thoughtfully move lives into increased risk arrangements when we are confident it will provide significant opportunities for EBITDA and free cash flow growth. We wanted to provide additional color on the substantial amount of medical spend that underscores our value-based arrangements. In aggregate, previous ACOs or risk entities are managing approximately $9 billion of medical spend in 2024. In most of our contracts, we only recognize care management fees and or shared savings in practice collections and gap revenue due to revenue recognition rules. In our capitation contracts, we recognize the medical premium associated with those lives. Any shift of lives between different types of value-based care arrangements, such as intuacio reach from MSSP or capitation from upside-downside MA contracts, could lead to significant movement in practice collections and gap revenue. The potential volatility of shared savings associated with the scale of our medical spend under management requires us to be thoughtful in our risk-taking, including limiting downside risk as appropriate in the current environment. We remain focused on growing our value-based care business in a profitable manner for our provider partners and shareholders. Now, I'll ask David to review our recent financial performance, capital position, and our operating and financial outlook for 2024. Thank you, Parth.