Privia Health Group, Inc.

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Thank you for standing by. My name is Dee and I will be your conference operator. At this time, I would like to welcome everyone to the previous held first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would like to turn the call over to Robert Burchard, Senior Vice President of Investor and Corporate Communications. Please go ahead, sir.

Thank you, Dee, and 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 will be accessed through the Investor Relations section of PriviaHealth.com along with today's financial press release and slide presentation. Following our prepared comments, we'll 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 today. The financial results reported today are preliminary and are not final until our Form 10Q for the first quarter ended March 31st, 2025 is filed with Securities and Exchange Commission. Some statements we will make today are forward-looking in nature based on our current expectations and view of our business as of May 8, 2025. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties and 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, And reconciliation of these measures to comparable gap measures are included in our press release and the accompanying slide presentation posted on our website. So now I'd like to hand the call over to our CEO, Parth Marotra.

Thank you, Robert, and good morning, everyone. Privia Health started 2025 with strong growth and momentum as we continue to execute very well across all aspects of our business. This morning, I'll cover our first quarter performance and recent business highlights, Then David will discuss our market presence, financial results, and our 2025 guidance update before we take your questions. Privia's growth team has continued to deliver strong new provider signings across all of our markets, which underpins our visibility through 2025. Implemented provider growth of 11.7% and value-based attribution growth of 11.1% year-over-year helped write total practice collections growth of 12.8%. Adjusted EBITDA increased 35.1% with EBITDA margin expanding 460 basis points year over year while we continue to invest in growth and expansion. This highlights the scale and strength of our business model. In early April, we announced our entry into the state of Arizona as we pursue disciplined growth to complement our organic sales engine. Following this outstanding overall performance in the first quarter, We are raising our 2025 outlook to the mid to high end of our initial guidance. Attributed lives guidance remains unchanged. This guidance raised early in the year is being driven by our excellent operating execution and continued exceptional performance by all of our provider partners in the current healthcare services environment. We announced our partnership in early April with IMS as our anchor practice to enter the state of Arizona. IMS is one of the largest independent multi-specialty practices in Arizona with approximately 70 providers. This is a very strategic market entry for Privia as the demographics of Arizona offer a compelling value-based care opportunity. IMS has more than 28,000 value-based care attributed lives across commercial, Medicare, and Medicaid programs. The transaction value was $95 million at closing. Privia Health owns Medical Group Entity and the Management Services Organization in Arizona. IMS remains physician-owned and will operate with significant clinical autonomy. We expect the Arizona market to be EBITDA positive in the fourth quarter this year, following IMS's implementation on the Privia platform. We also expect it to meaningfully contribute to adjusted EBITDA in 2026, giving us confidence in our ability to continue to target 20% EBITDA growth. We look forward to building on the IMS culture of delivering high-quality community care as we continue to align with like-minded providers across the United States. Now, I'll ask David to review our market position, recent financial results, balance sheet, and discuss our 2025 guidance outlook in more detail.

Thank you, Parth. With the addition of Arizona, Privia Health now operates across 15 states and the District of Columbia. Our footprint of high-quality, community-based medical groups and risk entities comprises 4,871 implemented providers caring for over 5.2 million patients in more than 1,200 care center locations. Privia now serves 1.27 million attributed lives across more than 100 commercial and government value-based care programs. This breadth and geographic reach positions us as a highly diversified and balanced value-based care organization. Total attributed lives at March 31st increased 11.1% from a year ago. This was driven by new provider growth as well as new value-based care contracts in certain programs. Commercial attribute of lives increased 13.6% from last year to reach 779,000. Lives attributed to the Medicare Shared Savings Program were up almost 5%. Medicare Advantage and Medicaid attribution increased more than 8% and 11% respectively from a year ago. The diversification of previous value-based care contracts gives us confidence in our ability to build scale and profitability across the business, despite challenges in any one particular program or contract. We remain highly focused on generating positive contribution margin in our value-based care contracts as we pursue attribution growth, manage risk, and implement clinical and operational enhancements in our partner practices. We continue to evaluate moving to greater downside risk when we believe contract economics appropriately compensate our physician partners for the level of risk incurred. Ultimately, our goal is to achieve consistent and sustainable earnings growth for our medical groups and shareholders. Privia Health executed very well to start 2025 with strong growth and momentum across all our markets. Implemented providers grew 82 sequentially from Q4 to reach 4,871 at March 31st, an increase of 11.7% year over year. The growth in implemented providers, along with strong ambulatory utilization trends and value-based performance, led to practice collections increasing 12.8 percent from Q1 a year ago to reach 798.6 million. Adjusted EBITDA, which has reconciled the gap net income in the appendix, increased 35.1 percent over first quarter last year to reach 26.9 million, representing 25.6 percent of CARE margins. This is a 460 basis point improvement from a year ago as we generated operating leverage across both cost of platform and GNA while investing across all markets. We ended the first quarter of 2025 with $469 million in cash and no debt, following typical quarterly cash outflows early in the year related to employee bonuses and value-based care payments to providers. This does not reflect the $95 million deployed in April for the Arizona acquisition. Our healthy balance sheet continues to position us with significant financial flexibility to deploy capital for business development and take advantages of opportunities in the current market environment. We are raising our full year 2025 guidance to the mid to high end of the initial ranges due to the strength of our first quarter performance and visibility throughout the remainder of the year. Guidance for attributed lives remains unchanged. We are maintaining a robust pipeline of existing market expansion and potential new market opportunities. However, our 2025 guidance does not assume any additional business development activity beyond Arizona. Capital expenditures are expected to be de minimis again this year as part of our Capital Light operating model. We continue to expect at least 80% of our full-year adjusted EBITDA to convert to free cash flow. Privia has delivered consistent growth and profitability across economic, healthcare, and regulatory cycles over the past seven years. The power of our business model and consistent execution is evident in how we have compounded all key metrics over time. Our 2025 guidance demonstrates our expectation for another year of strong EBITDA growth and free cash flow conversion. We look forward to continuing to serve our physicians, providers, and health system partners, and in turn, creating value for our shareholders as Privia Health builds a large scale primary care centric delivery networks across the nation. Operator, we are now ready to take questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 again. If you are called upon to ask your question or listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when you ask the question. Our first question comes from the line of Singh Jalandhra. Please go ahead.

Yeah, this is Jalandhra Singh from Truist. So congratulations on the strong quarter and, of course, on the Arizona market entry. Can you take some time to talk about the IMS transaction and prospects you've seen in that market? What differentiated this ask from ones you have done in the past? And how much practice collection and EBITDA benefit you, including new guidance right now? Thank you.

Yeah, thanks for the question, Jalendra. Look, IMS, as we said, you know, Arizona is a pretty important healthcare state. Big dam, good demographic trends. IMS has been operating for many years and came out of a health system a few years ago and established itself as an independent practice. A lot of cultural alignment with what we are trying to do. Very large practice, good size, many locations, really well-established patient panels. So overall, really good partner to have and pursue the Privia mission in that state. Pretty important transaction relative to the value, pretty significant EBITDA contribution given the nature of the deal. We're not disclosing specifics on the deal or specific EBITDA contributions specifically allocated to Arizona or to IMS. It's all embedded in our guidance. But as we've noted in our prepared remarks, this will be EBITDA positive from the first day that they're implemented. Pretty significant contribution next year, and that gives us a lot of confidence to keep growing EBITDA 20% into next year.

Thank you.

Our next question comes from the line of Josh Rashkin from Nephron Research. Please go ahead.

Hi, thanks. I'm going to follow up on Arizona as well. I guess I'm specifically interested in sort of that PCP versus specialist mix that IMS has maybe relative to your existing provider base. You know, anything we should be thinking in terms of differences in collections per physicians and maybe how IMS is positioned with the larger payers in the market. And then finally, did that strong value-based care opportunity that you guys talk about Did that make the transaction more attractive, less attractive? How were you thinking about that in the context of the broader preview?

Yeah, thanks for the question, Josh. So there are multi-specialty practice, and you can go on their website, and they've listed every single specialty and provider, so it's all public info. Slightly more skewed towards specialists versus primary care, but pretty healthy mix. You see we disclosed the attributed lives of 28,000, so that's all attributed to the PCPs. But again, it's very similar to some of our other states. It's not skewed one way or the other in one direction. It's a multi-specialty practice covering all specialties. So slightly higher practice collections per provider as you would expect from that perspective. And then I think from an opportunity perspective, there's a day one opportunity with the group with 28,000 lives. But then more importantly, I think Arizona is a pretty important state as far as MA is concerned, the demographic trends are concerned, the availability of independent providers. So I think we can have a pretty good presence over the next four, five, ten years. That's always our playbook. As we enter these states, it's not a one, two-year play. We're looking to establish a pretty large medical group over time, and I think the TAM opportunity is there for us to go get in Arizona, so we're pretty excited about that. Thanks.

Our next question comes from the line of Richard Close with Canaccord. Please go ahead.

Yes, congratulations. Thanks for the questions. When you guys are calling out strong ambulatory utilization, can you provide some perspective in terms of how it came in versus maybe what was baked into your guidance and your thoughts on utilization throughout the rest of the year and maybe how that factored into the updated commentary on guidance.

Yeah, thanks for the question, Richard. So I think it's been pretty strong. The flu season varies every year. We have a pretty significant portion of our providers as pediatricians, as PCPs, as family medicine, as you know. So given which months the flu season hit, you know, in that call it November through March timeframe or April timeframe, some years it's earlier, some years it's later. So we kind of normalized for that in our guidance over the years. But, you know, we've expected and experienced pretty strong trends continue, and that's reflected in practice collections. And I think we're going to continue to see those trends going forward. I mean, we've said that pretty consistently. utilization continues to be at this elevated level. And I think that bodes well for our fee-for-service business. It's also great for the value-based business because we are seeing the patients much more frequently.

So our guidance fully reflects those trends continuing.

Thank you. Our next question comes from the line of Matthew Gilmore with KeyBank. Please go ahead.

Hey, thanks for the question. I just wanted to ask a clarification on IMS and the guide. Are you absorbing any new market entry costs as it relates to Arizona within the guide? And then also, can you just remind us in terms of how the accounting works? Do you recognize any revenue prior to them being implemented on the Privy platform? Thanks.

Yeah, thanks for the question, Matt. So I'll start, and then David will take the accounting question. So we always have new market entry costs because as you know the model, we enter a state and we establish our sales team, implementation teams, our operations to go get other providers in the state to join our platform in addition to the anchor practice. So our guidance assumes absorbing those costs starting this year and then going into next year. And so obviously that highlights the merits of this transaction that despite absorbing those costs, we expect the transaction to be positive EBITDA this year upon implementation and pretty significantly next year. And that was really attractive to us. I'll let David handle the accounting question.

Yeah, so from an accounting perspective, because we acquired the medical group, as soon as we acquire the medical group, we get revenue and practice collections from that entity. However, the deal works where we don't get care margin and adjusted EBITDA until we implement them on the Athena platform, which we expect to happen in Q4 this year.

Our next question comes from the line of Jessica Tasson with Piper Sandler. Please go ahead.

Hi, guys. Thanks so much for taking the question, and congrats on Arizona and the strong quarter. I was hoping maybe you could talk a little bit about the growth in capitated lives quarter over quarter. Was that growth just population growth within existing contracts? And then any perspective on Medicare Advantage in 2026, just whether you're interested in expanding with new health plans or expanding the scope of your MA capitated contracts, any color on just how you're thinking about 26 in light of the rate announcement. Thanks.

Yeah, thanks for the question, Jess. So, yeah, the growth was pretty much organic in the CAP book, either existing, in the same existing contracts, so existing providers participating, seeing a few more patients and expanding the panels, and then some new providers joining the same contracts in those geographies and patients coming with those new providers. So, you know, it was a few thousand lives, and that's our objective once we enter these contracts, We want to improve performance. We want to add attributed lives and continue to expand that book of business if we think we're going to do well. And then on your second question, our view on MA remains pretty much the same as we discussed at length on the last earnings call. I think we're in this three, four-year period, which is going to be pretty challenging for MA for all the factors that you all know pretty well and we've articulated in the past calls. We will continue to pursue our strategy of sharing risk with the payers in MA contracts. So we would look to grow our book, grow our attributed lives in MA. I would not expect us to get into full cap or 100% risk deals. Our preference is to continue to enter into shared risk arrangements with the payers just given the environment. And we actually think that's the best long-term sustainable model if we are able to underwrite any deals where we think we're going to get significantly compensated for the level of risk in a full cap kind of contract, we'll look to add those. But at this moment, you should not expect us to enter fresh, new, fully 100% capitated contracts. But we'll continue to grow the book with both existing payers and look for new payers in existing or new states in growing that MA book.

Our next question comes from the line of Whit Mayo with Living Partners. Please go ahead.

Hi, this is Alberta Massey on for Whit. Thanks for taking the question. We're about halfway through B28 now. Are there any surprises with the implementation versus expectations in MSSP? Would be curious to hear about any changes in practice care management strategies. Thanks.

Yeah, thanks for the question, Alberto. So V20, it doesn't impact MSSP as much per se. It's mainly related to MA. I mean, the average risk score in MSSP is around one, and risk coding will play some role. It's not a big factor in our performance. And as far as the MA book is concerned, it's playing out as we expected. We took a very conservative view since the beginning of last year when we exited two capitation contracts. We think it's a pretty significant headwind to the industry, to the MA business, both for the payers and then providers downstream. And, you know, it's playing out as we expected. You've seen pressures on different payers at different points of time, either last year or this year. You've seen pressures on the provider group. So I think we continue to be pretty cautious and see how it plays out. And again, fundamentally, we've got to get paid to take additional risk in MA and we'll keep looking for those opportunities, as we just said.

Our next question comes from the line with A.J. Rice with UBS.

Please go ahead. Hi, everybody. Maybe just broadening out the discussion, there has been some speculation in some of the trade press that the Trump administration might look at some changes to MSSP program. I think we're largely supportive in the first term. Have you heard anything along those lines and maybe more broadly with all the discussions about Medicaid changes, I know that's about a fifth of your government lives, but it sounds like you've only got upside arrangements. Any thoughts about any of that and whether it will present opportunities and maybe just less on the government stuff? They haven't been able to get the doc fix legislation this year. Does that have any impact on you? I assume some of your providers are impacted by that, but any comment on that?

Yeah, thanks for the question, AJ. So I'll take them in order. You know, we haven't heard anything new since last quarter. I think we covered it pretty extensively. You know, MSSB continues to be a pretty well-established program, one of the most well-established programs out of CMS. I think they understand it. The folks in the administration understand it. And we continue to expect it to, you know, stay at the level that it is today. If we hear anything differently... They'll make an announcement and obviously we'll comment on it, but we haven't heard anything new on any potential changes to MSSP. You know, to your second question, I mean, it's all fully baked in our guidance. Like on the Medicaid side, we don't take any risk. As you mentioned, it's about 100,000 lives. It's upside only. We get some care management fees. We're trying to manage those lives without taking risk. It's not a big part of our FIFA service business. I think what's important to recognize is we have an ambulatory care delivery network with community-based providers. That's the front line of healthcare with some of these Medicaid patients, doctors in the communities taking care of children, mothers, family members. I think that's a pretty important aspect of the level of care in that population. We don't expect that we'll be impacted that significantly from cuts. If anything, folks will likely hopefully, you know, see that level of frontline care versus some of the more acute care that could be impacted downstream from potential cuts. But again, we'll see how it plays out. On your last question, yeah, I mean, there may be some impact, but again, we have a pretty big diversified book. It's all factored in our guidance and nothing material to call out on that particular legislation.

Our next question comes from the line of Andrew Mock with Barclays. Please go ahead.

Hi, this is Thomas Walsh on for Andrew. Hoping you could comment on if you've seen any behavioral change in patients using their coverage this year, whether that's induced by premium increases or changes in patient cost responsibility.

No, nothing out of the ordinary that's worth calling out. Again, we have a pretty diversified book, five plus million patients, so we haven't seen any fundamentally different levels of activity.

Our next question comes from the line of Brian Langston with TD Cohen. Please go ahead.

Hey, thanks. Just to go back to the guidance, obviously updated it this quarter. The last couple of years in the first quarter, you simply just reiterated the guide. Most other companies this quarter maintain guide as well. So it sounds like you're a little bit more confident than some of your peers based on your prepared comments. Is this mostly just the IMS pickup in the guide, or is really just what you're seeing in the underlying business performance driving that guidance increase?

Yeah, I appreciate the question. I think it's a combination of both. I mean, Q1, there was no IMS impact, and you're seeing the outperformance across the board on all our metrics, all the way down to EBITDA. So that has no impact from Arizona. And then, as we noted in our prepared remarks, all that impact starts in Q4, at least care margin downwards on our P&L. So I think it's a combination of both. We saw pretty good results this quarter. You're right, it's still early in the year, but given the strong performance, given the impact of the transaction, we feel pretty confident for the rest of the year. We'll see how the year plays out and then update guidance further. But at this point, we felt pretty comfortable going in given the strong start to the year.

Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Please go ahead.

Hi, guys. Thanks for the question. A slight two-parter for me. One, not to beat a dead horse, but so the attributed lives for IMS come in in which quarter? So I just want to make sure I have that down correctly. And then two, you had a nice, obviously, organic improvement in GNA in the quarter. Is that, should we just think of that as continuing to run, like, to sort of be smoothly across the year or anything sort of one time you need to call out that would impact the cadence of the rest of the year? Thanks.

Yeah, thanks, Elizabeth. So the attributed lives will flow through in the following quarter, so that's not yet reflected in the March 31st number for IMS. And that's why you're seeing while we've kept that piece of the guidance unchanged, you know, we're still below the low end of the guidance, which is very typical for Q1 where, you know, Some of the lives or some of the employers change their carriers on the commercial book. MA members change plans. And so if you look at past years, it's very typical for us to have that churn. The patient's not going anywhere. The doctor's not going anywhere, but it's just a movement of different health plans. And so we'll pick up all that attribution going forward. And then, sorry, could you repeat your second question again?

It was a G&A question, but Yeah, I think the second question was around GNA, and I'll take that part. From a GNA perspective, we saw a sequential decline in GNA from the fourth quarter, mainly attributed to what we accrued for bonuses and our contractor expenses. Early on in the year, we pretty much just stay pretty consistent on bonus accruals and don't look to increase that until we get further on in the year. So it's just those two things. And yeah, I think you were asking about throughout the rest of the year, I would say follow similar trends to previous years is what we're expecting.

Our next question comes from the line of Constantine Davides with Citizens JMP. Please go ahead.

Thanks. Parth, just following up on Arizona, what made them move to partner with you in this type of transaction and what was important to them with respect to what Privia checked the boxes on maybe relative to some other platforms or options they may have evaluated? And then just given their higher sort of mix of value-based lives relative to the number of PCPs they have, are they moving away from a prior enablement partner? Thanks.

Yeah, I appreciate the question, Konstantin. So I think it's a pretty important question that highlights the strength of our platform. Any practice that size as we've stated in previous calls, has been approached by everybody you can imagine, health systems, private equity, bigger payers, other consolidators, so on and so forth, other enablement companies. I think what was key to them partnering with us is, number one, we just have a unique model that can cater to the entirety of the practice, all specialties. every single patient, every single line of business, every pair, comprehensive tech services platform. And that coupled with an ability to maintain clinical autonomy in a model like Privia where you're not getting employed by another entity from your compensation perspective, you're able to make the decisions in day-to-day working at the clinic, and how you practice medicine, I think that was immensely important to the physician leadership there. They came out of a health system, and so obviously the group is fiercely independent and believes in autonomy of private practice, which leads us to having a pretty strong cultural alignment. And I think we can have a great business in Arizona with their help and grow that business, grow their clinics as well as grow around them So I think it's a combination of all of those. They did partner with other enablement companies, and I think we'll just evaluate those contracts over time. But we fully own the medical group, risk entity, MSO entities, and so we'll just evaluate how we move some of those contracts over time. And that, again, highlights the importance where even though some of these practices can partner with other entities, once we come in with a comprehensive solution, that overweighs any prior decision. So we'll just see how those play out and what the contractual terms are and how they're performing and take it from there.

Our next question comes from the line of Jack Sliven with Jeff Rees. Please go ahead.

Hey, thanks for taking the question and congrats on a really strong quarter. Two-parter, one just to clear this out. IMS, are they participants in MSSP or ACO Reach currently? And when you say that they've got other enablement agreements presently, is that what you're referring to? And then the second one, really just thinking more about how we look at fee-for-service utilization in 2025. The United call-out was that AWV ran really, really hot. I would think you would benefit from similar trends in the first quarter, but I'm just trying to get a sense of sort of what you've seen year-to-date in terms of PCP or primary care provider utilization versus specialist in your book? And is there an expectation that that sort of front-running of AWV might bring some upside throughout the year as you sort of trend downstream towards the rest of the specialists in the ecosystem?

Thanks. Yes, on the first question, the short answer is yes. They do participate in... in MSSP slash ACO Reach or one of those programs. We're not going to comment on which one and how many lives, but they do participate currently, and so we'll inherit that book. On the second one, yeah, I think as we said previously, you know, I won't categorize it just AWVs per se, but, you know, we've experienced pretty strong ambulatory utilization at our PCPs, pediatricians, OBGYNs. even some of the specialists. So, you know, we've seen in-office community-based physician utilization to be pretty strong. That's reflected in our practice collections. And, you know, we don't see any reason to believe that that would not continue for the rest of this year. We'll just see how it plays out.

But that's reflected in our guidance. We'll update that as we go forward.

Our next question comes from the line of Jeff Garrow with Defense. Please go ahead.

Yeah, good morning. Thanks for taking my question. I want to go back to the fall of 2023. You had announced an AI partnership that targeted physician productivity. So I was hoping for an update on how adoption has been of that solution by your providers and what kind of productivity gains you've realized. Thanks.

Yeah, I appreciate the question. So the utilization has been great. I mean, we've adopted that pretty significantly across our provider base. We continue to innovate with the partner, Navina, and we think it's a great solution that streamlines clinical documentation, prevents errors, highlights care gaps at the point of care to the PCP right when they're seeing the patient. So I think it's another way where we are continuously evaluating where AI and other tools can improve the workflow, reduce the time that is spent. We have a case study out that I think is public on our website. So we can send it to you after the call that highlights all the stats on this particular partnership. I think they also showcased that at HIMSS recently. So, you know, we're all pretty happy and we continue to improve this and other areas with the adoption of AI.

Our next question comes in the line with Ryan Daniels with William Blair. Please go ahead.

Yeah, thanks for taking the question, guys. I guess most of the big ones have been answered. I want to do a follow-up there and just ask, are there any other big IT initiatives or clinical initiatives that Serbia is looking at for the next 6 to 12 months? We've heard a lot on AI, but also more on specialty referrals and things like healthcare. So curious kind of what's on the agenda for the team. Thanks.

Yeah, I appreciate the question, Ryan. So, you know, we have, as you know, we have a very comprehensive full tech service platform across all lines of business, both fee-for-service, rep cycle, value-based care. And so we are continuously looking to improve, you know, the value-based care is a big, big area, obviously, both on improving the clinical workflow, decision-making, how the data comes in from different payers, different contracts. We have, you know, 100 plus value-based contracts. And to take risk, you want to make sure you're getting real-time data as much as possible or with minimal lag. We have a lot of visibility into it. So there's a lot of effort just to keep improving those. I think we've had, you know, our good performances are effective on the stack we have currently that you need to have in place. But there's always a scope for improvement. So that's a big area for us to focus on. And then on the regular workflow as a patient comes in and through their life cycle with the doctor during the year or over many years, I think we've continuously looked at different solutions that are getting improved now, whether it's on scribing, on RCM workflows, on just improving, again, accuracy, timelines, speed, And so, you know, we have a bunch of things that are in the works that get implemented on the platform on a continuous basis with our clinical IT committee, which is chaired by a lot of the providers that we practice with. I think the interesting thing is we eat our own cooking. We are the medical group and the service provider all in one. So there's a very good feedback loop. And I think that's a strength of our platform where we can implement things that can be, you know, really used by our providers if they want.

Our next question comes from the line of David Larson with BTIG. Please go ahead.

Hey, congratulations on the good quarter. And Parth, I always like how you're very careful around which risk contracts you get into. I did see capitated revenue increased pretty significantly sequentially. And then also, I think your medical loss ratio contracted by about 150 basis points sequentially. Can you maybe just talk about The growth in CAP revenue, I think you said it's organic. How much visibility do you have into those physicians and those members? Are these groups that have been on your platform for a couple of years, so you're very comfortable with them bearing risk with those new members? And then just any thoughts on the CAP EBITDA would be very helpful. Some of your peers have had some pressures on the side of the house, which is why I'm asking. Thanks a lot.

Yeah, I appreciate the question. So yes, we did see some, I think this question asked before, like we saw a few thousand lives increase in the, in the cap book, uh, pretty much all organic, uh, uh, either existing, uh, doctors seeing more patients or a few more doctors joining with, with new panels in that contract. So, so that's reflected in the cap book. Uh, I mean, you can see from the disclosure and the press release, um, uh, you know, it's still early days in the year and, uh, You know, it's not like we're making many significant EBITDA yet. But our hope is that, I mean, it's still positive contribution pretty slightly. But as the year progresses, our expectation is we continue to hopefully do well. And this will be positive margin. Otherwise, there's no point to incapitation to lose money. And I think that's going to be our, you know, our strategy. We've articulated it pretty carefully. We want to take risk when we're getting paid to take risk. especially in this environment with all the pressures in MA. And I think we'll continue to do that. Otherwise, we're just happy to have a pathway to risk, 50-50 risk sharing with the payers and keep expanding our MA book from that perspective. But I think the growth was in that one particular contract that we have pretty much organically.

Our next question comes from the line of Matt Ashaya. We need him. Please go ahead.

Hey, good morning. Thanks for taking the question and congrats on the Arizona expansion. In the past, you've commented on new markets requiring, you know, two to 3 million in investment and you tend to break even on that in 18 months. So with Arizona break even expected in the fourth quarter, it appears you guys are ahead of schedule. So curious what the dynamic is there. Are you starting to break even faster in new markets or just requiring less initial investment? Maybe something specific about IMS or Arizona, any color there would be helpful.

Yeah, I appreciate the question. So I think Matt Gilmore asked the same one or similar question earlier. We will have new market entry costs. I think this transaction is unique in that it comes with pretty significant EBITDA contribution, which offsets some of that cost this year into next year. So while we continue to spend that, again, every anchor transaction that we do is different in nature, size of the practice, nature of our relationship, management fees, so on and so forth. And so I think that's reflected in the purchase price, which we've disclosed. And so I think, again, future markets may or may not look like this. We've entered all kinds of markets in our past. If you look at that slide 11 and see all the different markets that we've entered each of the years. Some may not come with a pretty significant practice or significant EBITDA contribution. In fact, we burned some cash in the first few years given the new market entry costs. And then the market turns profitable. And in other cases, the market comes with a pretty significant book of business that can be EBITDA positive. So I think it just depends on the nature of the transaction, which market. There's no other new markets in our guidance. for this year other than Arizona. So if we end up deploying more capital and enter any new states, we'll update guidance accordingly. And like we've said previously, if you're putting significant capital to work, we're going to be pretty disciplined and make sure we're focused on EBITDA and free cash flow. So I think we'll just continue to do that the way we've done and keep compounding EBITDA here.

Our next question comes from the line of Jamie Percy with Goldman Sachs. Please go ahead.

Hey, thanks. Good morning. A question on operating leverage you showed here in the first quarter. So, cost of platform has been up mid-teens the last two years. I think that reflects some of the infrastructure build-out you've done in new markets that you've entered over that period. Here in the first quarter, cost of platform was up 10% versus 13% practice collections growth, so you're getting operating leverage there. So the broad question is just how to think about cost of platform investments in 2025, and then more specifically, are some of these new markets you've entered over the last couple years now at a point where the infrastructure is in place, and as you grow, you'll see a lot of operating leverage there?

Yeah, it's a great question, Jamie. Appreciate you asking it. You know, I think it's more to go back to slide 11. And if you see our EBITDA margin as a percentage of care margin, you know, we've just grown that significantly over the past four, five, six years, despite entering some of the new markets. So, you know, some years we get some leverage. Some years we're investing. You saw that 22 to 23, you know, it was pretty flattish EBITDA as a percentage of care margin. And then you see the operating leverage in the subsequent years. I think our long-term margins that we've guided to previously is around 30% to 35%. You know, we're sitting at very close to 25% with our guidance. We were over 25% in this quarter. And if you look at our midpoint of our guidance, it's kind of at 24.6%. So we are pretty significantly there. And this is fully expensing all of G&A, public company costs, full sales and marketing, and All of our technology development, as you know, we don't capitalize much at all. And I think you're seeing the strength of the business model that as we've scaled and grown our medical groups, gotten some of these markets to even come out of that initial one or two year initial ramp up phase, we start to see operating leverage all the way down to EBITDA and then conversion, 80 plus percent conversion to free cash flow. So I think we continue to be pretty excited in how we've delivered this. Our guidance reflects for the rest of the year what we expect. But again, if we perform better at the high end, it could be better than what we have. We'll just see how the year plays out. And I think it's also important to understand we're delivering this despite pretty significant headwinds in the value-based space. I mean, as you know, our management fee structure is pretty significantly skewed towards moving lives into risk arrangements. of all shapes and sizes, and that's where we earn 40% of the shared savings. So despite having a period where value-based care shared savings is flat year over year, you know, we're still delivering on operating leverage. So I think we feel really good about the progress of the business, progress of the cost structure. As we add more lives, more providers, you know, I think the existing infrastructure scales really well. And I don't, I mean, once we get to close to 30%, I think you'll see some stability, but our endeavor is to continue to keep expanding that EBITDA margin over time.

Our next question comes from the line of Daniel Grossleit with Citi. Please go ahead.

Hi, thanks for taking the question, and congrats on the strong start to the year. I'm just curious how your conversations with providers have changed, if at all, this year, are they more or less receptive to joining the Privia platform, particularly as it relates to potentially moving into some of these value-based care arrangements? And, Mark, you mentioned that, at least in IMS, you know, they had been approached by, you know, everyone under the sun, just given their size. I'm curious with other smaller providers, is it a similar dynamic where most folks now have been approached by someone to do something like what Priya is doing? Or are you still really kind of chatting with folks where this is more new to them?

Thanks. Yeah, I appreciate the question, Daniel. I think it's a pretty important question. I think the comprehensiveness of our platform across all specialties, all lines of business, all payers, joining a medical group versus just partnering with a company on one particular risk contract. I think it's very attractive to a lot of small providers. They've been approached by someone or the other. So it's very rare that even a small practice is just totally independent and did everything themselves and has never spoken to anybody in either the physician enablement space or some hospital or private equity or whatever have you, depending on their size. Our sales team is performing really well, as we said in our prepared remarks. Last two, three years, we've seen a lot of great momentum. I think we are one of the survivors in this industry, given all the shakeout that's happening. I think we are operating from a position of strength. The results are there for everybody to see. And so I think our performance speaks for itself. And ultimately, our existing physician base is our best sales team. As we enter a state, the flywheel just snowballs and runs where existing practices that have been live for two, three, four, five years act as a great referral to new practices. And doctors speak with doctors, as you know. So I think even in some of our mature markets, we are seeing where a lot of the top of the funnel activity is referral from our existing providers, and that comes with a very high conversion rate. So I think the fact that we have really performed well in this model, this model works, physicians are able to stay independent, autonomous, and yet be part of something bigger, I think it really resonates for the fatality of the practice. We're not going in doing anything artificial, giving them money, protecting downside risk, giving them equity. All those things run their course over some period of time. And so I think from a sustainability perspective, this is the right long-term partnership model that we think. Obviously, I'm biased, but I think all those things over time just help you continue to grow this business. So I think we're seeing some of that across all our states.

Our next question comes from the line of Michael Ha with Baird. Please go ahead.

Thank you. Just quickly first, I'm not sure if you'll comment on this, but how many of the 28,000 IMS lives are forest capitation? Then in terms of earning seasonality for this year, just given how first quarter was quite meaningful outperformance and historically looks like one Q is generally softer in terms of full-year earnings contribution. Curious if we should be, how we should think about the remainder of the year. Do we expect anything different versus historical? Any difference from these new Arizona costs? And last question, and with some of your larger value-based care for risk providers in the market facing some pretty meaningful issues this year, when you see all this, plus you're consistently scanning the country for possible calculated providers. We'd love to hear if you've seen anything noticeable in terms of a V28 impacted TAD, maybe more specifically in your view, if you think the cohort economics over the past five years for these provider models might now be structurally impaired. Thank you.

Yeah, thanks for the question, Michael. So three in one, I'll try and take them in order. So on IMS, Yeah, we don't usually disclose, but none of the lives are capitated. So that's the short answer of the $28,000. On the second one, again, it's early in the year. You shouldn't expect anything different from a seasonality perspective. So we've entered the year pretty strong. And we'll update guidance as the quarters go by. But we don't expect any anomaly this year versus previous years from a quarterly cadence perspective. on how the P&L should run its course. But we'll see, again, the biggest variable, as you know, is the value-based book, and as we get more data, we'll update our accruals and see how it all plays out, but we feel pretty comfortable updating our guidance the way we did. On the third one, I think that's a pretty interesting question. I think there have been a lot of models, public and private, that try to get these providers in some way, shape, or form in contracts of certain tenure. They haven't performed, as it's pretty obvious, in full risk. And I think over time, the providers, these provider practices will make the decision on whether to stick with their existing partner or look for a switch. You know, we've again said we're not out there hunting for capitated lives. I mean, that's just the nature of a financial contract between the payer and an entity like us. I think it's important to do value-based care and MA risk thoughtfully. in a manner where all three entities, the payer, an enablement company like Privia, and the doctor or the physician group all have skin in the game. It's long-term sustainable. You're not doing anything artificial just for the sake of doing capitation, and people are getting paid to take their risk and paid to do the piece of job that they're supposed to do. And I think a lot of these companies entered into some contracts that that didn't validate that thesis. And financially now, you know, some of these contracts or structures might be impaired, just unsustainable from a payer enablement company perspective or unsustainable from the relationship that they have with the provider group that they signed in terms of economic sharing, overall opportunity to earn shared savings, so on and so forth, as all these impacts happen on the MA book from V28 and star scores utilization, so on and so forth. I think all that should bode well for us. I think we'll continue to see some disruption. We've said previously we look to take advantage of that and get these groups in, hopefully, which is a model that is much more sustainable like ours, so organically and then also inorganically.

The last question comes from the line of Joanna Kachuk with Bank of America. Please go ahead. Hey, good morning.

Thanks for squeezing me in. Actually, I want to ask about the M&A pipeline. So with all the cash that you have now on the balance sheet, would you look to do more deals immediately or it's more likely, you know, first to kind of, you know, bet just the Arizona before you move on? Because also what I'm getting at is just curious because it's somewhat related to prior question around, you know, are there a lot of interests from practices, right? Is there activity there, you know, in terms of deals just floating around? But the other part of the question is around valuations. How should we think about, you know, what you typically pay in terms of multiples for deals of that size? Thank you.

Yeah, thanks for the question, Joanna. So the pipeline remains really strong. Again, you can see slide 11. We've entered one, two, or more states every year pretty consistently. Some years it's more states, some years it's less. It just depends on when we do the deal. You know, we are still in 15 states, 35 to go. And so our view is we keep looking for opportunities to enter different states, also increase density in existing states. And we've done all kinds of deals. As you know, we bought medical group entities, risk entities, MSO entities, combination of them. And so it just depends on what kind of deal we find where, given our unique model. where it's a pretty comprehensive platform. Again, catering to all specialties, all payers, all patients, all lines of business. And so the valuation then just is reflective of the entities we buy, the earning stream from that. We have pretty disciplined buyers focused on EBITDA-free cash flow. So if you're putting significant capital to work, like we did in the Arizona deal, you should expect pretty significant EBITDA contribution. If it's a smaller deal, we may be just entering a state, buying a tax ID, buying a risk entity, so on and so forth, and playing the long game there. So it just depends on the nature of the transaction. But we'll continue to be pretty disciplined if you're putting significant capital. You should expect that it'll come with hopefully good earnings contribution. And lastly, I would say, again, this environment, we are in a position of strength with our balance sheet and our free cash flow generation to take advantage of as many opportunities that arise. Obviously, we don't have billions of dollars, but I think we are hopefully a partner of choice, both given our business model, ability to partner with different kinds of provider groups as they make a decision whether to join us or a private equity group or any other pair. So I think it's a pretty unique time to be in this space, and we're glad to be operating from a position of strength.

We have no further questions. Management, please continue.

Thank you for listening to our call today. We appreciate your continued interest and look forward to speaking with you again in the near future. Have a great day.

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