Privia Health Group, Inc.: Form 10-Q for the period ended Jun 30, 2024

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this quarterly report on Form 10-Q. In addition, the following discussion and analysis and information contains forward-looking statements about the business, operations and financial performance of the Company based on our current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. including, but not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Information Regarding Forward-Looking Statements” in this quarterly report on Form 10-Q.

Overview

Privia Health is a technology-driven, national physician-enablement company that collaborates with medical groups, health plans, and health systems to optimize physician practices, improve patient experiences, and reward doctors for delivering high-value care in both in-person and virtual care settings on the “Privia Platform.” We directly address three of the most pressing issues facing physicians today: the transition to the VBC reimbursement model, the ever-increasing administrative requirements to operate a successful medical practice and the need to engage patients using modern user-friendly technology. We seek to accomplish these objectives by entering markets and organizing existing physicians and non-physician clinicians into a unique practice model that combines the advantages of a partnership in a large regional Medical Group with significant local autonomy for Privia Providers joining our Medical Groups. Our Medical Groups are designated as in-network by all major health insurance payers in all of our markets and all Privia Providers are credentialed with such health insurance payers.

Under our standard model, Privia Physicians join the Medical Group in their geographic market as an owner of the Medical Group. Certain of our Medical Groups are Owned Medical Groups, with Privia Physicians owning a minority interest. However, in those markets in which state regulations do not allow us to own physician practices, the Medical Groups are Non-Owned Medical Groups or Friendly Medical Groups. Privia Physicians who owned their own practices prior to joining Privia continue to own their Affiliated Practices, but those Affiliated Practices no longer furnish healthcare services. The Medical Groups have no ownership in the underlying Affiliated Practices, but the Affiliated Practices do provide certain services to our Medical Groups, such as use of space, non-physician staffing, equipment and supplies.

We provide management services to each Medical Group through a local MSO established with the objective of maximizing the independence and autonomy of our Affiliated Practices, while providing Medical Groups with access to VBC opportunities either directly or through Privia-owned Accountable Care Organizations (“ACOs”). We have national committees that distribute quality guidance, and we employ Chief Medical Officers who provide clinical oversight and direction over the clinical affairs of the Owned Medical Groups. Additionally, we hold the provider contracts, maintain the patient records, set reimbursement rates, and negotiate payer contracts on behalf of the Owned Medical Groups and the owned ACOs.

We also offer Privia Care Partners, a more flexible provider affiliation model, to providers who do not desire to join one of our medical groups. This model aggregates providers in certain of our existing markets as well as new markets who are looking solely for VBC solutions without the necessity of changing EMR providers. We furnish population health services, reporting and analytics to such providers along with a menu of management services from which providers may choose.

GAAP Financial Measures

• Revenue was $422.3 million and $413.4 million for the three months ended June 30, 2024 and 2023, respectively, and $837.6 million and $799.6 million for the six months ended June 30, 2024 and 2023, respectively;
• Gross profit was $98.3 million and $90.2 million for the three months ended June 30, 2024 and 2023, respectively, and $191.6 million and $173.2 million for the six months ended June 30, 2024 and 2023, respectively;
• Operating income was $5.1 million and $7.0 million for the three months ended June 30, 2024 and 2023, respectively, and $5.9 million and $13.7 million for the six months ended June 30, 2024 and 2023, respectively; and
• Net income attributable to Privia Health Group, Inc. was $3.5 million and $7.3 million, for the three months ended June 30, 2024 and 2023, respectively, and $6.5 million and $14.6 million for the six months ended June 30, 2024 and 2023, respectively.

Key Metrics and Non-GAAP Financial Measures

• Practice Collections were $728.0 million and $700.0 million for the three months ended June 30, 2024 and 2023, respectively, and $1.44 billion and $1.36 billion for the six months ended June 30, 2024 and 2023, respectively;
• Care Margin was $99.8 million and $91.6 million for the three months ended June 30, 2024 and 2023, respectively, and $194.7 million and $175.7 million for the six months ended June 30, 2024 and 2023, respectively;
• Platform Contribution was $47.4 million and $44.6 million for the three months ended June 30, 2024 and 2023, respectively, and $92.1 million and $86.0 million for the six months ended June 30, 2024 and 2023, respectively; and
• Adjusted EBITDA was $22.0 million and $19.3 million for the three months ended June 30, 2024 and 2023, respectively, and $41.9 million and $36.2 million for the six months ended June 30, 2024 and 2023, respectively.

See “Key Metrics and Non-GAAP Financial Measures” below for more information as to how we define and calculate Implemented Providers, Attributed Lives, Practice Collections, Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin, and for a reconciliation of gross profit, the most comparable GAAP measure, to Care Margin, gross profit, the most comparable GAAP measure, to Platform Contribution, and net income, the most comparable GAAP measure, to Adjusted EBITDA.

Our Revenue

We recognize revenue from multiple stakeholders, including health care consumers, health insurers, employers, providers and health systems. Our revenue includes (i) FFS revenue generated from providing healthcare services to patients through Privia Providers of Owned Medical Groups or administrative fees collected for providing administrative services to Non-Owned Medical Groups, (ii) VBC revenue collected on behalf of our providers, through capitated revenue, shared savings (including surplus payments, shared savings, total cost of care budget payments and similar payments) and care management fees (including care management fees, management services fees, care coordination fees and all other similar administrative fees), and (iii) other revenue from additional services, such as concierge services, virtual visits, virtual scribes and coding.

FFS Revenue

We generate FFS-patient care revenue when we collect reimbursements for FFS medical services provided by Privia Providers. Our agreements with our providers have a multi-year term length and we have historically experienced a 96% provider retention rate, both of which lead to a highly predictable and recurring revenue model. Our FFS contracts with payer partners typically contain annual rate inflators and enhanced commercial FFS rates given our scale in each of our markets. As a result of receiving these rate inflators and enhancements, if we continue to be successful in expanding our provider base, we expect revenue will grow year-over-year in absolute dollars. In addition, in our FFS-patient care revenue, we include collections generated from ancillary services such as clinical laboratory, imaging and pharmacy operations. We also generate FFS-administrative services revenue by providing administration and management services to medical groups which are not owned or consolidated by us. FFS-patient care revenue represented 65.3% and 55.9% of total revenue for the three months ended June 30, 2024 and 2023, respectively, and 65.7% and 57.4% for the six months ended June 30, 2024 and 2023, respectively. FFS-administrative services revenue represented 7.6% and 6.6% of total revenue for the three months ended June 30, 2024 and 2023, respectively, and 7.3% and 6.7% for the six months ended June 30, 2024 and 2023, respectively.

VBC Revenue

Over time, we create incremental value for our provider partners by enabling them to succeed in VBC arrangements. We generate VBC revenue when our Privia Providers are reimbursed through traditional FFS Medicare, MSSP, Medicare Advantage, commercial payers and other existing and emerging direct payer and employer contracting programs. Given recent regulatory and utilization headwinds in Medicare Advantage, the Company renegotiated certain capitation agreements for more favorable contract structures with potential, positive contribution margin in 2024. As a result of the renegotiated agreements, effective January 1, 2024, approximately 19,800 Attributed Lives moved from capitated revenue, which is recorded on a gross basis, to shared savings revenue, which is recorded on a net basis. These lives are still managed, but our results are recorded on a net shared savings revenue basis. The revenue is primarily collected in the form of (i) Capitated revenue earned by providing healthcare services to Medicare Advantage attributed beneficiaries for a defined group of services including professional, institutional and pharmacy through a contract that is typically known as an “at-risk contract,” (ii) Shared savings earned based on improved quality and lower cost of care for our Attributed Lives in VBC incentive arrangements and (iii) Care management fees to cover costs of services typically not reimbursed under traditional FFS payment models, including population management, care coordination, advanced technology and analytics. VBC revenue represented 26.6% and 37.0% of total revenue for the three months ended June 30, 2024 and 2023, respectively, and 26.5% and 35.5% for the six months ended June 30, 2024 and 2023, respectively.

Other Revenue

The remainder of our revenue is derived from leveraging our existing base of providers and patients to deliver value-oriented services such as virtual visits, virtual scribes and coding. Other revenue represented 0.5% of total revenue for both the three months ended June 30, 2024 and 2023, respectively, and 0.5% and 0.4% for the six months ended June 30, 2024 and 2023, respectively.

Key Factors Affecting Our Performance

Addition of New Providers

Our ability to increase our provider base will enable us to deliver financial growth as our providers generate both our FFS and VBC revenue. Our existing provider relationships and market share provides us with significant opportunity to grow in both existing and new geographies, and we believe the number of providers joining Privia is a key indicator of the market’s recognition of the attractiveness of our platform to our providers, patients and payers. We intend to increase our provider base in existing and new markets by adding new practices and assisting our existing practices with recruiting new providers, using our in-market and national sales and marketing teams. As we add providers to the Privia Platform, we expect them to contribute incremental economics as we leverage our existing brand and infrastructure, both at the corporate and in-market levels.

Addition of New Patients

Our ability to add new patients to our provider base in existing and new markets will also enable us to deliver revenue growth in both our FFS and VBC contracts. We believe the number of attributed patient lives in VBC programs is a key driver of our VBC revenue growth. Our branding and marketing strategies to drive growth in our practices have continued to result in increased engagement with new and existing patients. We believe our continued success in growing the visibility of the Privia brand will result in increased patient panels per provider and contribute incremental revenue in both FFS and VBC for our practices.

Expansion to New Markets

Based upon our experience to date, we believe Privia can succeed in all reimbursement environments and payment models. The data we collected from older provider cohorts consistently suggest that we improve their performance in both FFS and VBC metrics over time and inform our expectations for our new markets. We believe our in-market operating structure and ability to serve providers wherever they are on their transition to VBC can benefit physicians and providers throughout the U.S. and that our solution is applicable across all 50 states. We enter a market with an asset-light operating model and employ a disciplined, uniform approach to market structure and development. We partner with market leading medical groups and health systems to form anchor relationships and align other independent, affiliated, or employed providers into a single-TIN medical group. Our business model also gives us flexibility for future, incremental growth through the acquisition of minority or majority stakes in our practices and opening de-novo, fully-owned sites of care focused on Medicare Advantage and direct contracting models.

During 2023, the Company entered four new markets through partnerships or affiliations with clinically integrated networks, health systems and independent group practices in Connecticut, Ohio, Washington state and South Carolina.

Provider Satisfaction and Retention

Privia Providers have high satisfaction with their overall performance on our platform, and we strive to continuously improve provider well-being and patient satisfaction. Our percentage of collections model combined with high patient and provider satisfaction results in 90%+ Practice Collections predictability on a rolling twelve month forward basis. We believe these metrics demonstrate the stability of our provider base and the appeal to prospective providers and patients of our platform.

Payer Contracts and Ability to Move Markets to VBC

Our FFS and VBC revenue is dependent upon our contracts and relationships with payers. We partner with a large and diverse set of payer groups nationally and in each of our markets to form provider networks and to lower the overall cost of care, and we structure bespoke contracts to help both providers and payers achieve their objectives in a mutually aligned manner. Maintaining, supporting and increasing the number of these contracts and relationships, particularly as we enter new markets, is important for our long-term success.

Our ability to work within each geographic market as it evolves in its shift towards VBC, with our experience working in all reimbursement environments, enables providers to accelerate and succeed in their transition. Our model is aligned with our payer partners, as we have demonstrated improved patient outcomes while driving incremental revenue growth. We intend to accelerate the move towards the adoption of VBC reimbursement in each market in current and emerging payer programs. To do so, we will need to continue enhancing our VBC capabilities and executing on initiatives to deliver next generation access, superior quality metrics and lower cost of care.

Currently, the total number of Privia-owned ACOs is nine, serving beneficiaries across the District of Columbia and eleven states, including California, Connecticut, Florida, Georgia, Maryland, Montana, North Carolina, Tennessee, Texas, Virginia, and Washington state.

During 2022 and 2023, we entered into capitated payer arrangements. Capitated revenue is generated through what is typically known as an “at-risk contract.” At-risk capitation refers to a model in which the Company is entitled to fixed monthly fees from the third-party payer in exchange for providing healthcare services to attributed beneficiaries in Medicare Advantage plans. The fees are typically based on a percentage of the defined premium that payers receive from Centers for Medicare and Medicaid Services (“CMS”). The Company is responsible for providing or paying for the cost of healthcare services required by those attributed beneficiaries. At-risk capitated fees are recorded gross in revenues because the Company is acting as a principal in arranging for, providing, and controlling the managed healthcare services provided to the attributed beneficiaries. Given recent regulatory and utilization headwinds in Medicare Advantage, the Company renegotiated certain capitation agreements for more favorable contract structures with potential, positive contribution margin in 2024. As a result of the renegotiated agreements, effective January 1, 2024, approximately 19,800 Attributed Lives moved from capitated revenue, which is recorded on a gross basis, to shared savings revenue, which is recorded on a net basis.

Components of Revenue

Our FFS revenue is primarily dependent upon the size of our provider base, payer contracted rates and patient volume. Our ability to maintain or improve pricing levels in our contracts with payers and patient volume for our providers will impact our results of operations. In addition to increasing our provider base and contracted rates over time, we also seek to increase patient volume by demonstrating the ability to provide a better patient experience that leads to higher retention rates and drives referrals to preferred, high quality and value-based providers. Our VBC revenue is primarily dependent upon the number of attributed patients in our VBC arrangements, risk levels of our payer contracts, and effective management of our patients’ total cost of care. As we grow our provider base, we also expect to increase our total number of attributed patients in existing and new markets. In addition, we intend to increase the risk levels of our value-based programs as we seek a higher revenue opportunity on a per patient basis over time.

Investments in Growth

We expect to continue focusing on long-term growth through investments in our sales and marketing, our technology-enabled platform, and our operations. In addition, as we continue our efforts to move markets toward VBC, we expect to continue making additional investments in operations for an expanded suite of clinical capabilities to manage our patient population.

We launched Privia Care Partners on January 1, 2022 to offer a more flexible affiliation model for providers who do not desire to join one of our Medical Groups. This model aggregates providers solely for VBC contracts without the necessity for providers to change EMR providers. We furnish population health services, reporting and analytics to such providers along with a menu of management services from which providers may choose. During 2023, several Privia Care Partners’ providers transitioned to our Privia Medical Group model, which demonstrates the flexibility of our operating model and technology platform, as well as the ability to support physicians wherever they are in their transition value-based care. As of January 1, 2024, approximately 1,350 providers with approximately 200,000 Attributed Lives are participating in the Privia Care Partners model.

Key Metrics and Non-GAAP Financial Measures

We review a number of operating and financial metrics, including the following key metrics and non-GAAP financial measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plans, and make strategic decisions.

Key Metrics

(1) We define Practice Collections as the total collections from all practices in all markets and all sources of reimbursement (FFS, VBC and other) that we receive for delivering care and providing our platform and associated services. Practice Collections differ from revenue by including collections from Non-Owned Medical Groups.

Implemented Providers

We define Implemented Providers as the total of all service professionals on Privia Health’s platform at the end of a given period who are credentialed by Privia Health and bill for medical services, in both Owned and Non-Owned Medical Groups during that period. This includes, but is not limited to, physicians, physician assistants, and nurse practitioners. We believe that growth in the number of Implemented Providers is a key indicator of the performance of our business and expected revenue growth. This growth depends, in part, on our ability to successfully add new practices in existing markets and expand into new markets. The number of Implemented Providers increased 16.4% as of June 30, 2024 compared to June 30, 2023, due to organic growth in our healthcare delivery business as well as our entrances into the Ohio, Connecticut, Washington state and South Carolina markets.

Attributed Lives

We define Attributed Lives as any patient that a payer deems attributed to Privia to deliver care as part of a VBC arrangement through a provider of primary care services as of the end of a particular period. The number of Attributed Lives is an important measure that impacts the amount of VBC revenue we receive. Attributed Lives increased 10.7% as of June 30, 2024 compared to June 30, 2023, due to our entrances into the Ohio and Washington state markets, as well as organic growth.

Practice Collections

We define Practice Collections as the total collections from all practices in all markets and all sources of reimbursement (FFS, VBC and other) that we receive for delivering care and providing our platform and associated services. Practice Collections differ from revenue by adding collections from Non-Owned Medical Groups. FFS arrangements accounted for 83.3% and 74.8% of our practice collections for the three months ended June 30, 2024 and 2023, respectively, and 83.5% and 75.8% for the six months ended June 30,

2024 and 2023, respectively. VBC accounted for 16.4% and 24.9% of Practice Collections for the three months ended June 30, 2024 and 2023, respectively, and 16.3% and 24.0% for the six months ended June 30, 2024 and 2023, respectively.

Practice Collections increased 4.0% for the three months ended June 30, 2024 when compared to the same period in 2023 and 5.7% for the six months ended June 30, 2024 compared to the same period in 2023, primarily due to organic growth of our healthcare delivery business and our entrances into the Ohio, Connecticut, Washington state and South Carolina markets.

Non-GAAP Financial Measures

In addition to our financial results determined in accordance with GAAP, we believe Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin are useful as non-GAAP measures to investors as these are metrics used by management in evaluating our operating performance and in assessing the health of our business. We use Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as a tool for comparison. A reconciliation is provided below for our non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

(amounts in thousands, except for percentages)

Care Margin

We define Care Margin as Gross Profit excluding amortization of intangible assets. Gross Profit is defined as total revenue less provider expenses and amortization of intangible assets. Our Care Margin generated from FFS revenue is contractual and recurring in nature, and primarily based on an individually negotiated percentage of collections for each practice that joins Privia. Our Care Margin generated from VBC revenue is based on a percentage of care management fees and shared savings collected. We view Care Margin as all of the dollars available for us to manage our business, including providing administrative support to our practices, investing in sales and marketing to attract new providers to the Privia Platform, and supporting the organization through our corporate infrastructure. We expect Care Margin will grow year-over-year in absolute dollars as we continue to expand our provider base. We would also expect our care management and shared savings economics in our VBC arrangements to improve on a per patient basis as we manage towards lower total cost of care for our Attributed Lives and move towards higher risk/higher reward VBC arrangements over time. Care Margin increased 8.9% for the three months ended June 30, 2024 when compared to the same period in 2023 due to organic growth of our medical practice business and increased 10.8% for the six months ended June 30, 2024 when compared to the same period in 2023 due to organic growth of our medical practice business. As a percentage of revenue, Care Margin increased to 23.6% for the three months ended June 30, 2024 from 22.2% for the same period in 2023 and increased to 23.2% for the six months ended June 30, 2024, compared to 22.0% during the same period in 2023, due to renegotiated certain at-risk Capitation agreements for a more favorable contract structure which is now reflected on a net basis under shared savings starting with the first quarter of 2024.

In addition to our financial results determined in accordance with GAAP, we believe Care Margin, a non-GAAP measure, is useful in evaluating our operating performance. We use Care Margin to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Care Margin is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance.

The following table provides a reconciliation of gross profit, the most closely comparable GAAP financial measure, to Care Margin:

(unaudited and amounts in thousands)

Platform Contribution

We define Platform Contribution as Gross Profit, excluding amortization of intangible assets, less cost of platform and excluding stock-based compensation expense included in cost of platform. The following table provides a reconciliation of gross profit, the most closely comparable GAAP financial measure, to Platform Contribution. We consider Platform Contribution to be an important measure to monitor our performance, specific to pricing of our services, direct costs of delivering care, and cost of our platform and associated services. As a provider spends a longer time on the Privia Platform, we expect the Platform Contribution from that provider to increase both in terms of absolute dollars as well as a percent of Care Margin. We expect that this increase will be driven by improving per provider revenue economics over time as well as our ability to generate operating leverage on our in-market infrastructure costs. Platform Contribution increased 6.2% for the three months ended June 30, 2024 when compared to the same period in 2023 and increased 7.1% for the six months ended June 30, 2024 when compared to the same period in 2023, in each case due to organic growth of our medical practice business and new market entries.

The following table provides a reconciliation of gross profit, the most closely comparable GAAP financial measure, to Platform Contribution:

(unaudited and amounts in thousands)

Platform Contribution Margin

We define Platform Contribution Margin as Platform Contribution as a percentage of Care Margin. We consider Platform Contribution Margin to be an important measure to monitor our performance, specific to pricing of our services, direct costs of delivering care, and cost of our platform and associated services. As a provider spends a longer time on the Privia Platform, we expect the Platform Contribution from that provider to increase both in terms of absolute dollars as well as a percent of Care Margin. We expect that this increase will be driven by improving per provider revenue economics over time as well as our ability to generate operating leverage on our in-market infrastructure costs. Platform Contribution Margin was 47.5% for three months ended June 30, 2024 compared to 48.7% during the same period in 2023 and 47.3% for the six months ended June 30, 2024 compared to 49.0% during the same period in 2023. The year over year decrease in Platform Contribution Margin is primarily related to costs associated with the entry into new markets.

In addition to our financial results determined in accordance with GAAP, we believe Platform Contribution and Platform Contribution Margin, each, a non-GAAP measure, are useful in evaluating our operating performance. We use Platform Contribution to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Platform Contribution is helpful to our investors as they are metrics used by management in assessing the health of our business and our operating performance.

Adjusted EBITDA

We define Adjusted EBITDA as net income excluding interest income, interest expense, non-controlling expense/income, depreciation and amortization, stock-based compensation, severance, other one time or non-recurring expenses, employer taxes on equity vesting/exercises and the provision for income taxes. We include Adjusted EBITDA because it is an important measure by which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Adjusted EBITDA has limitations as an analytical tool including: (i) Adjusted EBITDA does not reflect the impact of stock-based compensation expense, and (ii) Adjusted EBITDA does not reflect interest expense on any debt we may incur or the cash requirements necessary to service interest or principal payments on such debt. Adjusted EBITDA increased 14.0% for the three months ended June 30, 2024, when compared to the same period in 2023 and 15.9% for the six months ended June 30, 2024 compared to the same period in 2023, in each case due to organic growth of our medical practice business, new market entries, and growth in Attributed Lives.

Adjusted EBITDA Margin

We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of Care Margin. We included Adjusted EBITDA Margin because it is an important measure by which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA Margin to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Adjusted EBITDA Margin was 22.1% for three months ended June 30, 2024 an increase from 21.1% for the same period in 2023 and 21.5% for the six months ended June 30, 2024, an increase from 20.6% for the same period in 2023, due to organic growth of our medical practice business and new market entries.

We believe that Adjusted EBITDA and Adjusted EBITDA Margin, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA and Adjusted EBITDA Margin is helpful to our investors as they are metrics used by management in assessing the health of our business and our operating performance.

The following table provides a reconciliation of net income attributable to the Company, the most closely comparable GAAP financial measure, to Adjusted EBITDA:

(unaudited and amounts in thousands)

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Components of Results of Operations

Revenue

As noted above under “Our Revenue,” revenue is earned in three main categories: FFS revenue, VBC revenue and other revenue.

Operating Expenses

Provider expenses

Provider expenses are amounts accrued or payments made to physicians, hospitals and other service providers, including Privia physicians, their related physician practices, and providers the Company has contracted with through payer partners. Those costs include physician guaranteed payments and other required distributions pursuant to the service agreements as well as medical claims costs for services provided to attributed beneficiaries under at-risk Capitated revenue arrangements for which the Company is financially responsible whether paid directly by the Company or indirectly by payers with whom the Company has contracted. Provider expenses are recognized in the period in which services are provided.

Cost of platform

Third-party EMR and practice management software expenses are paid on a percentage of revenue basis, while we pay most of the costs of our platform on a variable basis related to the number of implemented physicians we service. In addition, expenses contain stock-based compensation related to employees that provide cost of platform services but exclude any depreciation and amortization expense. Software development costs that do not meet capitalization criteria are expensed as incurred. As we continue to grow, we expect the cost of platform to continue to grow at a rate slower than the revenue growth rate.

Sales and marketing

Sales and marketing expenses consist of employee-related expenses, including salaries, commissions, stock-based compensation, and employee benefits costs, for all of our employees engaged in marketing, sales, community outreach, and sales support. In addition, sales and marketing expenses also include central and community-based advertising to generate greater awareness, engagement, and retention among our current and prospective patients as well as the infrastructure required to support all of our marketing efforts.

General and administrative

Corporate, general and administrative expenses include employee-related expenses, including salaries and related costs and stock-based compensation, technology infrastructure, occupancy costs, operations, clinical and quality support, finance, legal, human resources, and business development departments.

Depreciation and amortization expense

Depreciation and amortization expenses are primarily attributable to our capital investment and consist of fixed asset depreciation and amortization of intangibles considered to have definite lives. We do not allocate depreciation and amortization expenses to other operating expense categories.

Interest (income)

Interest income consists primarily of interest earned by the Company on bank balances, offset by interest expense (including deferred financing costs) on any outstanding borrowings. See “Liquidity and Capital Resources—General and Indebtedness.”

Results of Operations

The following table sets forth our condensed consolidated statements of operations data for the three and six months ended June 30, 2024 and 2023:

(in thousands)

Revenue

The following table presents our revenues disaggregated by source:

(Dollars in Thousands)

Three months ended June 30, 2024 and 2023

Revenue was $422.3 million for the three months ended June 30, 2024, an increase from $413.4 million for the three months ended June 30, 2023. Key drivers of this revenue growth include: FFS–patient care revenue and FFS-administrative services, which increased $44.8 million and $5.0 million, primarily attributable to the addition of new providers and increase in visit volume; and an increase in PMPM revenue of $2.6 million primarily due to growth in Attributed Lives. The decrease in capitated revenue of $(30.3) million during the three months ended June 30, 2024 is due to renegotiation of capitated arrangements for a more favorable contract structure which is now reflected on a net basis under shared savings starting with the first quarter of 2024; and a decrease in shared savings revenue of $(13.0) million primarily due to timing of certain shared savings accruals and settlements, partially offset by more Attributed Lives in Medicare programs and continued strong performance in our value based care programs in the aggregate.

Six months ended June 30, 2024 and 2023

Revenue was $837.6 million for the six months ended June 30, 2024, an increase from $799.6 million for the same period in 2023. Key drivers of this revenue growth include an increase in FFS–patient care revenue and FFS-administrative services, which increased $91.8 million and $7.6 million, respectively, due to the addition of new providers and increase in visit volumes; and PMPM revenue, which increased $4.6 million primarily attributable to growth in Attributed Lives. The decrease in capitated revenue in 2024 of $(57.2) million due to the renegotiation of capitated arrangements for a more favorable contract structure which is now reflected on a net basis under shared shavings starting with the first quarter of 2024; and a decrease in shared savings revenue of $(9.5) million primarily due to timing of certain shared savings accruals and settlements, partially offset by more Attributed Lives in Medicare programs and continued strong performance in our value based care programs in the aggregate.

Operating Expenses

(Dollars in Thousands)

Provider expenses

Provider expenses were $322.5 million for the three months ended June 30, 2024 compared to $321.7 million for the same period in 2023, and $642.9 million for the six months ended June 30, 2024 compared to $624.0 million for the same period in 2023. The increase was driven primarily by higher FFS-patient care revenue and growth in Implemented Providers during 2024.

Cost of platform

Cost of platform expenses were $57.1 million for the three months ended June 30, 2024 compared to $50.2 million for the same period in 2023. The increase was driven by an increase in salaries and benefits of $2.2 million related to continued growth during the three months ended June 30, 2024 compared to the same period in 2023, an increase in platform costs of $1.8 million, primarily related to an increase in Implemented Providers, and an increase in stock-based compensation expense of $1.5 million, primarily related to an increase in stock-based awards granted in 2024 compared to 2023.

Cost of platform expenses were $111.2 million for the six months ended June 30, 2024 compared to $94.9 million for the same period in 2023. The increase was driven by an increase in salaries and benefits of $6.1 million related to continued growth during the six months ended June 30, 2024 compared to the same period in 2023, an increase in platform costs of $3.4 million primarily related to an increase in Implemented Providers, an increase of $3.3 million in stock-based compensation expense primarily related to an additional quarter of expense due to timing of the 2023 equity awards being granted during the second quarter of 2023 compared to 2024 equity awards being granted during the first quarter of 2024, and an increase of $1.7 million in professional services related to additional consulting services.

Sales and marketing

Sales and marketing expenses were $6.9 million for the three months ended June 30, 2024 compared to $6.0 million for the same period in 2023. The increase was primarily driven by an increase in salaries and benefits of $0.6 million during the three months ended June 30, 2024 compared to the same period in 2023.

Sales and marketing expenses were $12.9 million for the six months ended June 30, 2024 compared to $11.2 million for the same period in 2023. The increase was driven primarily by an increase in salaries and benefits of $1.2 million.

General and administrative

General and administrative expenses were $28.9 million for the three months ended June 30, 2024 compared to $26.8 million for the same period in 2023. The increase was driven by the increase of $3.3 million in stock-based compensation expense, which is primarily attributed an increase in stock-based awards granted in 2024 compared to 2023.

General and administrative expenses were $61.0 million for the six months ended June 30, 2024 compared to $52.8 million for the same period in 2023. The increase was driven by the increase of $7.6 million in stock-based compensation expense which is primarily related to an additional quarter of expense due to timing of the 2023 equity awards being granted during the second quarter of 2023 compared to 2024 equity awards being granted during the first quarter of 2024.

Depreciation and amortization expense

Depreciation and amortization expenses were $1.8 million for the three months ended June 30, 2024 compared to $1.7 million for the same period in 2023, and $3.6 million for the six months ended June 30, 2024 compared to $3.0 million for the same period in 2023 This increase was primarily driven by amortization of intangible assets related to acquisitions during the third and fourth quarters of 2023.

Interest (income), net

Interest (income) was a net interest income amount of $(3.0) million for the three months ended June 30, 2024 compared to $(0.8) million for the same period in 2023, and $(6.0) million for the six months ended June 30, 2024 compared to $(2.6) million for the same period in 2023. The increase is due to an increase in the rate of interest earned on cash in our bank accounts in 2023.

Provision for income taxes

The provision for income taxes was $3.4 million for the three months ended June 30, 2024, compared to the provision for income taxes of $1.4 million for the same period in 2023. The change was primarily attributable to the estimated tax rate for the year and fewer excess tax benefits stemming from share based compensation related stock option exercise and restricted stock vesting events.

The provision for income taxes was $4.2 million for the six months ended June 30, 2024, an increase from the provision for income taxes of $3.6 million for the same period in 2023. The provision for income taxes for the six months ended June 30, 2024 is primarily the result of pre-tax income offset by non-deductible stock-based compensation expense related to the vesting terms of options in connection with the Company’s IPO and its impact on the annualized effective tax rate applied to the six months ended June 30, 2024. The provision for income taxes for the six months ended June 30, 2023 is primarily the result of the pre-tax income offset by the non-deductible stock-based compensation expense related to the vesting terms of options in connection with the Company’s IPO and its impact on the annualized effective tax rate applied to the six months ended June 30, 2023.

Net income (loss) attributable to non-controlling interests

Net income attributable to non-controlling interests was $1.2 million for the three months ended June 30, 2024, an increase compared to a (loss) of $(0.9) million during the same period in 2023. The change is primarily related to the ramp up of new markets entered into during 2023.

Net income attributable to non-controlling interest was $1.2 million for the six months ended June 30, 2024 an increase compared to a (loss) of $(1.8) million during the same period in 2023. The change is primarily related to the ramp up of new markets entered into during 2023.

Liquidity and Capital Resources

General

To date, we have financed our operations principally through sale of our equity, payments received from various payers and through borrowings under the prior Credit Agreement. As of June 30, 2024, we had cash and cash equivalents of $387.4 million. Our cash and cash equivalents primarily consist of highly liquid investments in money market funds and cash.

We believe that our cash and cash equivalents, together with cash flows from operations, will provide adequate resources to fund our short-term and long-term operating and capital needs. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depend on many factors, including our growth rate, and the timing and extent of spending to increase our sales and marketing activities. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may in the future seek a credit facility with a financial institution for long term capital structure flexibility, and we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be adversely affected.

Indebtedness

See Note 6 “Debt” for discussion on our Credit Facilities.

Cash Flows

Our cash requirements within the next twelve months include provider liabilities, accounts payable and accrued liabilities, and purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily generated through cash flows from operations and our available cash. Based on current and anticipated levels of operations, we anticipate that net cash provided by operating activities, together with the available cash on hand at June 30, 2024, should be adequate to meet anticipated cash requirements for the short term (next 12 months) and long term (beyond 12 months).

The following table presents a summary of our condensed consolidated cash flows from operating, investing and financing activities for the periods indicated.

(in thousands)

Operating Activities

Net cash provided by operating activities was $1.3 million for the six months ended June 30, 2024, compared to cash used in operating activities of $(5.8) million for the same period in 2023. Significant changes impacting net cash provided by operating activities for the six months ended June 30, 2024 compared to net cashed (used in) operating activities for the same period in 2023 were as follows:

• An increase of $40.0 million in provider liability for the six months ended June 30, 2024 compared to an increase of $97.9 million during the same period in 2023, a difference of $(57.9) million. The change is primarily due to a decrease in provider expense related to renegotiation of at-risk capitated arrangements during the six months ended June 30, 2024.
• A decrease of $(79.3) million in accounts receivable, for the six months ended June 30, 2024 compared to the same period in 2023 of $(130.2) million, a difference of $50.9 million. The change is primarily driven by the renegotiation of at-risk capitated arrangements during the six months ended June 30, 2024.
• A decrease in net income of $(5.1) million compared to the same period in 2023. Net income was $7.7 million for the six months ended June 30, 2024 compared to income of $12.8 million for the same period in 2023, primarily driven by the increase in stock-based compensation expense during the six months ended June 30, 2024 when compared to the same period in 2023.

Investing Activities

Net cash used in investing activities was $5.7 million for the six months ended June 30, 2024 compared to $24.9 million during the same period in 2023, primarily due to Privia’s investments in new markets during the first quarter of 2023.

Financing Activities

Net cash provided by financing activities was $2.2 million for the six months ended June 30, 2024, an increase from net cash provided of $0.7 million for financing activities for the same period in 2023. The change is primarily due to the repurchase of a non-controlling interest in 2023, partially offset by a decrease in proceeds from stock options exercised during the six months ended June 30, 2024 compared to the same period in 2023.

Contractual Obligations, Commitments and Contingencies

Operating Leases. The Company leases office space under various operating lease agreements. The initial terms of these leases range from 2 to 9 years and generally provide for periodic rent increases, renewal, and termination of operations. Total rent expense under operating leases was $0.8 million and $0.7 million for the three months ended June 30, 2024 and 2023, and $1.4 million for each of the six months ended June 30, 2024 and 2023, respectively.

Off Balance Sheet Obligations. We do not have any off-balance sheet arrangements as of June 30, 2024.

Commitments and Contingencies. See Note 9, “Commitments and Contingencies” for further discussion on our commitments and contingencies.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure. On an on-going basis we evaluate significant estimates and assumptions, including, but not limited to, provider liability, revenue recognition, stock-based compensation, estimated useful lives of assets, intangible assets subject to amortization, and the computation of income taxes. Future events and their effects cannot be predicted with certainty; accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Management evaluates and updates assumptions and estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

There have been no changes to the critical accounting policies reported in the Annual Report that affect our significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.

Interest Rate Risk

Our primary market risk exposure is changing prime rate-based interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. Our Credit Agreement bears interest at a base rate plus applicable margin, with the base rate being the higher of the Prime Rate or the Federal Funds Rate plus 0.50%. In no event will the base rate be less than 1.0%. As of June 30, 2024, the Company had no outstanding debt under the Credit Agreement.

Inflation Risk

Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of June 30, 2024.

Changes to our Internal Controls over Financial Reporting

There were no changes made to the Company’s internal control over financial reporting during the three and six months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the information in this report and other filings with the SEC, readers should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report. There have been no material changes to the risk factors disclosed in the Company’s Annual Report.