Earnings Call: Q2 2021

Aug 9, 2021

Good morning. My name is Dexter, and I will be your conference operator today. At this time, I would like to welcome everyone to the PIVI Health Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, this conference is being recorded. And now, I would like to turn the call over to Mr. Robert Burchard, SPV, Investor and Corporate Communications. Please go ahead, sir. Thank you, Dexter, and good morning. Joining me on today's call are Shawn Morris, our Chief Executive Officer, Arth Marotta, President and Chief Operating Officer And David Moundcastle, our Chief Financial Officer. This call is being webcast and can be accessed from the Investor Relations section of priviahealth.com. Today's press release highlighting our financial and operating performance as well as the slide presentation accompanying our formal remarks are posted on our IR website pages. Following Sean and Park's opening comments, we will open the line for questions. We ask that you please limit yourself to one question and one follow-up, so we can get through the full queue in a timely fashion. The financial results reported today and in the press release are preliminary and are not final until our Form 10 Q for the Q2 ended June 30, 2021, is filed with the Securities and Exchange Commission. Some of the statements we will make today are forward looking in nature based on our current expectations and our view of our business as of August 9, 2021. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered in conjunction 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 reconciliations of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now I'll turn the call over to Sean. Thank you, Robert. Good morning, everyone. I'll provide a brief performance summary and an update on our continued business momentum and success, then I'll ask Park to offer a detailed review of our financial and operating performance and the outlook for the year before we take your questions. The PIVI Health partnership model continues to gain traction and greater awareness with our providers. This is underscored by our growth in both implemented Providers and attributed lives across a number of value based reimbursement programs since year end 2020. This has helped propel Our strong financial performance in the 2nd quarter with practice collections increasing 30.3 percent to over $367,000,000 And our care margin increased 33.7% when compared with the Q2 of last year. We also continue to drive operating leverage through our platform with adjusted EBITDA growing 43% in the quarter. The strong year to date performance Across all our service lines positions PIVIA Health very well for the remainder of the year. This is especially true given our diversified patient, Provider and payer mix against the backdrop of current utilization trends we see across partner practices. Underpinning our top line growth is the continued expansion of provider partners in both existing markets and as we enter new markets. We expect our fees from value based programs to grow faster And fee for service dollars as we continue to increase the number of patient lives attributed to at risk reimbursement models and as more of these lives move from partial to full risk arrangements over the coming quarters. One key update is that we have recently launched Privia Care Partners. This lighter version of our traditional model also partners with providers, meeting them where they are on their value based journey and aids in transitioning their practices to specific value based programs. This aligns perfectly with our capital efficient operating structure and primary financial goal to drive significant operating leverage and profit margin expansion, which we expect to continue as we execute on multiple growth opportunities. As I noted, PVR Care Partners is our new flexible model that expands our current our opportunity to partner with providers. As you can see on this slide, the primary difference between our traditional model and a lighter version is there's no need for provider groups to join our single tax ID medical group, No need for them to change electronic medical record vendors and yet they can still participate in various high value arrangements. Providers joining Previa Care Partners will be supported by a lighter version of our tech stack, advanced analytics to enhance their existing EHR systems, A physician led governance structure and select MSO service to help them succeed in value based care. Our focus with Privia Care Partners is to expand the Privia relationship to new physicians and grow value based attributed lives in both existing and new markets. We expect the program will officially start on January 1, 2022, so we intend to provide additional details over the next 3 quarters. We continue to be optimistic about the significant opportunity as we expand our risk share arrangements across many value based reimbursement models and taking a very thoughtful business approach in this effort. PIVIA Health already participates in more than 70 at risk value based care programs and payer contracts across commercial, Medicare, Medicare Advantage and Medicaid. In fact, of our 739,000 attributed lives today, more than 140,000 are in The Medicare Shared Savings and the Maryland Primary Care Programs in which we take both upside and downside risk. Importantly, our financial interests are closely aligned with our 3 year providers and that we jointly share in both the financial benefit and risk associated with these value based care programs. In addition, our Medicare Advantage lives increased 13% sequentially to 102,000 at the end of the Q2. We are already at scale and are executing on a deliberate long term plan to enable our providers to transition profitably An important point is our current top line reflects only fee for service collections, Care management fees and shared savings. Under our current partial risk contracts, we do not recognize the full per member per month premium for our Medicare Advantage lives. The Pivi Health leadership team has decades of experience in managing and underwriting risk, and we certainly expect to move more of these attributable lives from partial to full risk arrangements. Now I'll ask Parq to provide additional detail on our Q2 performance and outlook for the remainder of 2021. Parq? Thanks, Sean. Our business delivered a strong quarter with double digit organic top line growth, which we expect to continue through the remainder of 2021 and beyond given the high forward visibility of our operating model. On the top row of this slide, you can see that continued growth in implemented providers And value based attributed lives led to a 30.3% increase in practice collections when compared to the Q2 a year ago. We obviously recognize that last year's Q2 was impacted by the onset of COVID. This year, our Q2 same store visits We're at par with or higher than the historical baseline pre COVID across all our markets. Our care margin increased 33.7 percent from Q2 of last year. This is our key financial metric. Care margin is essentially the gross profit generated by Privia Health After the cost of care delivery, which includes provider compensation, our provider share of any shared savings in value based contracts and the cost to build, maintain and operate care centers. Our goal is to grow care margin at a faster rate than practice collections and then drive operating leverage all the way down our P and L. As Sean noted, our business model showed significant operating leverage this quarter, driving adjusted EBITDA growth of 43% from the Q2 a year ago. Adjusted EBITDA margin as a percentage of care margin expanded And with positive free cash flow and a net cash position of $266,000,000 we have sufficient capital and liquidity to invest in our business and pursue our various growth initiatives. This slide highlights our year to date performance with practice collections up almost 17%, Care margin increasing approximately 21% and adjusted EBITDA growing 42% over the first half of twenty twenty. Given our first half performance, operational execution and business momentum, we remain confident in our outlook for the remainder of 2021. We now expect attributed lives, practice collections, GAAP revenue, care margin, platform contribution and adjusted EBITDA To all be near the high end of our guidance ranges, with implemented providers expected to be at the mid to high end of our guidance range. As a reminder, this guidance does not include any potential new markets in 2021 or any impact from Privia Care Partners, which is expected to begin January 1, 2022. Privia Health continues to be well positioned to monetize our platform and drive growth through our 5 core strategies. These are same store growth, increasing attribution and risk based contracts, adding new providers in existing markets, opening new markets and looking at M and A opportunities to expand our platform. In summary, our leadership team has Purposely built PIVIA Health to be a next generation physician organization that engages with and organizes physicians into large scale medical groups building density in each state. We facilitate physician autonomy while preserving their current ownership structure. We support all providers And all patients across all reimbursement models, and we are directly aligned with our provider's financial success. We will continue to leverage our financially sound expansion strategy and take a thoughtful approach to long term top line growth and profitable growth. With that, operator, we're now ready for the first question. That's your ready zone for a question. Thank you. Please limit your question to one question and one follow-up question for participants. Thank you. Please standby, we'll compile the Q and A roster. Our first question comes from the line of Robert Ryan Daniels from Leander. Please go ahead. Ask your question. Yes, guys. Congrats on the quarter. Thanks for taking the questions. In regards to Care Partners, can you offer a little bit more detail around the genesis of that? And I'm curious If it's really just for value based care and no fee for service, will you be doing RCM? Kind of how deep will you go within these groups would be my first question. And then second, is this a response to maybe moving into the hospital home group market, where they perhaps they want to switch over the Platform that's already inpatient like Epic or hesitation in the market for doctors to switch platforms such that opens up that opportunity more. Thanks guys. Thanks, Ryan. This is Sean. If you guys Over the coming week, through the IPO and otherwise, we talked a lot about the quadrants and our ability to kind of pivot and move into the various quadrants. It's really We thought we had this ability to expand and offer Privia Care Partners with physicians. It's like I mentioned, it's a lighter version. There will be MSO Services is specifically related, as you noted, to value based care programs. We have not we won't be offering rev cycle on fever service and I know Skype services, but it's specifically it's organizing positions, not form of our governance model, a form of our tech To check-in a lighter version and then and it's just specifically related to different value based arrangements, but they could range from Commercial and Medicare Advantage. Great. Thank you. And then is that a response to trying to work with hospital groups Doctor groups, they don't want to switch over platforms or move into the kind of broader offering. Kind of what was the genesis of this outside of market Sorry, sorry, I didn't answer that question. That's not necessarily the health system. I mean, there's physicians out there And there's no doubt some kind of health systems that maybe have invested $1,000,000,000 in Epic, Nestor, I might not want to move off their platform, but organize the independence into a different kind of scenario. But it's really just not independence nor health systems independently. The genesis is really about Our ability to expand into existing and new markets, reach a provider that Kind of wants to participate with Privia in certain value based arrangement, but not necessarily ready to make the full switch over into the deep model. But it's our ability to kind of expand, get to know these physicians. If you think about Our ability to kind of do commercial before the Medicare Advantage market is in that market and ready. This is our ability to reach providers that are not ready to kind of move to the full Your next question is from Josh Lawson from Nephron Research. Your line is open. Great. Thanks. So first question, just we've heard a lot this quarter about utilization trends Picking up sooner than expected mostly on the non COVID utilization. I think payers seeing some pressure, providers seeing a little bit of upside. Can you just remind us how this impacts Privia on both the fee for service and value based sides of the business? Josh, thank you for the question. It's there's no doubt we are all seeing kind of the impacts of COVID. I think it really speaks to And you guys all typically cover the hospital, the hospital, public hospital carriers and you obviously cover the MSO MCO, I'm sorry, Gary, you're seeing some of these utilization rates. I really I mean, we talked about the diversification of PIVIA and the models from all working commercial to Medicare Advantage and it really I mean it plays to our kind of Our ability to for physicians and health systems that need to transition, we all know that if you We respect and really appreciate kind of moving the full risk Medicare Advantage at the right time, but it's at the right time. And as your provider groups are ready to go and as you can influence that geography at scale. So Again, it's the diversification of what we offer, these provider groups and the ability to do From fee for service all the way to global cap when it makes sense, again, it's just I think It's the flexibility and diversification of our model really is a differentiation, and I think it's going to be for decades. I don't think We're all going to see a flip to go global cap immediately. And when we do, we're ready to move that market as necessary. Art, do you want to add anything to that? Yes. The only couple of points is, one is, Josh, I think we are seeing Our model is a little bit of an all weather performer. Last year, we did pretty well. Utilization was down. This year, we're doing pretty well. Utilization is up. And so you can see us performing well in both scenarios across the cycle. And then more importantly, I think not only are we performing really well on the top line, growing the business, adding lives and growing practice selections, but You're seeing outperformance on the down the P and L and Care margin, platform contribution and EBITDA. So I think the key is And that's where I think there's a clear differentiation where an MA full MA GAAP model, you're seeing a negative impact down the P and L, And we're not witnessing that with our diversified book of business. Got you. That's super helpful. And then if I could just sneak one more in on the implemented Provider guidance, you're moving to the upper half of the previous guidance range. So obviously, I know directionally where that's going. But can you speak to the provider pipeline and As we move towards 2022 and just remind us, are there any factors that impact the seasonality of when physicians move over? I don't know if there's Sort of the MA cycle or tax implications or if there's anything that kind of gets physicians moving more at one time than the other during the year? Mark, go ahead. Yes, I can take that. Yes, so look, we sell pretty consistently throughout the year. No real seasonal impact to selling. As we've stated previously, and as you know, it takes about 5 to 6 months to implement the providers on the platform in the full PIVIA Medical Group model, and it's mainly related to the providers being credentialed in our single tax ID, And we work with all the payers. So obviously, sitting at the midpoint of the year, the pipeline now through the end of the year for implementation is all under contract. So we don't have to find these providers. Anybody that we are selling now will likely get implemented in 2022. And that gives us a lot of forward visibility. So I think we're doing pretty well in terms of adding new providers consistently for the first half and we see the momentum continuing in the second half. And as we do that, that provides a lot of visibility going into 2022. But implicitly stating our guidance From mid to high end, all of these are under contract as we speak today. Perfect. Thanks. Thanks, Josh. Your next question is from Jayland Goldstein with Credit Agricis. Your line is open. Thank you and good morning everyone. I want to go back to Privia Care Partners, just to make sure I understand the economics there. So do you expect the economics and savings you generate for providers who are joining Previc Care Partners model versus your Traditional models significantly different. And how does your pitch to these potential providers going to change with the launch of this Privia Care Partners? And the Last related question is that should we think of this as a model which is competing directly with models like Agilon and Aladet? Just maybe help us color some color there. Hey, Bharat, do you want to speak to that in addition to the comments I made on the first question? Yes. Hey, Zalando. Thanks for the question. Yes, so I think our economics will be pretty much the same As we have today on our value based book, obviously, the key metric for this line of business would be attributed lives, number 1. Number 2, we anticipate participating in all kinds of value based programs, whether it's commercial, Medicare shared savings and then Medicare Advantage, similar to what we do today. And then I think over time, our hope is a lot of these providers will join the full Privia Medical Group model and we'll be able to provide further value add in terms of the fee for service book as they join the single tax ID. So no change in economics. Obviously, each of these programs would differ both by market and by state of evolution. And then to your final question, yes, I think, look, we'll Given this model, we would end up competing with a couple of names that you mentioned. Okay. And then my quick follow-up. I want to better understand your It seems your guidance does imply a sequential step up in practice collection for first half to second half around But flat from for GAAP revenue, help us understand the thought process there, why not growth in GAAP revenue? Yes. So 2 quick points. Yes, 2 quick points. So first is, obviously, as you know, GAAP revenue Reflects collections in the states that don't have corporate practice laws and that we own the tax ID. So it's restricted to A couple of our geographies are not all of them. So as we grow faster in some of these other states that do have corporate practice laws and we don't own the tax That's the key difference. Number 2 is, look, we feel really good about the first half performance Still 6 months to go, and I think if the momentum continues, we'll have an opportunity to update you in 3 months here. So we're hoping that, that trend continues. Great. Thanks a lot, guys. Thanks, Johan. Thanks. We have a question from Richard Close with Canaccord Genuity. Your line is open. Yes, thanks. Just on the Care Partners I'm just curious, with them not using the full tech stack, how do you Teo, in terms of your ability to drive the better outcomes in the at risk programs, just I mean, obviously, with your tech Zack, that was one of the value propositions in being able to successfully participate in these programs. So how are you thinking about that? Thanks, Richard. I'll start and I'm sure Park can add. A lot of our management teams had decades Running models similar to PIVI Care Partners, like our ability to pivot, we've kind of mentioned that Over the last during the IPO and even in the Q1, so we've been kind of building this, I guess, muscle memory and strength. And It's no doubt what we know and what we learned from running a single stack And kind of, I guess, what we're going to use from those learnings to kind of move into this adjacent model and use those strengths along with Our governance model, our care management programs that we use and just the things that we know from running The deeper model, we think we kind of provide just a great opportunity to kind of get to know providers, Kind of meet them where they are on their journey, kind of step before PVR Care Partners and like we mentioned, expand our current within our current Existing footprint as well as open new markets with a model such as this. So we're excited about the opportunity. Bart, do you want to add something to that? Yes. A few quick points, Rich. So thanks for the question. So first is obviously with the interoperability gaining steam and a lot of innovation On the technology stack side, a lot of the legacy EMR platforms are opening up. And I think that gives us an opportunity to extract the right data, perform analytics and support these providers in certain value based programs. That's been done for many years now in ACO entities or IPAs, etcetera, that the participants join to just access some value based contracts. And then I think part of the equation would be a version of our MSO services, where we'll focus on things like risk adjustment quality measures, part engagement, reporting, Then obviously, total cost of care management. I think the 2 go hand in hand to make sure you get the success, which is far greater than what these providers are doing today. And then over time, like I said, this is an offensive strategy. It allows us to interact and get to know some of these providers in a lighter setting, in a quicker setting, and then over time, move them into the full Phebe Medical Group model where We have a lot to offer from a fee for service perspective. Okay. And as a follow-up, is there any update on Anthem, We continue to kind of work with Anthem in our existing markets. We've That relationship continues to improve even more so. And we've we're talking obviously about kind of new markets and how we participate with them in organizing Independent docs is even in other models that we're running. So I think it's kind of early stages. We're maturing the Relationship and we like the potential of where that could go. And it's and as you know, it's not exclusive where we continue to talk to other payers and kind of doing some very similar things. We're excited about it. Okay. Thank you. Thank you. And we have a question from Sean Whelan from Piper Sandler. Your line is open. Hi. Thank you very much. Good morning. I'm still stuck on Privia Care Partners. I don't really understand the economics and how this is going to flow through the P and L. If you could kind of hit that again. And then also, I guess, You pitched the single tax ID, the single tax stack was Such an important feature of Privia and this seems to dilute that a little bit. So I don't really understand the pivot. Mark, do you want to touch on the P and L impact? Yes. Hey, Sean. Thanks for the question. So the P and L Would work no differently than it does today. We'll participate in various value based programs and have shared savings or care management fees that would accrue through those programs depending on the nature of the program. So they'll hit practice selections and we will Take a percentage of that and that will flow through care margin as it does for our existing value based book. So really no different collection. At a similar percent of collections? That's correct. Similar or higher. Okay. I just I don't understand why billing under a single tax ID was so important for the rest of the business, but it's not important here. Yes. So, Sean, ACOs, IPAs, CINs have existed for a long time. Participants and providers are able to access very select value based programs, whether it's commercial, MSSP or Medicare Advantage without giving up the tax ID and that bill on the fee for service book for their own tax ID, but access some select value based programs through these different forms. And I think this is a strategy to attack that market. It allows us to obviously, even from an M and A perspective, Go out and acquire select ACOs or IPAs and other such structures and increase attributed lives at a much faster rate and then have a relationship with these providers and then over time move them to the single tax ID. There's no doubt, the single tax ID model And the integrated 5 components that we highlight, we still think is a preferred model. We still think It's a very deep moat and very hard to execute on that I don't think it's easy to replicate and we don't see anybody else doing it. I think this gives us an opportunity to have a relationship with providers sooner and faster in existing but also in new markets Thanks, Sean. And we have a question from Lisa Gill with JPMorgan. Your line is open. Thanks very much. I just wanted to follow-up to that last comment and just really understand the competitive landscape right now. So I understand wanting Opera kind of a lighter model. Is it because doctors are becoming more apprehensive? Is it because providers have more options in the marketplace, so you want Have a couple of different options to be able to capture that position. Just any thoughts on what you're seeing in the competitive landscape right now would be helpful. Thanks, Lisa. This is Sean. The yes, it's as Parth mentioned, our preferred model will always be The PIVIA Medical Group, they're all the right they're all the things we've talked about. And it's very sticky. It's very It's just it performs well, but at the same time, we want to be able to kind of touch base with providers in a way when that they want to connect into PIVIA, but they're not ready to Make that jump. And it's just such it's a natural expansion for us. We've been working on it for some time. And it's not necessarily to the marketplace is as much as we think that just moving into these other quadrants and adjacencies Wanted to kind of continue to expand our TAM and as providers get to know Privia and we believe they're going to want access All the contracts, all the services, but this is just the way to expand that kind of first tier base. And It's just a way, as we've mentioned, that we can expand our same store footprint as well as grow into new markets There are no further questions at this time. I would now like to turn the conference back to Mr. Robert Borschup. It's surprising that you came back to me. Sean, do you have any closing remarks? Now just want to thank you for dialing in. Thank you for listening. We're excited about the future. Thank you for Continue to build your relationship with us and we continue to execute on the things we discussed today and We're excited about the next couple of quarters and we'll talk to you soon. Thanks a lot. Okay. This concludes today's conference call. Thank you for joining. You may now disconnect.