Privia Health Group, Inc. Q4 FY2021 Earnings Call

Good day, and thank you for being here. Welcome to the Privia Health Fourth Quarter Conference Call. All participant lines are currently in listen-only mode. I would now like to turn the call over to your host today, Robert Borchert, Senior Vice President of Investor and Corporate Communications. Please proceed.

Thank you, Liz, and good morning, everyone. Joining me today are Shawn Morris, our Chief Executive Officer; Parth Mehrotra, President and Chief Operating Officer; and David Mountcastle, 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 our prepared comments, we will open the line for questions. We ask you to 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-K for the year ended December 31, 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 March 23, 2022. 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. 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 Shawn.

Thank you, Robert, and good morning, everyone. Today, I'm excited to report that Privia Health delivered another strong quarter of financial and operating performance in Q4. Our full-year financial results were above the high end of our previous guidance. This performance positions our company for accelerated growth in 2022 as we continue to build a national organization and engage with physicians to create scaled provider networks across the country. Today, I'll provide an overview of key highlights driving our continued business momentum. David will cover our recent financial performance, and then Parth will discuss our outlook for 2022 and conclude with a more detailed business update on our growth drivers and value-based care initiatives before we take your questions. We also announced that Jeff Sherman resigned from his position as Chief Financial Officer to pursue other opportunities. Jeff joined in January this year, and his departure was not a result of any disagreements with regard to Privia Health's operations or accounting practices. Following Jeff's decision, we appointed David Mountcastle, Executive Vice President and Chief Financial Officer. David has been with Privia since 2014 and has an intimate understanding of our business operations and financial practices. Importantly, we are on track to file our 10-K later this week as originally planned. We remain very excited about our business momentum, and our financial performance will speak for itself. Now on to our business highlights. Privia Health executed at a very high level in our first year as a public company. We have materially advanced our business by entering three new markets in the last five months and adding close to 500 physicians and providers through our anchored partnerships in California, Montana, and West Texas. Long term, our strategy is to align with and enable provider partners and leverage our underwriting expertise to transition profitably to risk-based reimbursement arrangements over time. Effectively, on January 1 of this year, we launched three new Accountable Care Organizations (ACOs) and now have seven participating in the Medicare Shared Savings Program, caring for over 168,000 Medicare beneficiaries. We have shown sustainable success in the MSSP program, and four of our seven ACOs are now participating in the enhanced track with substantial upside in shared savings as well as some downside in financial risk. In addition, our Florida and Mid-Atlantic ACOs entered into previous first capitated arrangements covering approximately 23,000 Medicare Advantage beneficiaries. We now manage care in over 80 value-based arrangements across the risk spectrum. This highlights our forward progress in executing our long-term strategy in full alignment with our provider partners across their entire patient panels. As I noted, our exceptional operational execution has delivered financial performance that was well above the high end of our previous guidance, and our operating model continues to generate strong cash flow without needing new sources of liquidity. In aggregate, our 2021 performance and operational achievements are expected to drive acceleration of top-line growth this year as well as increasing profitability and adjusted EBITDA while we continue to invest in our operations, talent, and technology capabilities to support this growth. We have made great strides in building a scaled national delivery network. Privia can partner with all providers in every setting, from single and multi-specialty to employee or health system affiliated providers. Our model offers a tremendous market opportunity for growth in the physician enablement space. The Privia platform is applicable in every state. With our recent new market entries, we have shown the ability to be flexible as we look to enter new geographies. Our national footprint now includes over 3,300 providers caring for over three million patients in 870 locations across eight states and the District of Columbia. We are one of the largest provider groups in the country with scale and geographic density. We're looking forward to continuing to expand the number of providers in existing markets and entering many new markets over the next few years. Privia Health has four distinct attributes that position us as a clear alternative for providers looking to maintain their autonomy and optimize their performance. First, in each of our geographies, our integrated medical groups, risk-bearing entities, and tech-enabled clinical and performance operations platform serve as one of the most unique models in the healthcare ecosystem. This attains maximum physician alignment and outcomes in value-based arrangements without ownership of the underlying practice. Second, we partner with all provider types and all reimbursement models. This combination has created a very balanced, diverse, and sustainable financial model and is a key driver of physician referrals and our momentum in signing up new providers. Third, our proven success across the risk-bearing spectrum is supported by previous physician-led governance structures at both the local market and national level. This is crucial in optimizing performance, sharing best practices, and helping physicians improve outcomes. Finally, our capital-efficient partnership and operating model generates positive and increasing EBITDA and free cash flow with minimal capital expenditures. Now I'll ask David to review our most recent financial results.

Thanks, Shawn. Privia is addressing a significant market opportunity and is well positioned to capitalize on the growing shift to value-based care with health plans, providers, and physician groups looking for help in navigating this transition. Our performance through 2021 underscores this with guidance raised in each of the last three quarters and culminating with above-guidance results for the full year. Our operating momentum continued to drive strong results in the fourth quarter. Practice collections were $513 million, a 45.8% increase from Q4 a year ago. Care margin increased 33.8%, and adjusted EBITDA was $7.5 million, an increase of 18.2% over the prior year. EBITDA was down sequentially from Q3 to Q4 due to our outperforming Q3 related to our MSSP shared savings results as well as the expected costs of new market entry in Q4 that we discussed last quarter. New market entries are part of our ongoing strategy, so we do not add back these costs to arrive at adjusted EBITDA. We also increased our quarterly bonus accruals by an incremental $2 million in the fourth quarter based on our strong full-year performance. If you spread this incremental expense over the quarters, Q4 adjusted EBITDA would have been $1.5 million higher than the reported number. For the full year 2021, our 30.1% growth in implemented providers and a 15.2% increase in value-based attributed lives, combined with ambulatory patient volumes, led to all of our financial results being at the high end of our previous guidance. Practice collections increased 25%, exceeding the top end of our guidance. Care margin was up 27.1%, and adjusted EBITDA grew 40.9%. Our adjusted EBITDA margin reached 17.4% of care margin, a 170 basis point increase year-over-year, highlighting the operating leverage of our model. One of Privia Health's key differentiators is our solid balance sheet and positive cash flow. We ended 2021 with a net cash position of more than $287 million and significant cash flow generation heading into 2022. Cash flow from operations was $55 million, an increase of 41.6% from 2020. With capital expenditures of less than $1 million, our free cash flow was $54.6 million. Our strong performance positions Privia very well as we move into 2022. We continue to gain traction with providers looking to partner with scaled, financially sound organizations to improve outcomes for their entire patient population. With our liquidity strength, low leverage, and a strong cash position, we are highly confident in our ability to fund all of our growth initiatives and opportunities, including new market development and strategic investments. Now I'd like to ask Parth to discuss our 2022 outlook and update you on our growth drivers and value-based care initiatives.

Thanks, David. We are excited about our recent performance and operational momentum heading into 2022. We intend to continue this success by growing within existing practices, increasing attribution and risk-based contracts, adding new providers, opening new markets, and identifying opportunities to expand our platform. For 2022, implemented providers are expected to reach 3,675 with attributed lives increasing to 875,000 at the midpoint, which represents double-digit year-over-year growth. We expect practice collections to grow 30.7% to more than $2.1 billion and adjusted EBITDA to increase 30.4%, both at the midpoint of our guidance. We plan to invest across our business enterprise in sales and leadership, clinical and operational performance talent, and our technology infrastructure to support this accelerating top-line growth. We expect practice collections and GAAP revenue to ramp through the year, and adjusted EBITDA to follow as newly signed providers are implemented and come online at the full top line run rate. Beginning in Q1, we anticipate reporting our capitated revenue as a new line item in the sources of revenue section of our 10-Q. We also expect to rename our physician and practice expense line to provider expense, which will capture the complete medical cost related to the at-risk capitated contracts. Here are several assumptions underlying our 2022 guidance. Our growth outlook includes the impact of our new capitated agreements and only previously announced new market entries. Adjusted EBITDA guidance includes approximately $4 million to $6 million in accelerated investment spend to support our recently announced new market expansions and value-based care initiatives, all of which were ahead of our expectations from a timing perspective. We are making prudent financial assumptions for this first year of our new capitated agreements and are assuming minimal incremental care margin and EBITDA contribution at this point in 2022. We would anticipate greater operating leverage from our growth investments to follow in 2023, presuming no new market entries this year or next. With our capital-efficient partnership model, we expect over 90% of our adjusted EBITDA to convert to free cash flow, with capital expenditures of less than $1 million in 2022. Our financial performance is allowing us to focus on growth, and Privia Health is executing at a high level, highlighted by recent operational activities and achievements driving broad-based growth. First, during 2021 and through the fourth quarter, we continued to see solid and resilient same-store growth in our practices driven by the strength in ambulatory utilization across all markets, with visits up on a seasonally adjusted basis and well ahead of the pre-COVID baseline. Our practice has gained market share by adding providers in existing locations. Second, our success across more than 80 value-based arrangements provides a solid baseline and bolsters our confidence in taking additional financial risk. We've won three new ACOs, and four of our seven are now participating in the MSSP Enhanced Track effective January 1 of this year, providing us with substantially more upside opportunity. Privia's first capitated arrangements in our Florida and Mid-Atlantic ACOs are also expected to add more than $180 million to our top line this year on a net basis. We incrementally added Attributed Lives to each of our core value-based care programs and are focused on increasing both top and bottom line yield for life. We achieved this through better clinical performance and operations as well as by increasing the level of risk and resulting shared savings in various programs. Third, we continue to witness the flywheel effect of our success and presence in our existing geographies. We generated a record number of new provider additions through our organic sales efforts in existing markets during the year. A key component of our growth strategy is to monetize the Privia platform through value-added ancillary services, such as our state-of-the-art lab in the Mid-Atlantic market and our clinical research program in partnership with Javara. Our at-scale integrated medical group and risk-bearing entity on a common platform enables us to uniquely offer these value-added services to our physician and payer partners. Fourth, a key component of our growth strategy is our active business development pipeline, and we are tracking well ahead of our long-term plan. Our partnership with BASS Medical Group in California and Surgery Partners Great Falls Clinic in Montana reflect the strength and flexibility of our model across geographies and provider types. Our Montana entry, in particular, provides surgery partners and their clinic with access to a best-in-class technology and services platform that drives efficiencies and allows doctors to focus on their patients. We look forward to seeing how this partnership evolves. Privia Health has one of the broadest value-based care platforms in the industry, with our at-risk payer contracts covering approximately 786,000 Attributed Lives across commercial, Medicare, Medicaid Advantage, and Medicaid arrangements. Starting January 1, 2022, we are taking upside and downside risk in many of our payer contracts, covering two-thirds of the attributed Medicare lives across our MSSP and Medicare Advantage programs. This thoughtful move to risk continues to provide opportunities for significant top-line and EBITDA growth as we execute on our goals to reduce costs and improve patient outcomes to earn greater shared savings in the years to come. It is important to emphasize that the tremendous size, scale, performance, and capability of Privia's value-based care platform are not fully recognized in our current top-line practice collections and GAAP revenue. We manage a total of approximately $5.2 billion in total medical spend associated with our attributed lives, with $2.2 billion managed under upside and downside risk arrangements. However, we would only recognize approximately $300 million in our top line on a forward annual basis today. We have an additional $1.9 billion opportunity to add to our top line if or when we convert these lives into capitated or full risk contracts over time. A key differentiator is Privia's thoughtful approach to risk. We match the maturity of our patient pools with the risk parameters in each requisite value-based program. Our goal is to have a high level of confidence in limiting financial risk and increasing profitability as we move to greater risk in each value-based care arrangement, improving patient outcomes and lowering medical costs. Privia's proven model has been increasingly successful in managing risk. We balance risk across a diverse set of contracts and leverage our extensive clinical performance management, healthcare economics, and actuarial expertise to closely manage this transition to risk profitably. Our close alignment with our physicians is critically important to successfully manage patient panels across the risk spectrum. This is accomplished through our physician-led governance structure and the hands-on day-to-day work of our clinical and operations team. We provide robust audit and compliance oversight and help influence key levers of physician practice performance. Our comprehensive technology platform is deeply embedded in our practices and drives everyday workflows while providing data analytics to support and measure practice performance. This is why we are confident in our ability to influence value-based care outcomes across our providers' entire patient panels while preserving the autonomy and ownership structure. The Privia platform is gaining momentum with provider adoption, scale in value-based lives, and resulting top-line growth. We have further proven that our business model can deliver not only consistent top-line growth but also translate that down the P&L with consistent growth in care margin, platform contribution, adjusted EBITDA, and free cash flow while increasing margins. Since our initial public offering almost a year ago, we have performed ahead of the expectations we set internally and communicated externally at that time. We are well ahead of our internal IPO expectations in terms of new market entries, implemented providers, and attributed lives. We expect to see accelerated top-line growth and reach approximately $2.1 billion in practice collections for 2022 at the midpoint of our guidance range. Furthermore, we have translated that top-line growth into solid 80-plus percent EBITDA growth over a two-year period. Privia is well positioned to continue to grow our scalable, integrated care delivery model and expand our deep value-based care capabilities in both existing and new markets. I'd like to thank all of our physician partners and Privians for their hard work and dedication to delivering high-quality patient outcomes and achieving these financial results which position us for future success. With that, operator, we're now ready for the first question.

Our first question comes from Josh Raskin with Nephron Research.

Hi, thanks. Good morning. My first question is, how many of those 3,700 implemented providers this year, sort of midpoint of guidance, will be in global cap arrangements? And what's a reasonable cadence of growth over the next few years? I fully understand it's lumpy. So kind of just looking for averages?

Yes. Thanks, Josh. I'll start, and Shawn can add. We don't split out how many providers. Typically, 70% of our provider base is what we call gatekeeper providers—primary care, internal medicine, family medicine, pediatricians, and OB/GYNs—and 30% plus are specialists in some nature. A subset of our PCPs, both in Mid-Atlantic and in Florida, will be in those global cap arrangements. So it's obviously going to be a pretty small number. It's about 23,000 lives as we articulated in our press release earlier this year.

Okay. And is the idea—I know the idea is sort of to convert these lives, but is it more a focus on getting the provider ready to do that? As I assume that's kind of the operations you have to get the provider to take the risk and then the lives follow. Is that the right way to think about it?

Yes, Josh, this is Shawn. Think about it as obviously the provider, you're familiar with that slide. We've presented multiple times kind of the first couple of buckets of getting the technology in place, stabilizing the practice, teaching them how to gain cash flow in moving them up the risk spectrum. So obviously, there's a provider element to that. But there's also a payer element to that, making sure that we're confident they're going to give us the right data and have the right contractual arrangements that they will uphold. We've been pretty upfront about the type of range we like, where the payers still have some risk in that and that we're operating all within aligned incentives from payer all the way down to provider.

Got you. And then just a quick follow-up. I think I heard you say that the healthcare utilization, your fee-for-service trends were running above the pre-pandemic baselines. I want to make sure I understood that. Is that—do you think overall healthcare utilization is now back to or above baseline, or was that just your providers are taking market share, and so they're actually doing more business than they were pre-pandemic?

Yes. I think it's important to identify the two buckets of broad utilization. One is where we are concerned, which is ambulatory utilization in community docs that we have at Privia. We think that utilization is pretty much back, as we experienced, seasonally adjusted, and above the pre-COVID baseline. It was better than expected despite the recent variant in Q4 and Q1. The inpatient utilization trends or facility-based utilization vary by geography and probably get more impacted. That obviously does not impact our providers as much. And so, I think that's the key difference.

Yes, Josh. The only thing I would add, as you know, you have been involved in managed care for a long time; access is absolutely critical. We worked with our providers in the last couple of years during COVID and up until now. We introduced, very early on, the ability for virtual care and all those things. So I think they're utilizing many of those aspects, getting their patients in. And as we said, we took some market share, and we're seeing that ambulatory utilization up, which we believe is a very good thing, especially in our value-based arrangements.

Our next question comes from Whit Mayo with SVB Securities.

Thanks. Good morning. The first question I have is just around the ACOs. And as you look at the financial performance, standing up and starting your historical ACOs, is there any reason that we shouldn't look at that as a guidepost for what the performance should be this year? Do you think you can do better? And really the corollary to this question is also in transitioning towards the Enhanced Track and why your experience in the new three ACOs moving into the Enhanced Track may or may not be any different than your experience in the Mid-Atlantic?

Yes. Thanks for the question, Whit. It's Parth. Yes, I think it's an important point to note. We are obviously much more mature as an organization today relative to what we were five years ago when we first started in the Mid-Atlantic. That has manifested itself in two particular areas relating to this question. One is our ability to take on more risk sooner, and the capabilities we've developed are obviously much better than what we were five or six years ago. This allows us to do that sooner than what we were back then. All else being equal, you should expect we would accelerate that move given the maturity of the organization, but it will depend on the geography.

Okay. That's helpful. Second question, just around the investments that you're making, not terribly surprising. But I think it might be helpful to break out some of the buckets a little more discreetly. If I take $5 million at the midpoint, how much of that should we look at as perhaps being really one-time and thinking—that as you move into new markets, some of this is probably going to continue to repeat itself. So I'm just trying to ensure I properly understand exactly where the $5 million is going.

Yes, definitely. So number one, it's fairly broad-based. When you experience this kind of growth, which is across both the fee-for-service book, the value-based book in existing markets, and new market entries, we expect we are investing across the spectrum. Typically, we think about this as both fixed and variable costs. There are certain costs that are variable in nature that would ramp up, mainly pertaining to the new market entries, sales costs, implementation costs, as we get more providers in those new geographies. But then a lot of the costs are fixed in nature that happen at the upfront as we either enter new geographies or enter into some enhanced capitated arrangements as an example, where we are beefing up some of our capabilities. You should expect those to scale over time, more G&A in nature, but also some fixed costs in other areas of the company. Broadly speaking, it is both leadership costs—we're adding a lot of great talent across the organization to support this growth—and also infrastructure and technology investments.

The only thing I would add is we report this above the line because it's ongoing operations. You're going to see us continue to expand and grow the business.

Our next question comes from Jailendra Singh with Credit Suisse.

Yes, thank you, and good morning everyone. I have a question on your long-term outlook. Clearly, your 2022 practice collection revenue outlook and EBITDA guidance implies mid-20 to mid-30% growth rate, but it does include some puts and takes in terms of new market contract rollouts and investment spending. Just curious with all these puts and takes, what are your latest thoughts on the long-term revenue and EBITDA growth and margin outlook for the company in '23 and beyond?

Thanks, Jailendra. Look, when we went public, we articulated that over a long term, which we define as a decade or more, you should expect this business, given the substantial total addressable market in front of us, as well as the broad-based platform we have at Privia, to deliver 20-plus percent top-line growth over that long period of time. As the operating leverage kicks in, that should translate into 30-plus percent EBITDA growth. Our hope is we can accelerate that. Of course, no business grows in a linear fashion. You're going to see spikes, and we've experienced that in our recent past as well. Our hope is to keep delivering at a high level, accelerating that as much as possible while making thoughtful investments. The key differentiator for us is we are not sacrificing profitability as we grow. I think this is a perfect year for '22. As you see, both top-line growth is at 30%, and EBITDA is also growing over 30% at the midpoint of our guidance. While we are growing the top line at a more accelerated pace than that 20%, we're not sacrificing EBITDA growth this year, and we expect to continue that operating leverage in future years.

And just a quick clarification. Do those targets include any acceleration in shifting to full risk cap arrangements or even your involvement in ACO REACH model if you decided to do so?

Yes. Our view is it will be across the platform. So whether it's entering new markets, adding providers in existing markets, converting some of the lives we have into capitated arrangements as we did this year, or entering into new value-based programs. The broad-based drivers are meaningful for us in this platform and allows us to pull many levers, so you can see this year, attributed lives and implemented providers are growing modestly, but that can translate into much more significant practice collections growth given those broad-based drivers.

Okay. And then my follow-up on the comment you made earlier about the company's key differentiation being a solid balance sheet and positive cash flow. With almost $300 million in net cash and another strong cash flow expected this year, do you think there are opportunities for you guys to get more aggressive with respect to capital deployment in any way? What was the $32 million business acquisition you had in the fourth quarter?

Yes, thanks. So I'll take them in line. Number one, just from a capital allocation perspective, we think about it in four buckets. First is what we consider the sleep-well-at-night bucket. Given our business as a provider entity that is growing rapidly and taking on additional financial risk, we believe we should have a significant cushion and maintain a conservative balance sheet, low leverage, and a solid cash flow profile. This is what helps when financial risks arise. Our view is to not rely on capital markets during those times as that can be very dilutive. Second, given the significant total addressable market we have, we are looking to continue to invest organically in existing and new markets. The beauty of this business is a lot of that happens on the P&L. Though EBITDA expansion may not happen, that is also part of our capital allocation. Third, estamos looking for opportunistic M&A if or when the right opportunity arises. We have not historically relied on that, given how well we've grown organically, and we are fairly disciplined. But whenever the opportunity arises, you want to have some cushion. Finally, from a completeness perspective, if we do have excess cash and if the valuation of the business differs materially from our intrinsic value, we can consider returning capital in accretive manners to our shareholders. Regarding the $32 million spend, it was related to our acquisition of the services platform of BASS MSO in California and the medical group in West Texas.

Our next question comes from Lisa Gill with JPMorgan.

Thanks very much for taking my question. I hope you can hear me. Just really wanted to follow up on a couple of things. First off would be the ACO REACH program. I know when we talked in the past about REACH contracting and the expenses being aligned, you also mentioned the governance of your physicians. Can you give us thoughts around whether you will participate? And how you're thinking about that program would be my first question. And then my second question would be for David around cash flow. We talked about 90% cash flow conversion. Is that the way we should think about the model going forward when we consider EBITDA conversion?

Hey, Lisa. This is Shawn. We got most of that, I believe. So, I'll take the first part of that question related to the ACO REACH program. With any program, as you know with us, it’s about balancing risk and reward. We will conduct extensive analysis both internally and sometimes through external consultants to evaluate those programs. We want to project that risk and reward effectively, understanding the different rules and the levers that will guide our success. As you know, the company has significant experience in MSSP and Medicare Advantage. Our management team collectively has decades of experience in government programs. But regarding ACO REACH, the current outline of the program lacks the clarity we need concerning the risk we assume. Our physicians have demonstrated great success in MSSP, reflected in the results we just published. We're moving additional ACOs to the Enhanced Track, and with two-thirds of our entire Medicare book—either Medicare Advantage or MSSP—in risk programs, we are confident in our position. I hope that addresses your first question. The second was?

Yes, I'll take the second question. I believe it was around the EBITDA-to-free cash flow conversion of 90% and its implications moving forward if I heard that correctly. Given we are still utilizing our net operating losses and the impacts of stock compensation, cash taxes payable will be a key item in our cash flow statement to monitor. So, in the next few years, specifically as we burn through our NOLs, you will need to tax affect it. However, my hope is that there will be minimal add-backs to reach the adjusted EBITDA number. Capital expenditures will continue to be muted, at or under the $1 million threshold.

Our next question comes from Jessica Tassan with Piper Sandler.

Hi. Thank you so much for taking the question. Do you mind reminding us what the status or progress is on Privia Care Partners? What are the expectations for 2022 and 2023?

Hi, Jess. It's Parth. Thanks for the question. As we articulated in our Q3 call, we expected about 30,000 lives in Privia Care Partners. We are running at or ahead of those expectations. Those are included in the guidance we've provided for 2022 and will continue to be reflected in our reports moving forward. We aren't managing that business separately, hence we won't split out the reporting of that number. We are seeing momentum and are very excited about that product and service offering.

Thanks. As a follow-up, can you help us understand the financial model for Privia Care Partners and how it compares to the full tech stack in terms of revenue, care margin, and EBITDA per life?

Yes, sure. The margins on the Care Partners book would actually be slightly higher and similar to the margins we have in our value-based book today. We don't break out margins for fee-for-service and value-based, as you know. Generally speaking, the tech stack is a lighter component in the Care Partners model. The economics are similarly shared. We keep the care management fees, and the shared savings are split 60/40 between physicians and Privia. So, the economic profile is very similar to the rest of our value-based book. That's why these lives will be embedded in our ACO attribution that we report going forward.

Thank you.

Our next question comes from Richard Close with Canaccord Genuity.

Yes, good morning. Thanks for the questions. Can you talk a little bit about the outperformance on practice collections and revenue in the fourth quarter? Was that primarily due to the new markets that were added? If you strip that out, what would the growth have been? Parth, you mentioned same-store growth, but could you provide that for us?

Yes. Thanks for the question, Richard. The extent of the bid was significant relative to what we guided, and it was very broad-based. There was not one particular element driving it, but four key components. First, utilization was much stronger than anticipated, given the Omicron variant, which is tough to predict, but overall came in much better than expected. We think our practices gained market share. So, both utilization being higher and then on a same-store basis, we added new providers and saw record-low gross attrition. Net-wise, we saw growth in our same-store operations, which contributed significantly. Finally, both California and West Texas, the new markets, contributed more in Q4 than we anticipated back in Q3. It was broad-based, which was great to see.

Okay. And my follow-up question relates to your relationship with Surgery Partners. You mentioned you're not currently looking at additional new markets this year or next year. Is that absolutely off the table, or how are you thinking about that? I'm also curious about your strong business development efforts.

Yes, to be clear, the business development pipeline is strong. We are looking to open new markets as soon as possible. Given the significant addressable market, we are present in eight states plus D.C., and are actively exploring new markets for opening both this year and beyond. Our guidance only includes the markets we've officially announced, which are California, Montana, and West Texas alongside our existing markets. Similar to 2021, where we did not include initial guidance for any new markets, we're applying the same principle in '22. The guidance does not include any impact from markets that may open later. Timelines on this remain uncertain. Should we announce new markets, we will update our guidance accordingly.

In reference to Surgery Partners, their business model aligns well with ours, running Ambulatory Surgery Centers with physicians, both in existing and future markets. We've been collaborating with Eric's team, and they have a great management team. It syncs excellently with what we are doing, and we'll see how this partnership evolves.

Our last question comes from Ryan Daniels with William Blair.

Hey guys, Nick Spiekhout on for Ryan. Thanks for taking my question. Just a clarification to start. What was the cadence you said was going to be on that additional 400 providers you expect in 2022?

Hey, Nick. It's Parth. I'm not sure we fully understand the question. Our guidance at the midpoint is 3,675. It will be spread evenly throughout the year, similar to the progression you've seen in '21. A lot of those providers are sold but not yet implemented, taking about six months to onboard fully. So, you should expect a similar cadence to last year based on that ramp.

Okay, great. Thanks for that clarification. In Q4, there was a significant jump over Q3. But primarily, that was due to the new markets coming online, correct? So it should be relatively evenly distributed throughout the year?

That's correct.

Great, thanks. I appreciate that. I was wondering if you could walk through, at a high level, a sort of waterfall from your 2022 guidance versus expectations from your IPO. How much of the 2022 outperformance from IPO stems from 2021 outperformance, new market entries, and moving further down the risk spectrum?

Yes, I appreciate the question. We aren't going to identify each contributor to practice collections specifically, but generally speaking, it remains broad-based. For existing geographies, there were three main components: very strong utilization, low attrition, and record new provider addition in existing markets. Each of these factors was ahead of our expectations. On the value-based side, we exceeded initial guidance throughout '21 in existing markets. We also did not include any new markets in our initial '21 guidance. As we entered California, West Texas, and Montana ahead of our expected timelines, that’s causing an acceleration in 2022 growth. And as these providers ramp up, we hope to see that reflected throughout the year.

There was also the addition of the capitated arrangements slide that we've added, none of which were in our IPO projections.

Just a follow-up to Josh's question earlier regarding moving to full risk. Do you all think you need a year or two with Healthfirst and Humana before feeling comfortable moving more lives to full risk, or could that transition come sooner?

Thanks for the question, Richard. We will enter into these agreements when it makes the most sense from both a provider and risk pool perspective. There's really no formula; it varies by market and depends on our ability to manage the pool effectively and profitably. Our ultimate goal isn't just to achieve top-line growth but to make money alongside payers while achieving positive patient outcomes and shared savings. This process will vary, and we could either add zero, or potentially double the number of capitated lives, depending on our operational insight regarding the risk pools.

Okay, thank you.

That concludes today's question-and-answer session. I'd like to turn the call back to Mr. Morris for closing remarks.

Thank you for listening to our call today. Privia Health's proven model supports all providers and all patients across all reimbursement models. Our scalable, capital-efficient, and integrated care delivery model has significant momentum in the physician enablement market. We look forward to continuing to operate at a high level and deliver accelerated growth in 2022. We appreciate your continued interest and support of our company, and we look forward to speaking to you soon. Enjoy the rest of your day, and thank you.

This concludes today’s conference call. Thank you for participating; you may now disconnect.