Thank you for standing by. My name is Dee, and I will be your conference operator. At this time, I would like to welcome everyone to the Privia Health First Quarter Conference Call. Thank you. I would like to turn the call over to Robert Borchert, Senior Vice President of Investor and Corporate Communications. Please go ahead, sir.

Thank you, Dee, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer; and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com, along with today's financial press release and slide presentation. Following our prepared comments, we will open the line for questions. Please limit yourself to one question only, and return to the queue if you have a follow up, so we can get to as many questions as possible today. The financial results reported today are preliminary and are not final until our Form 10-Q for the first quarter ended March 31, 2025 is filed with the Securities and Exchange Commission. Some statements we will make today are forward-looking in nature based on our current expectations and view of our business as of May 8, 2025. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings. Finally, we may refer to certain non-GAAP financial measures on the call. And reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation posted on our website. So now I'd like to hand the call over to our CEO, Parth Mehrotra.

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

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

Our first question comes from Singh Jailendra. Please go ahead.

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

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

Thank you.

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

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

Yes. Thanks for the question, Josh. So they're a multi-specialty practice. I mean, you can go on their website and they've listed every single specialty and provider. So, it's all public info. Slightly more skewed towards specialist than primary care, but a pretty healthy mix. You see we disclosed the attributed lives of 28,000. So, that's all attributed to the PCPs. But again, it's very similar to some of our other states. It's not skewed one way or the other. In one direction, and it's a multi-specialty practice covering all specialties. So slightly higher practice collections per provider as you would expect from that perspective. And then I think from an opportunity perspective, look, there's a day one opportunity with the group with 28,000 lives, but then more importantly, I think Arizona is a pretty important state as far as MA is concerned, the demographic trends are concerned, and the availability of independent providers. So, I think we can have a pretty good presence over the next four years, five years, 10 years. That's always our playbook. As we enter these states, it's not a one-year, two-year play. We're looking to establish a pretty large medical group over time. And I think the TAM opportunity is there for us to go get in Arizona. So we're pretty excited about that.

Thanks.

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

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

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

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

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

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

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

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

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

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

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

Hi, this is Alberta Massey on for Whit. Thanks for taking the question. We're about halfway through V28 now. Are there any surprises with the implementation versus expectations in MSSP? I would be curious to hear about any changes in practice care management strategies. Thanks.

Yes. Thanks for the question, Alberta. So V28, it doesn't impact MSSP as much per se. It's mainly related to MA. I mean, the average risk code in MSSP is around one, and risk coding, while plays some role, it's not a big factor in our performance. And as far as the MA book is concerned, it's playing out as we expected. We took a very conservative view since the beginning of last year when we exited two capitation contracts. We think it's a pretty significant headwind to the industry, to the MA business, both for the payers and then providers downstream. And it's playing out as we expected. You've seen pressures on different payers at different points in time, either last year or this year. You've seen pressures on the provider group. So, I think we continue to be pretty cautious and see how it plays out. And again, fundamentally, we've got to get paid to take additional risk in MA, and we'll keep looking for those opportunities, as we just said.

Our next question comes from the line of A.J. Rice with UBS. Please go ahead.

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

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

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

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

No, nothing out of the ordinary. That's worth calling out. We have a pretty diversified book, over five million patients. So, we haven't seen any fundamentally different levels of activity.

Our next question comes from the line of Ryan Langston with TD Cowen. Please go ahead.

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

Yes. I appreciate the question. I think it's a combination of both. I mean, Q1, there was no IMS impact and you're seeing the outperformance across the board on all our metrics, all the way down to EBITDA. So that has no impact from Arizona. And then as we noted in our prepared remarks, all that impact starts in Q4, at least care margin downwards on our P&L. So I think it's a combination of both. We saw pretty good results this quarter. You're right, we haven't, it's still early in the year, but given the strong performance, given the impact of the transaction, we feel pretty confident for the rest of the year. We'll see how the year plays out, and then update guidance further. But at this point, we felt pretty comfortable going in, given the strong start to the year.

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

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

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

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

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

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

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

Our next question comes from the line of Jack Slevin with Jefferies. Please go ahead.

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

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

Our next question comes from the line of Jeff Garro with Stephens. Please go ahead.

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

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

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

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

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

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

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

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

Our next question comes from the line of Matt Shea with Needham. Please go ahead.

Hi, good morning. Thanks for taking the question and congrats on the Arizona expansion. In the past, you've commented on new markets requiring $2 million to $3 million in investment and you tend to breakeven on that in 18 months. So with Arizona breakeven expected in the fourth quarter, it appears you guys are ahead of schedule. So curious what the dynamic is there? Are you starting to breakeven faster in new markets, or just requiring less initial investment, maybe something specific about IMS or Arizona? Any color there would be helpful.

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

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

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

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

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

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

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

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

Thank you. Just quickly, first, I'm not sure, if you'll comment on this, but how many of the 28,000 IMS lives are risk capitation? Then in terms of earnings seasonality for this year, just given how first quarter looks, meaningful outperformance, and historically, it looks like 1Q generally softer in terms of full-year earnings contribution. Curious, if we should be, how we should think about the remainder of the year? Any expectation of anything different versus historical? Any difference from these new Arizona costs? And lastly, with some of your larger value-based care for risk providers in the market facing some pretty meaningful issues this year. When you see all this and you're consistently scanning the country for profitable capitated providers, we'd love to hear, if you've seen anything noticeable in terms of a V28 impact it might have had, maybe more specifically in your view, if you think the cohort economics and over the past five years for these provider models might now be structurally impaired? Thank you.

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

The last question comes from the line of Joanna Gajuk with Bank of America. Please go ahead.

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

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

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

This concludes today's conference call. You may now disconnect.