Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Privia Health Second Quarter 2025 Conference Call. I would now like to turn the conference over to Robert Borchert, SVP of Investor and Corporate Communications. You may begin.

Thank you, Desiree, 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. The financial results today are preliminary and are not final until our Form 10-Q for the second quarter and 6-month periods ended June 30, 2025 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 view of our business as of August 7, 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. Reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now, I'd like to hand the call over to our CEO, Parth Mehrotra.

Thank you, Robert, and good morning, everyone. Privia Health continued to execute very well across all aspects of our business through the second quarter of 2025, which positions us very well for success for the remainder of the year and into 2026. This morning, I'll summarize our second quarter performance, and David will discuss our market presence, financial results and 2025 guidance before we take your questions. Privia Health has continued to execute at a very high level across different economic, regulatory and health care cycles. This is a testament to our differentiated business model and our consistent operational execution across varying environments. We delivered strong new provider signings across all of our markets in the first half, which underpins our visibility through 2025 and into next year. Implemented Provider growth of 13.8% and value-based lives attribution growth of 15.2% year-over-year helped drive total Practice Collections growth of 18.5% in the second quarter. Adjusted EBITDA increased 31.6% with EBITDA margin as a percentage of Care Margin expanding 310 basis points, while we continue to invest in growth and expansion. Our first half results were driven by the outstanding performance of all of our provider partners and operating teams amidst a very challenging health care services and payer environment. This strong first half gives us the confidence to raise our 2025 outlook to above the high end of our initial guidance ranges for Practice Collections, GAAP revenue, platform contribution and adjusted EBITDA, and to the high end for the remaining metrics. Privia's model combines unique aspects of medical groups, risk-bearing entities, and a technology and services platform. The physician practices we partner with are an integral part of our medical groups. This allows Privia to be deeply embedded in the workflows of the practice with a common physician-led governance structure. Our ability to earn highly predictable fees for our technology and services platform gives us a very stable and recurring earnings profile. This stable earnings stream, coupled with shared savings and care management fees across a broad spectrum of value-based care arrangements, has allowed us to deliver very consistent financial performance across different environments. This model offers an unmatched value proposition to payers of health care and community-based providers, as well as the patients they serve, creating a business and economic moat that is very hard to replicate. Privia's consistent growth and profitability across cycles over the past eight years is the ultimate proof of the strength of our differentiated business and economic model and the consistent execution year after year. We expect Privia's integrated medical group, risk-bearing entity, and tech and services platform model to continue to drive sustainable compounding of growth and profitability for years to come. Now, I'll ask David to review our market position, recent financial results, balance sheet strength and our updated 2025 guidance outlook in more detail.

Thank you, Parth. The Privia Health footprint of community-based medical groups and risk entities now comprises 5,125 implemented providers caring for over 5.3 million patients in more than 1,300 care center locations operating across 15 states and the District of Columbia. Our balanced and diversified value-based care organization now serves 1.38 million attributed lives across over 100 commercial and government value-based care programs. Total attributed lives at June 30 increased 15.2% from a year ago. This was broadly driven by new provider growth across programs and our entry into Arizona. Commercial attributed lives increased 13.8% from last year to reach 843,000. Lives attributed to the CMS Medicare programs were up almost 15%. Medicare Advantage and Medicaid attribution increased more than 13% and 31%, 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 with no dependence on any one particular contract or program. Given the continued challenges facing Medicare Advantage and Medicaid payers, Privia will 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. Privia Health's strong operational execution and growth continued through the second quarter. Implemented Providers grew by 254 sequentially from Q1 to reach 5,125 at June 30, marking an increase of 13.8% year-over-year. Implemented Provider growth, along with strong ambulatory utilization trends and value-based performance, led to Practice Collections increasing 18.5% from Q2 a year ago to reach $862.9 million. Adjusted EBITDA increased 31.6% over the second quarter last year to reach $29 million, representing 25.2% of Care Margin. This is a 310 basis point improvement as we generated operating leverage across both cost of platform and G&A, while investing across all markets. For the first half of 2025, Practice Collections increased 15.7% to $1.66 billion. Care Margin was up 13.2%, and adjusted EBITDA grew 33.3% to reach $55.9 million. We ended the second quarter with more than $390 million in cash and no debt. This is after deploying $95 million in April for the IMS transaction to enter Arizona. Consistent with past years, we expect to receive a significant portion of our shared savings cash payments in the second half of the year. Assuming no further deployment of capital for business development, we expect to end the year with more than $450 million in cash. Our healthy balance sheet continues to position us with significant financial flexibility to deploy capital and take advantage of opportunities in the current market. We raised full year 2025 guidance to above the high end of the initial ranges for Practice Collections, GAAP revenue, platform contribution and adjusted EBITDA. Driving this positive outlook is our strong first half performance across all markets, implemented provider growth and strong ambulatory utilization trends, and performance across our value-based contracts. This provides us with excellent visibility into next year. We continue to maintain a robust pipeline of existing market expansion and potential new market opportunities. As a reminder, our guidance does not assume any additional business development activity. Finally, we continue to expect more than 80% of full year adjusted EBITDA to convert to free cash flow, given our capital-light operating model. As Privia continues to build large-scale primary care-centric delivery networks across the nation, we would like to thank all our physician partners and employees for their continued dedication and hard work to help us achieve these results. Operator, we are now ready to take questions.

Our first question comes from the line of Elizabeth Anderson with Evercore ISI.

Congrats on the quarter. What I thought as a notable standout this quarter was, you obviously had very strong performance, while many of your peers across payers and others have seen a bunch more challenges. What do you think is sort of misunderstood here in terms of the investor landscape? Because obviously, your stock has gotten hit a little bit quarter-to-date on, I think, the read-throughs. But I'm not sure that those are correct. So like, is there something that's sort of underappreciated here from the investor perspective that you would call out?

Thanks for the question, Elizabeth. Great first question to get. I think we have a little bit of an identity crisis still speaking about our business model in the fifth year of being a public company. But I guess, to your point, it's a sign of times in the payer, physician enablement, provider landscape. I think if you look at our results on Slide 6 and the consistency of those results, I think it's obvious that the bedrock of our financial performance over the years is a very simple concept that we get paid a very recurring predictable fee for providing a tech and services platform to all of our practices. That's a very consistent, stable earnings stream, as we mentioned in our prepared remarks. That economic model is no different than any tech SaaS company. You could think of a company like Toast that provides a platform for restaurants. You could think about a credit card company like Visa or Mastercard that takes a fee off the top of every single transaction. And not that I would like to ever compare doctors to cab drivers, but think about Uber, Lyft, where they get paid on every single passenger ride. So, as long as there are patients who want to visit a doctor's practice that is deploying a Privia tech and services platform, that engine works for us across our 1,300 care center locations that have over 5,000 providers that see over 5 million patients every day of the week. Some patients come in, and we get those fees. It is very consistent over any economic, regulatory, whatever is happening in the health care environment cycle. I mean that's a simple payment stream. I think if you then see how we organize these providers into our medical group entities, they are being credentialed in those medical groups. They are led by a common governance structure. I think that's very important and underappreciated because we effectively go in and change the engine of the car, back to my analogy with Uber and Lyft. We change the chassis. The UberX converts to a premium SUV, and they are paid a higher 10%, 20%, 30%, 40% higher fees for every encounter. And Privia has taken a piece of that every day of the week. And I think it's a model where you cannot switch between Uber and Lyft with a flip of an app. And it speaks to the resilience of the model, where it's very hard to leave once you join our medical groups. And you've seen our 98% gross provider retention that has been very consistent over the years. On a net basis, our retention is over 100% as we grow these practices same store. And then, the final component is the risk-bearing entities, and that's probably the only piece that is very comparable to other value-based entities. But we do things differently in three ways. Number one, we've consciously diversified the whole value-based book across all lines of business, any patients, between commercial and government programs. That is underappreciated because I think there's a lot of offsetting as one program performs, the other doesn't. I think number two, we've managed risk really, really well over the years in three ways. We don't take risk on costs where we cannot control those costs, so think about Part D. Number two, we share risk with both the payers and the doctors. I think that's a fundamental difference where we believe that aligns interest, and over time, leads to better outcomes. And then, number three, I think we are paid differently. Our health care economic team does a great job of making sure that our contracts are structured, so we are paid for the value we deliver. We try to get a care management fee, which is, again, an annuity, a monthly payment on every life in whichever programs we can get. No different than how Netflix gets its fees every month for providing services. I think in health care, you can have a lot of altruistic goals about serving any particular patient population. But if you're not getting paid by the payer, you're not going to have a viable economic model. So I think those are the three components that come together for us to deliver this kind of consistent growth. And I think that's just underappreciated, but the results speak for themselves at the end of the day.

Our next question comes from the line of Richard Close with Canaccord Genuity.

Congratulations on the second quarter, first half and updated guidance here. Just looking at the guidance, it contemplates a step-down in the second half. So just curious what you're seeing that would drive that? And then, any thoughts with respect to utilization trends that's baked into the second half of the year for you?

Yes. Thanks for the question, Richard. So, as you noted, we've really not had a second half that has been lower than our first half over the past many years. I think that's why we've raised guidance to above the high end. I think it's prudent in this environment. We get a lot of shared savings true-ups in the third quarter, including MSSP results. I think as a starting point, if you double our first half numbers, that's a good starting point for the second half. And then, once we get all the value-based care payments, we'll update the guidance next quarter. But in this environment, I think we're just being prudent. But it gives us a lot of confidence to be above the high end, but we chose not to give a specific higher-end range for those reasons. But there's nothing that we see that should tell us, given all the data we've got from payers and different value-based programs, given the trends we see in utilization, strength of our fee-for-service book, all the sales momentum we've had in the first half that translates into good practice collections in the second half or next year. All of those point in the right direction. And then, we'll just update guidance specifically at the end of Q3.

Next question comes from the line of Jailendra Singh with Truist Securities.

So I was wondering if you can talk a little bit more about your pipeline of providers. Clearly, some of your peers, who have been more focused on full risk capitation, have struggled. Health insurance companies are facing their own challenges, and we'll see how that flows through provider reimbursement. And then, we have all this macro and regulatory uncertainty. Considering all that, have you seen your conversation with providers shifting in any way in recent months? Are you seeing more urgency on their part? Are you seeing any change in how they think of value-based care? And related to that, from your perspective, is this environment having any impact on your approach like in terms of getting more aggressive than you have in the past?

Yes. Thanks for the question, Jailendra. So broadly speaking, the answer is yes to a lot of your questions. I think we are seeing a lot of momentum. The sales team has had a great first half of the year. That follows from a very strong 2024. So the last 18 months, for all the reasons you mentioned, I think our model, our value proposition across the entire patient population for any practice, across any specialty, any location, I think, is resonating really well. The fact that we can add value to these practices in how they run the practice, how efficient they get, can they increase their earnings stream across all lines of business is also resonating. So we've had a record first half where we've sold more providers than we ever have in the history of the company. And we continue to be very aggressive. I think the doctor business is one where decisions are made a little bit slowly and it's a little bit sticky. But I think the tailwind will be persistent for us for a very long time for all the factors you mentioned, other companies not doing well, our value proposition resonating, the payers needing a partner like us that can truly drive value. Ultimately, care is delivered in the communities in a very low-cost setting in medical groups like ours. And I think the value proposition is very, very strong. So we feel really good about the momentum this year, going into next year, and just the compounding of this business in a very thoughtful model that we just outlined.

Next question comes from the line of Josh Raskin with Nephron Research.

Just a quick clarification first. Just I think you said Medicaid value-based care lives were up 31%. I see in the slides, those are 100% upside only. So can you talk about those arrangements? Are you producing surplus there? Are those based on quality metrics, and then, maybe what segment of Medicaid? And then, my real question is just how are you guys using AI on the platform now? Maybe what areas are provider partners most interested in?

Thanks, Josh. So sequentially, if you look at, Medicaid lives grew about 15,000, round numbers, from 100,000 to 115,000. That was mainly driven by organic growth across all of our markets, but then also notably, as we entered Arizona. And again, in the Medicaid book, as you rightly noted, we don't take any downside risk. We are trying to contract with payers where if we can add value to these practices and manage these lives and have some upside shared savings, we get a piece of it with no downside for all the reasons you know about that program. Very volatile, very hard to deliver a lot of value without getting paid for it. And so, that's been our position in Medicaid. But I think our platform allows our physicians to handhold these lives in a much better way than just plain fee-for-service Medicaid. And so, we think it's a great program to be in. We get paid a little bit for the value we add, and we're happy not to take any downside risk, given all the structural issues with that program and what the payers are seeing, as you well know. And then, to your second question, look, we've been using machine learning, AI bots for many years across our entire workflow. So our teams, our technology team and operations team look at the entire fee-for-service workflow and then the value-based care workflows. Revenue cycle was an area where a lot of the innovation happened over the past few years, whether it's getting paid faster, whether it's reducing administrative burden, so on and so forth. But I think some of the new investments we've made, worked with companies like Navina, are all on the clinical side that drive application of AI into the clinical workflow for value-based care arrangements, where we have identified suspect medical conditions where, at the point of care, physicians are getting prompted to make sure if a patient shows up over a certain age with certain comorbidities, taking certain medications, to check for other conditions that might be persistent based on data sets that are expanding over time, our data set, data from the payers. Ultimately, hopefully, there'll be a national data set that we could rely on to. So those are the areas in the clinical workflow. A lot of innovation is happening in the scribing world. We've tried different scribe solutions over the years. But with AI-driven scribing solutions, I think that's another area where documentation is getting better, getting faster. And it all leads to reducing the burden for the doctors ultimately and better clinical outcomes, better coding for the patients in a very compliant manner. So those are the areas we're focused on and partnering with many companies in that space as they innovate.

Next question comes from the line of Andrew Mok with Barclays.

It looks like shared savings revenue came in meaningfully better than expectations. Can you provide more detail on what drove the beat in the quarter and how much flowed through to care margin?

Thank you, Andrew. Overall, our approach has been quite consistent across all of our value-based contracts, including commercial, Medicare Advantage, MSSP, and Medicaid. There isn't a specific contract that stands out. Given our effective risk management and the diligent execution of our operational teams in the field, we have been very aware of the environment over the past two years. We are well ahead in recognizing the pressures from utilization trends and changes in star scores. Consequently, we have been very deliberate about the data we gather, how we gather it, when we gather it, and how we respond and contract based on that information. The results reflect this diligence over the past couple of years. Over the last 6 to 8 quarters, we have seen a strong flow-through right down to Care Margin and EBITDA, showcasing the strength of our operational and economic structure. EBITDA as a percentage of Care Margin has consistently risen both quarter-over-quarter and year-over-year, and we are on track to reach 25% as a percentage of Care Margin, with long-term targets of 30% to 35%. I believe we will achieve this in the coming years. The business is not only growing and has significant momentum, but we are also expanding margins as we perform well, and we aim to continue this trend. However, it’s challenging work; this is a demanding business on a day-to-day basis, and we plan to keep pushing forward.

Next question comes from the line of A.J. Rice with UBS.

I might just ask you about the recent proposed physician fee schedule rule. It does seem to have some focus on adjusting to prioritize office-based and primary care physicians maybe relative to facility-based and specialists. What are the implications of that for your business? How much of your business gets impacted by that? And give us any thoughts on any opportunities that might present.

Yes. Thanks, A.J. So broadly speaking, I think it's a net positive. I mean, we're glad that it's been recognized that community-based physician practice reimbursement needs to keep up with inflationary factors. Relative to the health care ecosystem, this is still the lowest cost setting, first line of contact for anybody in the family. This is where care gets delivered and directed when something shows up with any family member. So I think we're just glad that that's been recognized. I think it's going to be a net positive. You'll see that filter through over time. Our Medicare book is similar to the populations we serve in different states. Ultimately, it varies 15% to 20%, 25%, given the state, as to what percentage of the panel is our Medicare lives. And so, I think it's a net positive overall for our physician practices and for our results ultimately.

Our next question comes from the line of Matthew Gillmor with KeyBanc.

I wanted to ask about the G&A expense. It moved up from $18 million to $22 million in the second quarter. You're still driving great operating leverage even with that increase. Is there anything to call out in terms of what drove that? I know the business is performing well, so maybe some incentive comp. You'd also mentioned some ongoing investments in the growth. But just curious if there's any details to share on that.

Yes, I think you've addressed part of your question. As the company continues to perform better, it leads to an increase in some of our bonus accruals. Additionally, as we grow in the market, it results in higher contractor expenses. So there’s nothing significant to highlight. We still see a lot of leverage in G&A.

Next question comes from the line of Matt Shea with Needham.

Congrats on the strong results here. Nice to see the strength in Implemented Providers and Practice Collections. Any markets to call out that have been particularly strong in terms of provider adds or performance? And then, maybe it would be good to get an update on some of your more tenured markets. Are you still seeing plenty of runway for growth? Or how are you balancing the opportunity to go deeper in existing geographies versus lean into those newer markets?

Thank you for your question, Matt. Regarding the first part of your inquiry, the growth has been widespread. There is always some variation in the markets where we add providers and where sales teams are active. However, if we look at a longer time frame of four to eight quarters, we observe consistent growth across all states. Our model and strategy remain quite similar, focusing on building presence gradually in each area. Our sales team is actively working on this, and we are experiencing significant positive effects as we establish ourselves over the years. As we gain providers and improve performance, all metrics see enhancements—referrals increase, conversion rates rise, and acquisition costs decrease. Currently, our payback period is under a year, and when considering a doctor or practice remains with us, the lifetime value to customer acquisition cost ratio is over 10x. All our metrics are performing well and have been stable over the last few years, allowing us to gain momentum. In established markets, we are encountering many late adopters, and in these areas with the highest density, we are still at about 10% of the total addressable market. This leaves significant opportunity for expansion even in mature markets. We are achieving some of our best sales years in these older markets, as more late adopters are returning to us after discussions over the years, particularly in regions like the Mid-Atlantic where we've been present for a decade and where competitive disruptions are occurring. Overall, we are in a strong position with good momentum.

Next question comes from the line of Ryan Daniels with William Blair.

Parth, I have a question for you regarding the demand from payers. You mentioned some success in growing Medicaid. Given the current stress they are facing and the reduced number of value-based care enablers willing to take on capitated risk, I’m interested to know if this situation is actually creating more opportunities for you to negotiate with your balanced model, including Medicare Advantage and Medicaid, to secure those recurring fees, especially since the marketplace seems to be moving away from a capitated basis. Is this presenting more opportunities for you?

Thank you for the question, Ryan. You've made an important point. Over the years, our payer contracting team has excelled in positioning us effectively across various business lines. They have managed risks well and articulated Privia's value proposition to payers. We now have a solid track record and can reference case studies demonstrating our work with payers across nearly all aspects of our business. Our discussions are comprehensive; we don’t simply request a Medicare Advantage contract and negotiate specific aspects. Instead, we often engage in conversations about the commercial side of value-based care, considering our operational density and the additional value we can provide for different population groups. We also explore opportunities for care management fees, similar to how we approach Medicaid discussions, without taking on risks we cannot manage. We prefer to share potential gains with payers. This idea of accepting total risk downstream is not feasible long-term. It may work in some areas, but for consistent success, risk-sharing with doctors and payers is essential, allowing for shared gains and losses. This approach has led to fruitful discussions, positioning us as a stable growth business that delivers results, impacting their Medical Loss Ratio positively. As we enter new regions, payers are becoming more open to collaborating with us, and we can refer to successful case studies from other states. However, the healthcare business requires meticulous efforts by state and contract, with everyone needing to demonstrate their value. Our achievements thus far facilitate these discussions and help us replicate successful models in new locations, contributing to our overall momentum.

Next question comes from the line of Ryan Langston with TD Cowen.

Can you maybe just give us a sense how the IMS integration is progressing and if you still expect that to be accretive this year? And typically, I think, fourth quarter EBITDA is a little bit lighter than 3Q. Last year was a little different. So I guess, just taking into account IMS, any reason to not expect typical seasonality in the second half?

Yes, thank you for the question. The integration is proceeding well. We acquired the medical group entity, and as mentioned last quarter, we recognized Practice Collections GAAP revenue from the acquisition date. They will be implemented on our platform sometime in Q3, and starting in Q4, we expect to see contributions at the Care Margin and EBITDA levels. This process is similar to how we have implemented other anchor groups in the past, following a consistent methodology. Regarding your second question, I don’t anticipate any changes in seasonality this year. We don’t foresee the second half being weaker than the first half. We have considered the impact of the IMS Arizona entry in our guidance, but overall, we should expect similar seasonality.

Yes. And the only thing I'll add is, we do continue to expect positive EBITDA from IMS in Q4. So, that is still our expectation.

Next question comes from the line of David Larsen with BTIG.

This is Jenny Shen on for Dave Larsen. Congrats on a great quarter. I was just wondering your thoughts on the new Big Beautiful Bill, if that has any impact on Privia at all. What impact do you think it might have potentially on Medicaid or maybe Medicare membership?

Thank you for the question, Jenny. The main aspect we're evaluating is the effect on Medicaid enrollment and the recent challenges in the exchange business that payers are experiencing. Overall, we don't anticipate a significant impact since Medicaid and exchange comprise a low single-digit percentage of our overall business. Historically, when we encounter redetermination effects in the market, these patients often transition to other programs, such as self-insured or commercial plans. They don't stop visiting their primary care providers, pediatricians, or OB/GYNs when they need care. Thus, we tend to capture many of these patients elsewhere in case of disruptions. Ironically, regarding the exchange business, it operates under a discounted fee schedule, meaning if patients migrate to self-insured or other programs, we receive higher payments, benefiting our doctors as well. Consequently, we don't foresee a major impact from the bill. We'll monitor how the population shifts within these segments, hoping to capture them through different avenues. Additionally, our practices are operating close to capacity, indicating there is significant pent-up demand. Even if we lose a few patients, the practices are well-positioned to quickly restore their patient panels. There's even a waiting list in many cases. We'll keep an eye on developments, but it's all considered in our guidance.

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

Congratulations on the quarter. I'd like to follow up on the comments regarding pent-up demand. Can you share what you're observing in terms of utilization, the types of services being used, and the distribution by payer type such as Medicare, commercial, and Medicaid? Are there any specific categories or trends that stand out as unusual or elevated? Additionally, if you could provide insights on the MSSP market overall or trends in fee-for-service, that would be appreciated.

Yes. Thanks for the question, Jess. I mean, overall, we've been pretty consistent in our observation and the data. We are seeing very strong ambulatory utilization, which is good for us across all lines as patients come and see their primary care doctors or the first gatekeeper provider. We are seeing downstream elevated trends. A lot of the payers have talked about it. I mean, it's not like we see anything different in our value-based book, and we just have to manage through that. So I think that's the case. I mean it's not a complicated answer. It's not like any one area jumps out. I mean, there are obviously some nuances by geography and by specialty. But overall, we've been trying to manage through that trend line over the past many, many quarters now, two, three years ago, starting when we came out of the COVID period, post-COVID, I think the historical data sets were just depressed for obvious reasons. And we've positioned the business trying to navigate or operate in a new normal utilization trend level across all lines, and you're seeing that in our results.

Next question comes from the line of Jeff Garro with Stephens.

I wanted to follow-up a little bit on business development trends and ask what are you most excited about if we try to separate business development into a couple of different categories like new markets versus density in existing markets or independent provider practices versus health system affiliated practices? And I know these agreements are complicated and take time, but curious if there's just been any change in seller expectations or catalysts pushing deals further through the pipeline?

Thank you for the question, Jeff. Overall, we are experiencing significant momentum as we aggressively focus on both increasing our presence in existing markets and entering new ones. There is no conflict between these efforts, and we're not limited by capacity in either area. We've discussed in detail the performance of our sales team in current states, where we're building density and generating a snowball effect, and we're witnessing strong momentum in that regard. We're also seeing many transactions in new states, where our size and balance sheet strength provide us with good visibility as a dependable market player. Many practices want to collaborate with us, especially as some of their existing partnerships may not be yielding the expected results. We've seen numerous instances where a practice, previously aligned with another value-based entity, is now looking to engage with us across their entire operations, which may include providing capital if we are acquiring their tax ID or another entity in that new state. I believe this momentum is promising, and expectations should be more balanced now. The shakeout in the market is ongoing, which is advantageous for us, as private equity and other buyers are being more cautious due to the performance of several companies and their exit strategies. This positions us as a natural consolidator in the long run. We will continue to be selective, adhering to our approach of being EBITDA and free cash flow buyers, aiming for reasonable prices for assets while executing our strategy effectively.

Next question comes from the line of Daniel Grosslight with Citi.

Congrats on the strong quarter here. You've consistently outperformed this year and it seems like many of these trends are secular in nature combined with your differentiated model and ability to manage risk. So as we think about 2026, is there anything that worries you? And in particular, should we think about Privia continuing to operate kind of above that 20% EBITDA growth target on an organic basis?

Thank you for the question, Dan. We've been aware of this environment for several years. We adjusted our MA capitation contracts to be more balanced at the start of '24, which was proactive. We've positioned our business to navigate this environment and do not anticipate significant changes. I believe payers will modify their pricing across various lines of business as they observe the trends. This should positively influence downstream provider entities taking on risk, especially as the focus shifts from mere growth and attribution to more balanced strategies and awareness of adverse selection among populations, including the impacts of V28 star scores highlighted in various research. Our strategy will remain consistent. As I mentioned earlier, we need to ensure that value-based care is carefully managed by program and cohort. It's essential that we get compensated for the value we provide, which necessitates being selective about the spending pools we take risks on, how we share that risk with payers and providers, and ensuring we receive stable per member per month care management fees. This financial structure helps us invest in building the necessary infrastructure for our programs. In healthcare, there's a risk of falling into a policy trap where we aim to serve a particular patient population and take on risks in good faith, but may not be adequately compensated for it. This can lead to misaligned incentives and negative outcomes. If we support risks for doctors under favorable terms for them, it could backfire if adverse events occur, as seen in the results of other companies. Thus, we've been very cautious, yet we're confident we have a sustainable model. In response to your question, we do not anticipate substantial changes in our performance predictions for next year. Our model is stable and predictable. Given the sales momentum and performance trends across our value-based arrangements, we aim for a 20% EBITDA growth through 2026. This year's strong performance supports this outlook. For reference, at the end of '23, we reported about $72 million in EBITDA, and with our goal of 20% annual growth over four years, we are on track to potentially double EBITDA by 2028. We've exceeded this expectation so far, growing over 20% in '24 and projecting similar growth for '25. We do not see this momentum slowing down, which underscores the strength and uniqueness of our business model.

Next question comes from the line of Jack Slevin with Jefferies.

Ton already been asked, so I'll just jump in with maybe a little more broader one. Just want to think about how your conversations with health system clients or potential health system clients are developing. Obviously, health systems broadly facing some of the biggest headwinds they've seen in a long time in terms of OBBBA and the BAPTCs rolling off and now even some discussions around whether or not pharma can horse trade 340B for some form of MFN or pricing. Just curious if that's driving increased interest or if you're noticing any change in health system BD conversations?

Thank you for your question, Jack. Currently, we have three health system partners in Florida, North Carolina, and Ohio, and we've held many discussions with various states over the years. I believe they recognize the value Privia brings, which allows practices to maintain their autonomy and independence while still being aligned with health systems through shared tax IDs, technology platforms, or value-based arrangements. Health systems view their relationships in concentric circles: employed doctors, closely affiliated doctors, loosely affiliated doctors, and independent doctors within their areas. Privia can effectively support the last two categories. Some health systems acknowledge that they lack the expertise in this area, which has led to our partnerships with Novant in North Carolina, OhioHealth in Ohio, and HealthFirst in Florida. However, we are not suitable for everyone, as there are fundamental differences in business models, strategies, and goals. If certain health systems prefer to pursue their own strategies, that is perfectly acceptable, and we continue to operate independently across many regions. We partner with large health systems in all our areas, and we offer an appealing alternative for doctors coming out of residency. Many are now recognizing the potential to join or start independent practices rather than just becoming employed by health systems, which is a strategy we are aggressively pursuing. It’s important to note that what worked a decade ago may not be effective today or in the future. This business requires alignment in incentives and strategies, and as those shift, our goal remains to pursue our business model, serve our doctors and medical groups, and ultimately our shareholders. We will continue seeking opportunities to partner with health systems when there is a good fit, but we have demonstrated that our model can thrive independently as well. Hence, we do not depend solely on health system strategies for our business growth, and we will welcome any partnership opportunities that arise.

Next question comes from the line of Michael Ha with Baird.

This is Olivia Miles on for Michael Ha. In addition to recent elevated pressures that some of your large BDC peers are facing, ACO REACH risk corridors are being narrowed into next year. Are you seeing this dynamic catalyze any new prospective physician partner relationships for Privia? We wanted to better understand if there's anything else you would call out with this recent change in the competitive landscape.

Thank you for the question, Olivia. You raise an important point. With the recent proposed changes to REACH, the economic gap between REACH and the MSSP enhanced track has diminished. CMS is making efforts to create more consistency between the programs. Ultimately, it's the same Medicare beneficiaries over 65 who could be in either program, and there isn't a significant difference in the type of care they receive, which means we need to manage costs effectively. This situation is favorable for us. We have assessed REACH in various locations annually, keeping in mind that participants can only be in one program at a time. As the economic outcomes converge, it opens up opportunities for us to engage with physician practices that may have been aligned with ACO REACH. The distinction in lives transitioning to MSSP enhanced track is becoming less pronounced, which is beneficial for our model. We could establish a REACH program in any of our states, but the MSSP programs have proven effective for us given our scale. This creates positive momentum as we can target practices that might have previously partnered with others.

Next question comes from the line of Tao Qiu with Macquarie.

CMS recently published the proposed rule on MSSP for 2026. I think one of the biggest changes was the acceleration of the timeline to transition to higher risk arrangements. So when you look at your MSSP portfolio, how does that change your operating and risk management strategy on existing ACO entities that are still in the basic track? And then broadly, as the government seeks more savings from Medicare spending, how do you think it will affect the competitive landscape in the MSSP program? And would that constitute a tailwind for your MSSP growth?

Thanks for the question, Tao. So broadly speaking, it doesn't change our strategy. I mean, we participate in the MSSP program to move to the enhanced track as quickly as we can. We're not interested in remaining in basic tracks, because ultimately, that's where the proof of the pudding is and that's where the economics make it very attractive as long as you're able to do the job and manage the population really well. So across our different ACOs you've seen over the years, our objective is build enough density in the program, get established and then move to enhanced track as quickly as we can. So that strategy doesn't change. I think it may force other non-performing ACOs to take a call if they're going to stay in the program or move to enhanced track. And if you're not performing, that can give us some tailwinds where we could go get those lives or go get those groups. So I think it ties to the previous question. I think all of these changes given the scale at which we operate and how well we have done and executed and the programs we have in place, the tech stack we have in place, the way we underwrite these programs and work day-to-day with our physician practices to manage total cost of care, I think it bodes well for high-performing groups like ours to continue to do well.

And our last question comes from the line of Craig Jones with Bank of America.

So I wanted to follow-up on the platform analogy you gave earlier on the car. So you said you go in, you implement the platform, change the car into an SUV and everyone gets paid more. So I was wondering if you could give us some guideposts for how much the platform can improve partners' margins quickly when you implement it and then how much maybe it can improve margins over time?

Yes. Thanks for the question, Craig. Congrats on your new job by the way and thanks for waiting in line here. Yes. So I think we've said this in previous calls or as we went public. I mean, we have a pretty demonstrated ROI to our practices from each of these different components that you mentioned. So usually, there's expense savings because they've stitched together their own tech stack and tried to do everything themselves in a pretty unsophisticated manner before they partner with us. That is usually more costly than what we are charging. Secondly, they get that enhanced payer contracts on the fee-for-service book that gives a value proposition day one. Thirdly, we see a 10% to 20% productivity lift because the physicians are not now spending time dealing with technology, dealing with payer contracts, having much more efficient workflows across both fee-for-service and value-based care. And that 10% to 20% extra time, they can choose to improve the quality of their lives or they could see one or two new patients or more a day. Then there's enhanced revenue that comes in because a lot of these practices didn't participate in some value-based program across all of their patient panels. So all of that leads to a value proposition that actually grows over time. There's an impact in the first 6 months, 12 months, 18 months, then you get into value-based arrangements and you get into more risk contracts where there's more upside if you're performing well. And that just adds to the value prop. And then we are on top of that, not only improving that particular car that operates as a premier SUV, but the same driver, doctor can add another car or add other drivers to their business. I mean these are small businesses that we are helping grow at the end of the day. And that's another value proposition where our practice consultant team and operating teams in each market work with these practices to grow the book and their business on a same-store basis very meaningfully. So we've had practices. We've had case studies in the past that we've shared publicly where we've doubled the size of some of the practices that have been with us for seven to ten years from a top-line and a bottom-line perspective. And that's just an unmatched value proposition, all while the physicians are running their practices in an autonomous manner. They're not employed or guaranteed by some other entity. We're just making them run their business very, very efficiently. And that leads to our very high retention rates, NPS scores and then the overall business model just humps. So I think that's a pretty comprehensive value proposition that again, as I mentioned right upfront, it's economic and a business moat. It's very hard to replicate and it helps us perform pretty well over time.

That concludes the question-and-answer session. I would now like to turn the call back over to the management team for closing remarks.

Thank you for listening to our call today. We appreciate your continued interest and look forward to discussing our performance next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.