The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this quarterly report on Form 10-Q. In addition, the following discussion and analysis and information contains forward-looking statements about the business, operations and financial performance of the Company based on our current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. including, but not limited to, those identified below and those discussed in the sections titled "Risk Factors" and "Information Regarding Forward-Looking Statements" in this quarterly report on Form 10-Q.
Overview
Privia Health is a technology-driven, national physician-enablement company that collaborates with medical groups, health plans, and health systems to optimize physician practices, improve patient experiences, and reward doctors for delivering high-value care in both in-person and virtual care settings on the "Privia Platform". We directly address three of the most pressing issues facing physicians today: the transition to the VBC reimbursement model, the ever-increasing administrative requirements to operate a successful medical practice and the need to engage patients using modern user-friendly technology. We seek to accomplish these objectives by entering markets and organizing existing physicians and non-physician clinicians into a unique practice model that combines the advantages of a partnership in a large regionalMedical Group with significant local autonomy for Privia Providers joining our Medical Groups. Other thanTennessee , where ourFriendly Medical Group is actively negotiating with major health insurance plans after recently starting to operate under the "friendly PC" model, our Medical Groups are designated as in-network by all major health insurance plans in all of our markets and all Privia Providers are credentialed with such health insurance plans. Under our standard model, Privia Physicians join theMedical Group in their geographic market as an owner of theMedical Group . Certain of our Medical Groups are Owned Medical Groups, with Privia Physicians owning a minority interest. However, in those markets in which state regulations do not allow us to own physician practices, the Medical Groups are Non-Owned Medical Groups or Friendly Medical Groups. Privia Physicians who owned their own practices prior to joining Privia continue to own their Affiliated Practices, but those Affiliated Practices no longer furnish healthcare services. The Medical Groups have no ownership in the underlying Affiliated Practices, but the Affiliated Practices do provide certain services to our Medical Groups, such as use of space, non-physician staffing, equipment and supplies. We provide management services to eachMedical Group through a local MSO established with the objective of maximizing the independence and autonomy of our Affiliated Practices, while providing Medical Groups with access to VBC opportunities either directly or through Privia-owned ACOs. We have national committees that distribute quality guidance, and we employ Chief Medical Officers who provide clinical oversight and direction over the clinical affairs of the Owned Medical Groups. Additionally, we hold the provider contracts, maintain the patient records, set reimbursement rates, and negotiate payer contracts on behalf of the Owned Medical Groups. We also offerPrivia Care Partners , a more flexible provider affiliation model, to providers who do not desire to join one of our medical groups. This model aggregates providers in certain of our existing markets as well as new markets who are looking solely for VBC solutions without the necessity of changing EMR providers. We furnish population health services, reporting and analytics to such providers along with a menu of management services from which providers may choose. GAAP Financial Measures • Revenue was$342.9 million and$251.5 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$992.2 million and$690.9 million for the nine months endedSeptember 30, 2022 and 2021, respectively;
• Operating loss was
ended
respectively; and
• Net income (loss) attributable toPrivia Health Group, Inc. was$1.6 million and$(9.1) million , for the three months endedSeptember 30, 2022 and 2021, respectively, and$(26.4) million and$(176.3) million for the nine months endedSeptember 30, 2022 and 2021, respectively.
Key Metrics and Non-GAAP Financial Measures
• Practice Collections were$611.9 million and$401.5 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$1.79 billion and$1.11 billion for the nine months endedSeptember 30, 2022 and 2021, respectively; • Care Margin was$77.7 million and$61.5 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$225.6 million and$169.8 million for the nine months endedSeptember 30, 2022 and 2021, respectively; 18
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• Platform Contribution was$37.0 million and$31.1 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$109.5 million and$79.8 million for the nine months endedSeptember 30, 2022 and 2021, respectively; and • Adjusted EBITDA was$15.7 million and$13.9 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$46.6 million and$33.9 million for the nine months endedSeptember 30, 2022 and 2021, respectively. See "Key Metrics and Non-GAAP Financial Measures" below for more information as to how we define and calculate Implemented Providers, Attributed lives, Practice Collections, Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin, and for a reconciliation of income from operations, the most comparable GAAP measure, to Care Margin, income from operations, the most comparable GAAP measure, to Platform Contribution, and net income (loss), the most comparable GAAP measure, to Adjusted EBITDA.
Coronavirus Aid, Relief and Economic Stimulus Act (“CARES Act”)
The COVID-19 pandemic has an impact and may continue to impact our results of
operations, cash flow and financial position. We are closely monitoring the
impact of the pandemic on all aspects of our business including impacts to
employees, customers, patients, suppliers and vendors.
OnMarch 27, 2020 , the CARES Act was passed. It is intended to provide economic relief to individuals and businesses affected by the coronavirus pandemic. It also contains provisions related to healthcare providers' operations and the issues caused by the coronavirus pandemic. Pursuant to the CARES Act the Company elected to defer its portion ofSocial Security taxes in 2020, which may be repaid over two years as follows: 50% by the end of 2021 and 50% by the end of 2022. During the year endedDecember 31, 2021 50% of theSocial Security taxes were repaid. Approximately$0.8 million is recorded in accrued expenses on the balance sheet as ofSeptember 30, 2022 related to this deferral and the Company intends to remit payment by the end of 2022.
Our Revenue
We recognize revenue from multiple stakeholders, including health care consumers, health insurers, employers, providers and health systems. Our revenue includes (i) FFS revenue generated from providing healthcare services to patients through Privia Providers of Owned Medical Groups or administrative fees collected for providing administrative services to Non-Owned Medical Groups, (ii) VBC revenue collected on behalf of our providers, through capitated revenue, shared savings (including surplus payments, shared savings, total cost of care budget payments and similar payments) and care management fees (including care management fees, management services fees, care coordination fees and all other similar administrative fees), and (iii) other revenue from additional services, such as concierge services, virtual visits, virtual scribes and coding. FFS Revenue We generate FFS-patient care revenue when we collect reimbursements for FFS medical services provided by Privia Providers. Our agreements with our providers have a multi-year term length and we have historically experienced a 95% provider retention rate, both of which lead to a highly predictable and recurring revenue model. Our FFS contracts with payer partners typically contain annual rate inflators and enhanced commercial FFS rates given our scale in each of our markets. As a result of receiving these rate inflators and enhancements, if we continue to be successful in expanding our provider base, we expect revenue will grow year-over-year in absolute dollars. In addition, in our FFS-patient care revenue, we include collections generated from ancillary services such as clinical laboratory, imaging and pharmacy operations. We also generate FFS-administrative services revenue by providing administration and management services to medical groups which are not owned or consolidated by us. FFS-patient care revenue represented 64.7% and 79.6% of total revenue for the three months endedSeptember 30, 2022 and 2021, respectively, and 64.3% and 79.7% for the nine months endedSeptember 30, 2022 and 2021, respectively. FFS-administrative services revenue represented 7.4% and 6.5% of total revenue for the three months endedSeptember 30, 2022 and 2021, respectively, and 7.2% and 6.8% for the nine months endedSeptember 30, 2022 and 2021, respectively.
VBC Revenue
Over time, we create incremental value for our provider partners by enabling them to succeed in VBC arrangements. We generate VBC revenue when our providers are reimbursed through traditional FFS Medicare, MSSP, Medicare Advantage, commercial payers and other existing and emerging direct payer and employer contracting programs. The revenue is primarily collected in the form of (i) Capitated revenue earned by providing healthcare services to Medicare Advantage attributed beneficiaries for a defined group of services to include professional, institutional and pharmacy through a contract that is typically known as an "at-risk contract," (ii) Shared savings earned based on improved quality and lower cost of care for our attributed lives in VBC incentive arrangements and (iii) Care management fees to cover costs of services typically not reimbursed under traditional FFS payment models, including population management, care coordination, advanced technology and analytics. VBC revenue represented 27.5% and 13.8% of total revenue for the three months endedSeptember 30, 2022 and 2021, respectively, and 28.1% and 12.9% for the nine months endedSeptember 30, 2022 and 2021, respectively. We expect VBC revenue to continue to increase as a percentage of total revenue as we grow total Attributed Lives under management as well as increase risk levels undertaken across value-based arrangements. 19
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Other Revenue
The remainder of our revenue is derived from leveraging our existing base of providers and patients to deliver value-oriented services such as virtual visits, virtual scribes and coding. Other revenue represented 0.4% and 0.1% of total revenue for the three months endedSeptember 30, 2022 and 2021, respectively, and 0.4% and 0.5% for the nine months endedSeptember 30, 2022 and 2021, respectively.
Key Factors Affecting Our Performance
Addition of New Providers
Our ability to increase our provider base will enable us to deliver financial growth as our providers generate both our FFS and VBC revenue. Our existing provider penetration and market share provides us with significant opportunity to grow in both existing and new geographies, and we believe the number of providers joining Privia is a key indicator of the market's recognition of the attractiveness of our platform to our providers, patients and payers. We intend to increase our provider base in existing and new markets by adding new practices and assisting our existing practices with recruiting new providers, using our in-market and national sales and marketing teams. As we add providers to the Privia Platform, we expect them to contribute incremental economics as we leverage our existing brand and infrastructure, both at the corporate and in-market levels.
Addition of New Patients
Our ability to add new patients to our provider base in existing and new markets will also enable us to deliver revenue growth in both our FFS and VBC contracts. We believe the number of attributed patient lives in VBC programs is a key driver of our VBC revenue growth. Our branding and marketing strategies to drive growth in our practices has continued to result in increased engagement with new and existing patients. We believe our continued success in growing the visibility of the Privia brand will result in increased patient panels per provider and contribute incremental revenue in both FFS and VBC for our practices.
Expansion to New Markets
Based upon our experience to date, we believe Privia can succeed in all reimbursement environments and payment models. The data we collected from older provider cohorts consistently suggest that we improve their performance in both FFS and VBC metrics over time and inform our expectations for our new markets. We believe our in-market operating structure and ability to serve providers wherever they are on their transition to VBC can benefit physicians and providers throughout theU.S. and that our solution is applicable across all 50 states. We enter a market with an asset-light operating model and employ a disciplined, uniform approach to market structure and development. We partner with market leading medical groups and health systems to form anchor relationships and align other independent, affiliated, or employed providers into a single-TIN medical group. Our business model also gives us flexibility for future, incremental growth through the acquisition of minority or majority stakes in our practices and opening de-novo, fully-owned sites of care focused on Medicare Advantage and direct contracting models. OnOctober 1, 2021 , we launched Privia Medical Group West Texas in partnership withAbilene Diagnostic Clinic , an independent multi-specialty group practice with more than 30 providers and five care center locations. This complements our established and expanding provider practice locations inNorth Texas (Dallas-Fort Worth ) and theGulf Coast region of the state. OnOctober 13, 2021 , we entered theCalifornia market through an affiliation withBASS Medical Group , one of theGreater San Francisco Bay Area's leading healthcare multi-specialty groups with more than 400 providers spanning 42 specialties caring for patients at over 125 locations. Privia acquired a majority interest inBASS Management Services Organization, LLC , which is the exclusive provider of management services toBASS Medical Group . InFebruary 2022 , we announced a partnership with Surgery Partners, Inc. forPrivia Health to enter theState of Montana withGreat Falls Clinic , a multi-specialty practice with approximately 65 providers spanning 24 specialties. A wholly owned subsidiary of Surgery Partners,Great Falls Clinic will serve asPrivia Health's anchor practice in the state.Privia Health will also provide performance operations services and technology capabilities toGreat Falls Clinic as well as to new providers inMontana who join the Privia Platform. OnNovember 3, 2022 , the Company announced a joint venture and strategic partnership withNovant Health Enterprises , a division ofNovant Health , to launchPrivia Medical Group -North Carolina for independent providers throughoutNorth Carolina . This partnership is expected to provide resources for community physicians and provider groups throughout the state, and support their transition to value-based care through a clinically integrated network model.
Provider Satisfaction and Retention
Privia Providers have high satisfaction with their overall performance on our platform, and we strive to continuously improve provider well-being and patient satisfaction. Our percentage of collections Care Margin model combined with high patient and provider satisfaction results in 90%+ Practice Collections predictability on a rolling twelve month forward basis. We believe these metrics demonstrate the stability of our provider base and the appeal to prospective providers and patients of our platform. 20
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Payer Contracts and Ability to Move Markets to VBC
Our FFS and VBC revenue is dependent upon our contracts and relationships with payers. We partner with a large and diverse set of payer groups nationally and in each of our markets to form provider networks and to lower the overall cost of care, and we structure bespoke contracts to help both providers and payers achieve their objectives in a mutually aligned manner. Maintaining, supporting and increasing the number of these contracts and relationships, particularly as we enter new markets, is important for our long-term success. Our ability to work within each geographic market as it evolves in its shift towards VBC, with our experience working in all reimbursement environments, enables providers to accelerate and succeed in their transition. Our model is aligned with our payer partners, as we have demonstrated improved patient outcomes while driving incremental revenue growth. We intend to accelerate the move towards the adoption of VBC reimbursement in each market in current and emerging payer programs. To do so, we will need to continue enhancing our VBC capabilities and executing on initiatives to deliver next generation access, superior quality metrics and lower cost of care. At the beginning of 2022,Privia Health launched three new Accountable Care Organizations (ACOs) inMaryland ,Florida andTennessee , with each participating in the Medicare Shared Savings Program (MSSP). This expands the Privia-owned ACOs to seven, including ACOs inGeorgia , Gulf Coast Texas,North Texas andVirginia . OnJanuary 5, 2022 , the Company announced that itsFlorida and the Mid-Atlantic ACOs entered into capitated payer arrangements. These agreements cover healthcare services provided to approximately 23,000 Medicare Advantage beneficiaries effectiveJanuary 1, 2022 . Capitated revenue is generated through what is typically known as an "at-risk contract." At-risk capitation refers to a model in which the Company is entitled to fixed monthly fees from the third-party payer in exchange for providing healthcare services to attributed beneficiaries in Medicare Advantage plans. The fees are typically based on a percentage of the defined premium that payers receive from CMS. The Company is responsible for providing or paying for the cost of healthcare services required by those attributed beneficiaries. At-risk capitated fees are recorded gross in revenues because the Company is acting as a principal in arranging for, providing, and controlling the managed healthcare services provided to the attributed beneficiaries.
Components of Revenue
Our FFS revenue is primarily dependent upon the size of our provider base, payer contracted rates and patient volume. Our ability to maintain or improve pricing levels in our contracts with payers and patient volume for our providers will impact our results of operations. In addition to increasing our provider base and contracted rates over time, we also seek to increase patient volume by demonstrating the ability to provide a better patient experience that leads to higher retention rates and drives referrals to preferred, high quality and value-based providers. Our VBC revenue is primarily dependent upon the number of attributed patients in our VBC arrangements, risk levels of our payer contracts, and effective management of our patients' total cost of care. As we grow our provider base, we also expect to increase our total number of attributed patients in existing and new markets. In addition, we intend to increase the risk levels of our value-based programs as we seek a higher revenue opportunity on a per patient basis over time.
Investments in Growth
We expect to continue focusing on long-term growth through investments in our sales and marketing, our technology-enabled platform, and our operations. In addition, as we continue our efforts to move markets toward VBC, we expect to continue making additional investments in operations for an expanded suite of clinical capabilities to manage our patient population. We recently began offeringPrivia Care Partners , a more flexible provider affiliation model, to providers who do not desire to join one of our medical groups. This model will initially aggregate providers in certain of our existing markets as well as new markets who are looking solely for VBC solutions without the necessity of changing EHR providers. We will furnish population health services, reporting and analytics to such providers along with a menu of management services from which providers may choose. We launchedPrivia Care Partners onJanuary 1, 2022 with over 25,000 attributed lives in partnership with more than 300 providers in approximately 100 care center locations 21
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Key Metrics and Non-GAAP Financial Measures
We review a number of operating and financial metrics, including the following key metrics and non-GAAP financial measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plans, and make strategic decisions.
Key Metrics
For the Three Months Ended September For the Nine Months Ended September 30, 30, 2022 2021 2022 2021 Implemented Providers (as of end of period) 3,595 2,826 3,595 2,826 Attributed Lives (in thousands) (as of end of period) 846 760 846 760 Practice Collections (1) ($ in millions)$ 611.9 $ 401.5
(1) We define Practice Collections as the total collections from all practices in all markets and all sources of reimbursement (FFS, VBC and other) that we receive for delivering care and providing our platform and associated services. Practice Collections differ from revenue by including collections from Non-Owned Medical Groups. Implemented Providers We define Implemented Providers as the total of all service professionals onPrivia Health's platform at the end of a given period who are credentialed byPrivia Health and bill for medical services, in both Owned and Non-Owned Medical Groups during that period. This includes, but is not limited to, physicians, physician assistants, and nurse practitioners. We believe that growth in the number of Implemented Providers is a key indicator of the performance of our business and expected revenue growth. This growth depends, in part, on our ability to successfully add new practices in existing markets and expand into new markets. The number of Implemented Providers increased 27.2% as ofSeptember 30, 2022 compared toSeptember 30, 2021 , due to organic growth in our healthcare delivery business as well as entrance into theWest Texas ,California andMontana markets. Attributed Lives We define Attributed Lives as any patient that selected one of our physicians as their provider of primary care services, that a payer deems attributed to Privia, in both Owned and Non-Owned Medical Groups, to deliver care as part of a VBC arrangement. The number of Attributed Lives is an important measure that impacts the amount of VBC revenue we receive. Attributed Lives increased 11.3% as ofSeptember 30, 2022 compared toSeptember 30, 2021 , due to the launch ofPrivia Care Partners onJanuary 1, 2022 , as well as organic growth in all markets.
Practice Collections
We define Practice Collections as the total collections from all practices in all markets and all sources of reimbursement (FFS, VBC and other) that we receive for delivering care and providing our platform and associated services. Practice Collections differ from revenue by adding collections from Non-Owned Medical Groups. Practice Collections increased 52.4% for the three months endedSeptember 30, 2022 when compared to the same period in 2021 and 60.8% for the nine months endedSeptember 30, 2022 compared to the same period in 2021, due mainly to organic growth of our healthcare delivery business, our new at-risk Capitated revenue contracts, as well as entrance into theWest Texas ,California andMontana markets. Non-GAAP Financial Measures In addition to our financial results determined in accordance with GAAP, we believe Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin are useful as non-GAAP measures to investors as these are metrics used by management in evaluating our operating performance and in assessing the health of our business. We use Care Margin, Platform Contribution, Platform Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as a tool for comparison. A reconciliation is provided below for our non-GAAP financial measures to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business. 22
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In the quarter endedSeptember 30, 2022 , we changed the definition of Adjusted EBITDA to exclude employer taxes on equity vesting/exercise. In prior periods, this amount was considered de minimis and the Adjusted EBITDA amounts were not adjusted. Employer payroll tax expense related to employee stock transactions are tied to the vesting or exercise of underlying equity awards and the price of our common stock at the time of vesting, which varies in amount from period to period and is dependent on market forces that are often beyond our control. As a result, management excludes this item from our internal operating forecasts and models. Management believes that non-GAAP measures adjusted for employer payroll taxes on employee stock transactions provide investors with a basis to measure our core performance against the performance of other companies without the variability created by employer payroll taxes on employee stock transactions as a result of the stock price at the time of employee exercise. For the Three Months Ended
(amounts in thousands, except for
percentages)
2022 2021 2022 2021 Care Margin 1 ($) $ 77,725 $ 61,469 $ 225,564 $ 169,782 Platform Contribution 1 ($) $ 36,981 $ 31,102 $ 109,451 $ 79,762 Platform Contribution Margin 1 (%) 47.6% 50.6% 48.5% 47.0% Adjusted EBITDA 1 ($) $ 15,650 $ 13,867 $ 46,587 $ 33,851 Adjusted EBITDA Margin 1 (%) 20.1% 22.6% 20.7% 19.9%
1. See below for more information as to how we define and calculate Care Margin, Platform Contribution, Platform Contribution Margin,
Adjusted EBITDA and Adjusted EBITDA Margin and for a reconciliation of income from operations, the most comparable GAAP measure, to Care
Margin, income from operations, the most comparable GAAP measure, to Platform Contribution, and net income, the most comparable GAAP
measure, to Adjusted EBITDA.
Care Margin We define Care Margin as total revenue less provider expense. Our Care Margin generated from FFS revenue is contractual and recurring in nature, and primarily based on an individually negotiated percentage of collections for each practice that joins Privia. Our Care Margin generated from VBC revenue is based on a percentage of care management fees and shared savings collected. We view Care Margin as all of the dollars available for us to manage our business, including providing administrative support to our practices, investing in sales and marketing to attract new providers to the Privia Platform, and supporting the organization through our corporate infrastructure. We expect Care Margin will grow year-over-year in absolute dollars as we continue to expand our provider base. We would also expect our care management and shared savings economics in our VBC arrangements to improve on a per patient basis as we manage towards lower total cost of care for our Attributed Lives and move towards higher risk VBC arrangements over time. Care Margin increased 26.4% for the three months endedSeptember 30, 2022 when compared to the same period in 2021 due to organic growth of our medical practice business and 32.9% during the nine months endedSeptember 30, 2022 compared to the same period in 2021 due to organic growth of our medical practice business. As a percentage of revenue, Care Margin decreased to 22.7% for the three months endedSeptember 30, 2022 from 24.4% for the same period in 2021 due to the addition of the at-risk capitation arrangements. For the nine months endedSeptember 30, 2022 , Care Margin decreased to 22.7% as a percentage of revenue compared to 24.6% during the same period in 2021 due to the addition of the at-risk capitation arrangements. In addition to our financial results determined in accordance with GAAP, we believe Care Margin, a non-GAAP measure, is useful in evaluating our operating performance. We use Care Margin to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Care Margin is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance.
The following table provides a reconciliation of operating loss, the most
closely comparable GAAP financial measure, to Care Margin.
For the Three Months Ended
For the Nine Months Ended September
September 30, 30, (unaudited and amounts in thousands) 2022 2021 2022 2021 Operating loss$ (4,574) $ (12,809) $ (21,371) $ (198,089) Depreciation and amortization 1,153 466 3,436 1,351 General and administrative 32,219 33,910 101,436 216,563 Sales and marketing 5,088 4,588 14,568 18,950 Cost of platform 43,839 35,314 127,495 131,007 Care margin$ 77,725 $ 61,469 $ 225,564 $ 169,782 Platform Contribution We define Platform Contribution as total revenue less the sum of (i) provider expense and (ii) cost of platform plus (iii) stock-based compensation expense included in Cost of platform. The following table provides a reconciliation of operating income, the most closely comparable GAAP financial measure, to Platform Contribution. We consider platform contribution to be an important measure to monitor our performance, specific to pricing of our services, direct costs of delivering care, and cost of our platform and associated 23
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services. As a provider spends a longer time on the Privia Platform, we expect the Platform Contribution from that provider to increase both in terms of absolute dollars as well as a percent of Care Margin. We expect that this increase will be driven by improving per provider revenue economics over time as well as our ability to generate operating leverage on our in-market infrastructure costs. Platform Contribution increased 18.9% for the three months endedSeptember 30, 2022 when compared to the same period in 2021 and increase 37.2% for the nine months endedSeptember 30, 2022 compared to the same period in 2021 due to organic growth of our medical practice business and new market entry.
Platform Contribution Margin
We define Platform Contribution Margin as Platform Contribution as a percentage of Care Margin. We consider Platform Contribution Margin to be an important measure to monitor our performance, specific to pricing of our services, direct costs of delivering care, and cost of our platform and associated services. As a provider spends a longer time on the Privia Platform, we expect the Platform Contribution from that provider to increase both in terms of absolute dollars as well as a percent of Care Margin. We expect that this increase will be driven by improving per provider revenue economics over time as well as our ability to generate operating leverage on our in-market infrastructure costs. Platform Contribution Margin was 47.6% for three months endedSeptember 30, 2022 compared to 50.6% during the same period in 2021 and 48.5% for the nine months endedSeptember 30, 2022 compared to 47.0% during the same period in 2021. We continue to make strategic investments to provide better service to both our patients and physicians at a pace slower than the increase in revenue. In addition to our financial results determined in accordance with GAAP, we believe platform contribution, a non-GAAP measure, is useful in evaluating our operating performance. We use Platform Contribution to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Platform Contribution is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance.
The following table provides a reconciliation of operating loss, the most
closely comparable GAAP financial measure, to platform contribution:
For the Three Months Ended
For the Nine Months Ended September
September 30, 30, (unaudited and amounts in thousands) 2022 2021 2022 2021 Operating loss$ (4,574) $
(12,809)
Depreciation and amortization
1,153 466 3,436 1,351 General and administrative 32,219 33,910 101,436 216,563 Sales and marketing 5,088 4,588 14,568 18,950 Stock-based compensation(1) 3,095 4,947 11,382 40,987 Platform contribution$ 36,981 $ 31,102
(1) Amount represents stock-based compensation expense included in Cost of Platform.
Adjusted EBITDA We define Adjusted EBITDA as net (loss) income excluding interest income, interest expense, non-controlling interest expense / income, depreciation and amortization, stock-based compensation, severance, other one time or non-recurring expenses, employer taxes on equity vesting/exercises and the (benefit from) provision for income taxes. We include Adjusted EBITDA because it is an important measure on which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Adjusted EBITDA has limitations as an analytical tool including: (i) Adjusted EBITDA does not reflect the impact of stock-based compensation expense, and (ii) Adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments. Adjusted EBITDA increased 12.9% for the three months endedSeptember 30, 2022 , when compared to the same period in 2021 and 37.6% for the nine months endedSeptember 30, 2022 compared to the same period in 2021 due to organic growth of our medical practice business, new market entry and a focus on managing the investment in new expenses.
Adjusted EBITDA Margin
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of Care Margin. We included Adjusted EBITDA Margin because it is an important measure on which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA Margin to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis. Adjusted EBITDA Margin was 20.1% for three months endedSeptember 30, 2022 a decrease from 22.6% for the same period in 2021 due to timing differences in revenue recognition related to value based care contracts. Adjusted EBITDA Margin was 20.7% for the nine months endedSeptember 30, 2022 an increase from 24
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19.9% for the same period in 2021 due to organic growth of our medical practice
business, new market entry and a focus on managing the investment in new
expenses.
We believe that Adjusted EBITDA, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance. The following table provides a reconciliation of net income (loss) attributable to the Company, the most closely comparable GAAP financial measure, to Adjusted EBITDA: For the Three Months Ended
For the Nine Months Ended September
September 30, 30, (unaudited and amounts in thousands) 2022 2021 2022 2021 Net income (loss)$ 1,624 $ (9,115) $ (26,361) $ (176,251) Net loss attributable to non-controlling interests (1,068) (1,776) (2,551) (2,509) (Benefit from) provision for income taxes (4,845) (2,210) 6,931 (20,214) Interest (income) expense, net (285) 292 610 885 Depreciation and amortization 1,153 466 3,436 1,351 Stock-based compensation 14,833 25,800 58,184 228,461 Other expenses(1) 4,238 410 6,338 2,128 Adjusted EBITDA$ 15,650 $ 13,867 $ 46,587 $ 33,851 (1) Other expenses include employer taxes on equity vesting/exercises, legal, severance and certain non-recurring costs. Employer taxes on equity vesting/exercises of$2.2 million and$2.8 million were recorded for the three and nine months endedSeptember 30, 2022 , respectively.
Components of Results of Operations
Revenue
Our revenue is earned in three main categories: FFS revenue, VBC revenue and
other revenue.
Our FFS-patient care revenue is generated from providing healthcare services to patients. We receive payments pursuant to contracts with theU.S. federal government and large and small payer organizations that are multi-year in nature, typically ranging from three to five years. We also receive payments from patients that may be financially responsible for a portion or all of the service in the form of co-pays, coinsurance or deductibles. Our FFS-administrative services business provides administration and management services to Non-Owned Medical Groups. The Company's MSAs with Non-Owned Medical Groups range from 5-20 years in duration and outline the terms and conditions of the administration and management services to be provided, which includes RCM services such as billings and collections, as well as other services, including, but not limited to, payer contracting, information technology services and accounting and treasury services. In certain MSAs, the Company is paid administrative fees equal to the cost of supplying certain services as outlined in the MSAs, and if applicable, a margin is added to the cost of certain services. Other MSAs are based on a fixed percentage of net collections. VBC revenue is earned through our clinically integrated network and accountable care organizations which bring together independent physician practices to focus on sharing data, improving care coordination, and collaborating on initiatives to improve outcomes and lower healthcare spending. The Company has contracts with theU.S. federal government and large payer organizations that are multi-year in nature typically ranging from three to five years and is paid as follows: (1) capitated revenue (2) on a shared savings basis and (3) care management fees on a per member per month basis. Capitation revenue consists of capitation fees under contracts with various payers. Under the typical capitation arrangement, the Company is entitled to monthly fees to provide a defined range of healthcare services for beneficiaries attributed to the Company's contracted primary care physicians. The Company has contracts with large payer organizations that are multi-year in nature typically ranging from three to five years The Other revenue is derived from leveraging our existing base of providers and patients to deliver value-oriented services such as concierge services, virtual visits, virtual scribes and coding.
Operating Expenses
Provider expenses
Provider expenses are amounts accrued or payments made to physicians, hospitals and other service providers, including Privia physicians and their related practices as well as providers the Company has contracted with through payer partners. Those costs include claims payments, physician guarantee payments and other required distributions pursuant to the service agreements and include costs for services provided to the attributed beneficiaries for which the Company is financially responsible and paid either directly by the Company or indirectly by payers with whom the Company has contracted. Provider expenses are recognized in the period in which services are provided. 25
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Cost of platform
Third-party EMR and practice management software expenses are paid on a percentage of revenue basis, while we pay most of the costs of our platform on a variable basis related to the number of implemented physicians we service. In addition, expenses contain stock-based compensation related to employees that provide Cost of platform services but exclude any depreciation and amortization expense. Software development costs that do not meet capitalization criteria are expensed as incurred. As we continue to grow, we expect the cost of platform to continue to grow at a rate slower than the revenue growth rate.
Sales and marketing
Sales and marketing expenses consist of employee-related expenses, including salaries, commissions, stock-based compensation, and employee benefits costs, for all of our employees engaged in marketing, sales, community outreach, and sales support. In addition, sales and marketing expenses also include central and community-based advertising to generate greater awareness, engagement, and retention among our current and prospective patients as well as the infrastructure required to support all of our marketing efforts.
General and administrative
Corporate, general and administrative expenses include employee-related expenses, including salaries and related costs and stock-based compensation, technology infrastructure, occupancy costs, operations, clinical and quality support, finance, legal, human resources, and development departments.
Depreciation and amortization expense
Depreciation and amortization expenses are primarily attributable to our capital investment and consist of fixed asset depreciation and amortization of intangibles considered to have definite lives. We do not allocate depreciation and amortization expenses to other operating expense categories.
Interest (income) Expense
Interest (income) expense consists primarily of interest earned by the Company, offset by interest payments (including deferred finacing costs) on our outstanding borrowings under our Term Loan Facility. See "Liquidity and Capital Resources-General and Note Payable." 26
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Results of Operations
The following table sets forth our condensed consolidated statements of operations data for the three and nine months endedSeptember 30, 2022 and 2021. For the Three Months Ended For the Nine Months Ended September 30, September 30, 2022 2021 Change ($) Change (%) 2022 2021 Change ($) Change (%) (in thousands) Revenue$ 342,899 $ 251,524 $ 91,375 36.3 %$ 992,236 $ 690,887 $ 301,349 43.6 % Operating expenses: Provider expense 265,174 190,055 75,119 39.5 % 766,672 521,105 245,567 47.1 % Cost of platform 43,839 35,314 8,525 24.1 % 127,495 131,007 (3,512) (2.7) % Sales and marketing 5,088 4,588 500 10.9 % 14,568 18,950 (4,382) (23.1) % General and administrative 32,219 33,910 (1,691) (5.0) % 101,436 216,563 (115,127) (53.2) % Depreciation and amortization 1,153 466 687 147.4 % 3,436 1,351 2,085 154.3 % Total operating expenses 347,473 264,333 83,140 31.5 % 1,013,607 888,976 124,631 14.0 % Operating loss (4,574) (12,809) 8,235 (64.3) % (21,371) (198,089) 176,718 (89.2) % Interest (income) expense, net (285) 292 (577) (197.6) % 610 885 (275) (31.1) % Loss before (benefit from) provision for income taxes (4,289) (13,101) 8,812 (67.3) % (21,981) (198,974) 176,993 (89.0) % (Benefit from) provision for income taxes (4,845) (2,210) (2,635) 119.2 % 6,931 (20,214) 27,145 (134.3) % Net income (loss) 556 (10,891) 11,447 (105.1) % (28,912) (178,760) 149,848 (83.8) % Less: loss attributable to non-controlling interests (1,068) (1,776) 708 (39.9) % (2,551) (2,509) (42) 1.7 % Net income (loss) attributable to Privia Health Group, Inc.$ 1,624 $ (9,115) $ 10,739 (117.8) %$ (26,361) $ (176,251) $ 149,890 (85.0) % Revenue
The following table presents our revenues disaggregated by source:
For the Three Months Ended For the Nine Months Ended September 30, September 30, (Dollars in Thousands) 2022 2021 Change ($) Change (%) 2022 2021 Change ($) Change (%) FFS-patient care$ 221,911 $ 200,208 $ 21,703 10.8 %$ 637,540 $ 550,607 $ 86,933 15.8 % FFS-administrative services 25,270 16,407 8,863 54.0 % 71,911 47,162 24,749 52.5 % Capitated revenue 54,708 - 54,708 - % 160,776 - 160,776 - % Shared savings 30,243 25,333 4,910 19.4 % 90,296 62,045 28,251 45.5 % Care management fees 9,239 9,376 (137) (1.5) % 27,519 27,321 198 0.7 % Other revenue 1,528 200 1,328 664.0 % 4,194 3,752 442 11.8 % Total Revenue$ 342,899 $ 251,524 $ 91,375 36.3 %$ 992,236 $ 690,887 $ 301,349 43.6 %
Three months ended
Revenue was$342.9 million for the three months endedSeptember 30, 2022 , an increase from$251.5 million for the three months endedSeptember 30, 2021 . Key drivers of this revenue growth were the addition of capitated revenue in 2022 resulting in revenue of$54.7 million during the three months endedSeptember 30, 2022 ; FFS-patient care revenue, which increased$21.7 million ; FFS-administrative services, which increased$8.9 million ; and shared savings revenue, which increased$4.9 million . Growth in FFS-patient care revenue and FFS-administrative services was primarily attributed to an increase in visit volumes as COVID-19 restrictions were lifted in certain states as well as the addition of new providers and the new markets ofCalifornia andWest Texas . As ofSeptember 30, 2022 , we had 3,595 implemented providers compared to 2,826 as ofSeptember 30, 2021 . Capitated revenue growth is due to the commencement of at-risk capitation arrangements during the third quarter of 2022 resulting in an increase 27
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in revenue of$54.7 million . Shared savings growth was primarily due to more Attributed Lives in Medicare programs as well as continued strong performance in our value based care programs.
Nine months ended
Revenue was$992.2 million for the nine months endedSeptember 30, 2022 , an increase from$690.9 million for the same period in 2021. Key drivers of this revenue growth were the addition of capitated revenue in 2022 of$160.8 million , FFS-patient care revenue, which increased$86.9 million , shared savings revenue, which increased$28.3 million , and FFS-administrative services which increased$24.7 million . Growth in FFS-patient care revenue and FFS-administrative services was primarily attributed to an increase in visit volumes as COVID-19 restrictions were lifted in certain states as well as the addition of new providers and the new markets ofCalifornia andWest Texas . Capitated revenue growth is due to the commencement of at-risk capitation arrangements during the first quarter of 2022 resulting in an increase in revenue of$160.8 million . Shared savings growth was primarily due to more Attributed Lives in Medicare programs as well as continued strong estimated performance in our value based care programs. Operating Expenses For the Three Months Ended For the Nine Months Ended September 30, September 30, (Dollars in Thousands) 2022 2021 Change ($) Change (%) 2022 2021 Change ($) Change (%) Operating Expenses: Provider expense$ 265,174 $ 190,055 $ 75,119 39.5 %$ 766,672 $ 521,105 $ 245,567 47.1 % Cost of platform 43,839 35,314 8,525 24.1 % 127,495 131,007 (3,512) (2.7) % Sales and marketing 5,088 4,588 500 10.9 % 14,568 18,950 (4,382) (23.1) % General and administrative 32,219 33,910 (1,691) (5.0) % 101,436 216,563 (115,127) (53.2) % Depreciation and amortization expense 1,153 466 687 147.4 % 3,436 1,351 2,085 154.3 % Total operating expenses$ 347,473 $ 264,333 $ 83,140 31.5 %$ 1,013,607 $ 888,976 $ 124,631 14.0 % Provider expenses Provider expenses were$265.2 million for the three months endedSeptember 30, 2022 compared to$190.1 million for the same period in 2021. This increase was driven primarily by the commencement of at-risk capitation arrangements during the first quarter of 2022 and higher FFS-patient care revenue and growth in Implemented Providers. Provider expenses were$766.7 million for the nine months endedSeptember 30, 2022 compared to$521.1 million for the same period in 2021. This increase was driven primarily by the commencement of at-risk capitation arrangements during the first quarter of 2022 and higher FFS-patient care revenue and growth in Implemented Providers.
Cost of platform
Cost of platform expenses were$43.8 million for the three months endedSeptember 30, 2022 compared to$35.3 million for the same period in 2021. The increase was driven by an increase in salaries and benefits of$6.8 million related to continued growth during the three months endedSeptember 30, 2022 compared the same period in 2021, partially offset by a decrease of$1.9 million in stock-based compensation expense. Cost of platform expenses were$127.5 million for the nine months endedSeptember 30, 2022 compared to$131.0 million for the same period in 2021. The decrease was driven by the reduction of$29.6 million in stock-based compensation expense primarily related to the modification of vesting terms of options in connection with the Company's IPO during the nine months endedSeptember 30, 2021 , partially offset by an increase in salaries and benefits of$14.4 million related to continued growth, an increase in consulting costs of$3.0 million due to continued growth and market expansion, and various other immaterial expenses related to growth and market expansion.
Sales and marketing
Sales and marketing expenses were$5.1 million for the three months endedSeptember 30, 2022 compared to$4.6 million for the same period in 2021. The increase was driven by an increase in salaries and benefits of$0.8 million , partially offset by the reduction of$0.4 million in stock-based compensation expense during the three months endedSeptember 30, 2022 compared to the same period in 2021. Sales and marketing expenses were$14.6 million for the nine months endedSeptember 30, 2022 compared to$19.0 million for the same period in 2021. The decrease was driven by the reduction of$6.5 million in stock-based compensation primarily related to the modification of vesting terms of options in connection with the Company's IPO during the nine months endedSeptember 30, 2021 , partially offset by an increase in salaries and benefits of$1.4 million . 28
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General and administrative
General and administrative expenses was$32.2 million for the three months endedSeptember 30, 2022 compared to$33.9 million for the same period in 2021. The decrease was driven by the reduction of$8.8 million in stock-based compensation expense during the three months endedSeptember 30, 2022 compared to the same period in 2021, partially offset by an increase in salaries and benefits of$4.1 million , which includes$1.8 million of employer taxes on equity vesting/exercises and an increase in professional services of$1.4 million related to additional consulting services for audit, tax and Sarbanes-Oxley Act ("SOX") compliance and various other immaterial expenses. General and administrative expenses were$101.4 million for the nine months endedSeptember 30, 2022 compared to$216.6 million for the same period in 2021. The decrease was driven by the reduction of$134.2 million in stock-based compensation expense primarily related to the modification of vesting terms of options in connection with the Company's IPO during the nine months endedSeptember 30, 2021 , partially offset by an increase in salaries and benefits of$10.2 million , which includes$2.1 million of employer taxes on equity vesting/exercises, an increase in professional services of$3.6 million related to additional consulting services for audit, tax and SOX compliance and various other immaterial expenses.
Depreciation and amortization expense
Depreciation and amortization expenses were$1.2 million for the three months endedSeptember 30, 2022 compared to$0.5 million for the same period in 2021. This increase was primarily driven by amortization of intangible assets related to the acquisition ofBASS Privia Management Company of California, LLC ("BPMC") andPrivia Medical Group West Texas, PLLC , formerly known asAbilene Diagnostic Clinic, PLLC ("PMG West Texas" or "WTX Friendly Medical Group ") during the fourth quarter of 2021. Depreciation and amortization expenses were$3.4 million for the nine months endedSeptember 30, 2022 compared to$1.4 million for the same period in 2021. This increase was primarily driven by amortization of intangible assets related to the acquisition ofBASS Privia Management Company of California, LLC ("BPMC") andPrivia Medical Group West Texas, PLLC , formerly known asAbilene Diagnostic Clinic, PLLC ("PMG West Texas" or "WTX Friendly Medical Group ") during the fourth quarter of 2021.
Interest (income) expense, net
Interest (income) expense was a net interest income amount of$(0.3) million for the three months endedSeptember 30, 2022 compared to$0.3 million of interest expense for the same period in 2021. This change was primarily the result of the repayment of the Term Loan Facility at the end ofJune 2022 and the increase in the rate of interest earned on cash in our bank accounts. Interest expense was$0.6 million for the nine months endedSeptember 30, 2022 compared to$0.9 million for the same period in 2021. This change was primarily the result of the repayment of the Term Loan Facility at the end ofJune 2022 and the increase in the rate of interest earned on cash in our bank accounts.
(Benefit from) provision for income taxes
The (benefit from) income taxes was$(4.8) million for the three months endedSeptember 30, 2022 an increase from$(2.2) million for the same period in 2021. The (benefit from) income taxes for the three months endedSeptember 30, 2022 is primarily the result of the pre-tax loss offset by the non-deductible stock-based compensation expense related to the modification of vesting terms of options in connection with the Company's IPO during the second quarter of 2021 and its impact on the annualized effective tax rate applied to quarter to date pretax results, in addition to the windfall tax benefit recorded on stock option exercises during the quarter. The (benefit from) income taxes for the three months endedSeptember 30, 2021 is primarily the result of the pre-tax loss offset by the non-deductible stock-based compensation expense related to the modification of vesting terms of options in connection with the Company's IPO and its impact on the annualized effective tax rate applied to quarter to date pretax results, in addition to the windfall tax benefit recorded on stock option exercises during the quarter. The provision for income taxes was$6.9 million for the nine months endedSeptember 30, 2022 , an increase from the (benefit from) income taxes of$(20.2) million for the same period in 2021. The provision for income taxes for the nine months endedSeptember 30, 2022 is primarily the result of the pre-tax loss offset by the non-deductible stock-based compensation expense related to the modification of vesting terms of options in connection with the Company's IPO during the second quarter of 2021 and its impact on the annualized effective tax rate applied to nine months endedSeptember 30, 2022 , in addition to the windfall tax benefit recorded on stock option exercises during the nine months endedSeptember 30, 2022 . The (benefit from) income taxes for the nine months endedSeptember 30, 2021 is primarily the result of the pre-tax loss offset by the non-deductible stock-based compensation expense related to the modification of vesting terms of options in connection with the Company's IPO.
Net loss attributable to non-controlling interests
Net loss attributable to non-controlling interests remained materially unchanged
for the three and nine months ended
period in 2021.
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Liquidity and Capital Resources
General
To date, we have financed our operations principally through sale of our equity, payments received from various payers and through borrowings under the Credit Facilities. As ofSeptember 30, 2022 , we had cash and cash equivalents of$316.9 million . This does not include$62.8 million in cash received onOctober 11, 2022 from theCenters for Medicare and Medicaid Services as payment for the Company's portion of MSSP shared savings generated in the 2021 performance year, of which approximately$37.7 million will be disbursed to providers for their participation in MSSP. We received$211.0 million of net proceeds from the Company's IPO and the Elevance Health private placement onMay 3, 2021 . Our cash and cash equivalents primarily consist of highly liquid investments in money market funds and cash. We believe that our cash and cash equivalents, including the proceeds from the IPO, and borrowing capacity under the Revolving Loan Facility (as defined under Note 8 "Note Payable") together with cash flows from operations, will provide adequate resources to fund our short-term and long-term operating and capital needs. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depend on many factors, including our growth rate, and the timing and extent of spending to increase our sales and marketing activities. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, and financial condition would be adversely affected.
Indebtedness
OnNovember 15, 2019 , the Company entered into a Credit Agreement (the "Original Credit Agreement") by and amongPrivia Health, LLC , as the borrower,PH Group Holdings Corp. , as a guarantor, certain subsidiaries ofPrivia Health, LLC , as guarantors,Silicon Valley Bank , as administrative agent and collateral agent (the "Administrative Agent"), and the several lenders from time to time party thereto. The Original Credit Agreement provided for up to$35.0 million in term loans (the "Term Loan Facility") that mature onNovember 15, 2024 with interest payable monthly at the lesser of LIBOR plus 2.0% or ABR plus 1.0% payable monthly (3.0% atSeptember 30, 2022 ), plus up to an additional$10.0 million of financing (which was increased to$15.0 million in connection with the first amendment) in the form of a revolving loan (the "Revolving Loan Facility" and together with the Term Loan Facility, the "Credit Facilities"). The Revolving Loan Facility also includes a letter of credit sub-facility in the aggregate availability amount of$2.0 million and a swingline sub-facility in the aggregate availability amount of$2.0 million . The Company borrowed$35.0 million in term loans onNovember 15, 2019 . OnAugust 27, 2021 , the Company and certain of its subsidiaries entered into an assumption agreement and third amendment (the "Third Amendment") to the Original Credit Agreement (as amended by the Third Amendment, the "Credit Agreement"). Pursuant to the Third Amendment, the Company became the parent guarantor under the Credit Agreement and granted the Administrative Agent a first-priority security interest on substantially all of its real and personal property, subject to permitted liens. The Third Amendment increased the size of the Revolving Loan Facility to$65.0 million , increased the letter of credit sub-facility to$5.0 million and extended the maturity date of the Credit Agreement toAugust 27, 2026 . As amended, borrowings under the Credit Agreement bear interest at a rate equal to (i) in the case of eurodollar loans, LIBOR plus an applicable margin, subject to a 0.5% floor, and (ii) in the case of ABR loans, an ABR rate plus an applicable margin, subject to a floor of 1.5%. In addition, the Amendment, among other things, (i) changed the Term Loan Facility amortization schedule to 0.625% of the original principal amount of term loans for the fiscal quarters endingSeptember 30, 2021 through and includingJune 30, 2024 and 1.25% of the original principal amount of term loans for the fiscal quarters ending thereafter and (ii) added a 1.0% prepayment premium for any term loans prepaid within six months of the effective date of the Third Amendment. The Third Amendment converted the financial covenants in the Original Credit Agreement to "springing" financial covenants, so that at any time the Company's cash is less than 125% of the outstanding borrowings under the Credit Facilities, or at least$15.0 million of borrowings are outstanding under the Revolving Loan, the Company will be required to maintain (i) a consolidated fixed charge coverage ratio of not less than 1.25 to 1.0, and (ii) a consolidated leverage ratio of no more than 3.0 to 1.0. OnJune 24, 2022 , we voluntarily prepaid the outstanding indebtedness under the Term Loan Facility using cash on hand. Our prepayment to the lenders was approximately$33.1 million , including accrued interest. We did not incur any prepayment penalties in connection with the repayment of the Term Loan Facility, which had a scheduled maturity ofAugust 27, 2026 . The prepayment was made with cash on hand. The$65.0 million Revolving Loan Facility under the Credit Agreement is scheduled to mature onAugust 27, 2026 and remains in place and available to us as a source of liquidity. As ofSeptember 30, 2022 , we had no outstanding indebtedness 30
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under either the Term Loan Facility or the Revolving Loan Facility. As of
were in compliance with all covenants under the Credit Agreement.
See Note 8 “Note Payable” to the condensed consolidated financial statements for
a discussion about our Credit Facilities.
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