Privia Health Group, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Privia Health Group, Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) March 31, 2021 December 31, 2020 Assets (unaudited) Current assets: Cash and cash equivalents $ 81,938 $ 84,633 Accounts receivable 116,720 99,118 Prepaid expenses and other current assets 5,988 6,333 Total current assets 204,646 190,084 Non-current assets: Property and equipment, net 4,529 4,814 Right-of-use asset 5,865 — Intangible assets, net 5,819 5,980 Goodwill 118,663 118,663 Deferred tax asset 2,953 4,953 Other non-current assets 5,801 4,475 Total non-current assets 143,630 138,885 Total assets $ 348,276 $ 328,969 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 3,806 $ 5,235 Accrued expenses 22,223 31,185 Physician and practice liability 123,767 106,811 Current portion of note payable 1,094 875 Operating lease liabilities, current 2,175 — Other current liabilities 4,459 2,832 Total current liabilities 157,524 146,938 Non-current liabilities: Note payable, net of current portion 32,293 32,784 Operating lease liabilities, non-current 8,757 — Other non-current liabilities 333 5,595 Total non-current liabilities 41,383 38,379 Total liabilities 198,907 185,317 Commitments and contingencies (Note 11) Stockholders’ equity: Common stock, $ 0.01 par value, 150,000,000 shares authorized; 95,985,817 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 960 960 Additional paid-in capital 165,767 165,666 Accumulated deficit ( 14,480 ) ( 19,878 ) Total Privia Health Group, Inc. stockholders’ equity 152,247 146,748 Non-controlling interest ( 2,878 ) ( 3,096 ) Total stockholders’ equity 149,369 143,652 Total liabilities and stockholders’ equity $ 348,276 $ 328,969 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents Privia Health Group, Inc. Condensed Consolidated Statements of Operations (unaudited) (in thousands, except share and per share data) For the Three Months Ended March 31, 2021 2020 Revenue $ 213,607 $ 212,942 Operating expenses: Physician and practice expense 161,113 165,106 Cost of platform 26,962 27,561 Sales and marketing 3,184 2,452 General and administrative 13,996 10,989 Depreciation and amortization 445 338 Total operating expenses 205,700 206,446 Operating income 7,907 6,496 Interest expense 291 467 Income before provision for income taxes 7,616 6,029 Provision for income taxes 2,000 700 Net income 5,616 5,329 Less: Net income (loss) attributable to non-controlling interests 218 ( 85 ) Net income attributable to Privia Health Group, Inc. $ 5,398 $ 5,414 Net income per share attributable to Privia Health Group, Inc. stockholders – basic and diluted $ 0.06 $ 0.06 Weighted average common shares outstanding – basic and diluted 95,985,817 95,931,549 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents Privia Health Group, Inc. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) (in thousands except share amounts) Common Stock Shares Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity attributable to Privia Health Group, Inc. Non-controlling Interest Total Stockholders’ Equity Balance at December 31, 2019 95,931,549 $ 959 $ 160,375 $ ( 51,122 ) $ 110,212 $ ( 2,756 ) $ 107,456 Share-based compensation expense — — 121 — 121 — 121 Net income — — — 5,414 5,414 ( 85 ) 5,329 Balance at March 31, 2020 95,931,549 $ 959 $ 160,496 $ ( 45,708 ) $ 115,747 $ ( 2,841 ) $ 112,906 Balance at December 31, 2020 95,985,817 $ 960 $ 165,666 $ ( 19,878 ) $ 146,748 $ ( 3,096 ) $ 143,652 Share-based compensation expense — — 101 — 101 — 101 Net income — — — 5,398 5,398 218 5,616 Balance at March 31, 2021 95,985,817 $ 960 $ 165,767 $ ( 14,480 ) $ 152,247 $ ( 2,878 ) $ 149,369 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Privia Health Group, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) For the Three Months Ended March 31, 2021 2020 Cash flows from operating activities Net Income $ 5,616 $ 5,329 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 285 166 Amortization of intangibles 160 161 Amortization of debt issuance costs 38 33 Share-based compensation 101 121 Deferred tax expense 2,000 670 Changes in Asset and Liabilities: Accounts receivable ( 17,602 ) ( 14,898 ) Prepaid expenses and other current assets ( 5,519 ) ( 1,266 ) Other non-current assets ( 1,326 ) 109 Accounts payable ( 1,520 ) 3,947 Accrued expenses ( 8,962 ) ( 10,425 ) Physician and practice liability 16,956 7,328 Other current liabilities 1,627 973 Operating lease liabilities 10,932 — Other long-term liabilities ( 5,262 ) 673 Net cash used in operating activities ( 2,476 ) ( 7,079 ) Cash from investing activities Purchases of property and equipment — ( 13 ) Net cash used in investing activities — ( 13 ) Cash flows from financing activities Repayment of note payable ( 219 ) — Proceeds from revolving loan — 10,000 Net cash (used in) provided by financing activities ( 219 ) 10,000 Net (decrease) increase in cash and cash equivalents ( 2,695 ) 2,908 Cash and cash equivalents at beginning of period 84,633 46,889 Cash and cash equivalents at end of period $ 81,938 $ 49,797 Supplemental disclosure of cash flow information: Interest paid $ 308 $ 323 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Privia Health Group, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Summary of Significant Accounting Policies Organization Privia Health Group, Inc. (NASDAQ: PRVA) (“we”, “our” the “Company”), became the sole shareholder of PH Group Holdings Corp. (“PH Holdings”) (formerly Brighton Health Services Holding Corporation) effective August 11, 2016. At the time, the Company was a wholly owned subsidiary of Brighton Health Group Holdings, LLC (“BHG Holdings”) (formerly MC Acquisition Holdings I, LLC, HoldCo). The Company uses the same operational and financial model in each market. As of March 31, 2021, Privia operates in six markets: 1) the Mid-Atlantic Region (states of Virginia, Maryland and the District of Columbia); 2) the state of Georgia; 3) the Gulf Coast Region (Houston, Texas); 4) North Texas (Dallas/Fort Worth, Texas); 5) Central Florida and 6) the state of Tennessee. Medical groups are formed in each market with the primary purpose to operate as a physician group practice with healthcare services being furnished through physician members (“Privia Physicians”) and non-physician clinicians (together, “Privia Providers”) supervised by Privia Physicians. The Company also forms local management companies to provide administrative and management services (“MSOs”) to the medical groups through a Management Services Agreement (“MSA”) in each market. The Company owns 100 % of all MSOs, except two where the Company is at least the majority owner. Initial Public Offering On May 3, 2021, the Company closed its initial public offering (“IPO”) of 22,425,000 shares of the Company’s common stock, $ 0.01 par value per share, at an offering price of $ 23.00 per share. In aggregate, the shares issued in the offering and Anthem private placement generated gross proceeds of $ 223.7 million and $ 212.0 million in net proceeds, which is net of underwriters’ discount and commission, and other offering costs. Basis of Presentation The condensed consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its subsidiaries. Amounts shown on the condensed consolidated statements of operations within the operating expense categories of physician and practice expense, cost of platform, selling and marketing, and general and administrative are recorded exclusive of depreciation and amortization. All significant intercompany transactions are eliminated in consolidation. The results of operations for the three months ended March 31, 2021, are not indicative of the results to be expected for the full fiscal year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, contained in the Company’s Prospectus. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Variable Interest Entities Management evaluates the Company’s ownership, contractual, and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available historical information, among other factors. Privia Physicians join the medical group in their geographic market as an owner of such medical group. Certain of our medical groups are majority-owned by the Company (each, an “Owned Medical Medical”), with Privia Physicians owning a minority interest, and some medical groups are owned entirely by Privia Physicians (each, a “Non-Owned Medical Group”). The Company evaluated its relationship with Non-Owned Medical Groups and their historic practice entities (the “Affiliated Practices”) as well as its relationship with Affiliated Practices associated with Owned Medical Groups to determine if any of these entities should be subject to consolidation. The Company does not have ownership interest in any Affiliated Practices; nor does the Company have an ownership in Non-Owned Medical Groups. The Physician Member Services Agreement (“PMSA”) and Support Services Agreement (“SSA”) entered by Non-Owned Medical Groups with their Privia Physician members and the Affiliated Practices are not contractual relationships within Privia’s legal structure. The only contractual relationship between Privia and Non-Owned Medical Groups is established through the MSA. Management has determined, based on the provisions of the MSAs between the Company and Non-Owned Medical Groups, and after considering the requirements of Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), the Company is not required to consolidate the financial position or results of operations of the Affiliated 6 Table of Contents Practices associated with Owned Medical Groups; nor is it required to consolidate the financial position or results of operations of Non-Owned Medical Groups (and, therefore, the Company is not required to consolidate the Affiliated Practices of the Non-Owned Medical Groups). Upon completion of our evaluations Non-Owned Medical Groups do not represent VIEs. Accordingly, the Company has not consolidated the financial position, results of operations or cash flows of the Non-Owned Medical Groups that are affiliated with the Company by means of a SSA for the three months ended March 31, 2021 and 2020. Each time that it enters into a new service agreement or enters into a material amendment to an existing service agreement, the Company considers whether the terms of that agreement or amendment would change the elements it considers in accordance with the VIE guidance. The same analysis was performed for the Affiliated Practices of Owned Medical Groups, which have contractual relationships with Privia through SSA’s, and the Company determined they do not represent VIEs as they do not meet the criteria in ASC 810. Emerging Growth Company Status We are an emerging growth company under the Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected to avail ourselves of this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Sarbanes-Oxley Act of 2002, Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) hold non-binding advisory votes on executive compensation and obtain shareholder approval of any golden parachute payments not previously approved. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever is earlier. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure. On an on-going basis we evaluate significant estimates and assumptions, including, but not limited to, revenue recognition, share-based compensation, estimated useful lives of assets, intangible assets subject to amortization, and the computation of income taxes. Future events and their effects cannot be predicted with certainty; accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Management evaluates and updates assumptions and estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. Operating Segments The Company determined in accordance with ASC 280, Segment Reporting (“ASC 280”) that the Company operates in and reports as a single operating segment, and therefore one reporting segment – Privia Health Group, Inc. Refer to Note 14 “Segment Financial Information” for additional information concerning the Company’s services. Coronavirus Aid, Relief and Economic Stimulus Act (“CARES Act”) The current COVID-19 pandemic had an impact on our results of operations, cash flow and financial position for the period ended and as of March 31, 2021, as we experienced lower volumes than anticipated and shifts in the mix of services provided after the onset of the pandemic in the United States. See the Prospectus for additional information on impacts during 2020. We are closely monitoring the impact of the pandemic on all aspects of our business including impacts to employees, customers, patients, suppliers and vendors. On March 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. The following are significant economic impacts for the Company and its subsidiaries as a result of specific provisions of the CARES Act for the three month periods ended March 31, 2021 and 2020: • The Company elected to defer its portion of Social 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. Approximately $ 1.6 million is recorded in accrued expenses on the balance sheet as of March 31, 2021 related to this deferral and the Company intends to remit payment by the end of 2021: and 7 Table of Contents • No additional funds were received from the Public Health and Social Services Emergency Relief Fund under the CARES Act during the three months ended March 31, 2021 and 2020. Non-Controlling Interest The non-controlling interest represents the equity interest of the non-controlling equity holders in results of operations of Complete MD Solutions LLC, Privia Management Services Organization (“PMSO”) and our Owned Medical Groups. The condensed consolidated financial statements include all assets, liabilities, revenues, and expenses of less-than-100%-owned affiliates where the Company has a controlling financial interest. The Company has separately reflected net income attributable to the non-controlling interests in net income in the condensed consolidated statements of operations. The Company described its significant accounting policies in Note 1 of the notes to condensed consolidated financial statements for the year ended December 31, 2020 in its Prospectus. During the three months ended March 31, 2021, there were no significant changes to those accounting policies, other than those policies impacted by the new accounting pronouncements adopted during the period noted below and further described below in “Recently Adopted Accounting Pronouncements.” Leases Beginning January 1, 2021, the Company accounts for its leases in accordance with ASU 2016-2, Leases (Topic 842) . The Company evaluates whether a contract is or contains a lease at the inception of the contract. Upon lease commencement, the date on which a lessor makes the underlying asset available to the Company for use, the Company classifies the lease as either an operating or finance lease. The Company’s leases primarily consist of operating leases for office space in certain states in which we operate. The Company also has operating leases for equipment, which are not significant. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are measured at the present value of the remaining, fixed lease payments at lease commencement. The Company uses its incremental borrowing rate, adjusted for the effects of collateralization, based on the information available at the later of adoption, inception, or modification in determining the present value of lease payments. Right-of-use assets are measured at an amount equal to the initial lease liability, plus any prepaid lease payments (less any incentives received) and initial direct costs, at the lease commencement date. The Company has elected to account for lease and non-lease components as a single lease component for its facility leases. As a result, the fixed payments that would otherwise be allocated to the non-lease components are accounted for as lease payments and are included in the measurement of the Company’s right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term in general and administrative expense on the condensed consolidated statements of operations. The Company does not recognize a lease liability or right-of-use asset on the balance sheet for short-term leases. Instead, the Company recognizes short-term lease payments as an expense on a straight-line basis over the lease term. A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. When determining whether a lease qualifies as a short-term lease, the Company evaluates the lease term and the purchase option in the same manner as all other leases. Recently Adopted Accounting Pronouncements The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , as of January 1, 2021 using the modified retrospective transition approach for leases which existed on that date. Prior comparative periods were not adjusted and continue to be reported in accordance with Accounting Standards Codification (“ASC”) Topic 840, Leases. The Company elected the package of practical expedients that permitted the Company not to reassess the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight practical expedient. The adoption of the standard resulted in the recognition of operating right-of-use assets of approximately $ 6.0 million and operating lease liabilities of approximately $ 11.3 million. Refer to Note 4 “Leases” for additional details. The difference between the operating lease right-of-use assets and operating lease liabilities resulted from the reclassification of deferred rent. Adoption of the standard did not have a material impact on the consolidated statements of operations or cash flows for the three- months ended March 31, 2021. The Company did not recognize a cumulative-effect adjustment to retained earnings upon adoption. On January 1, 2021, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) , which replaces the incurred loss approach for recognizing credit losses on financial instruments with an expected loss approach. The expected loss approach is subject to management judgments using assessments of incurred credit losses, assessments of current conditions, and forecasts using reasonable and supportable assumptions. The Company adopted the standard using a modified retrospective approach which resulted in no adjustments to the allowance for credit losses and no cumulative-effect adjustment to retained earnings. The Company regularly reviews the adequacy of the allowance for credit losses based on a combination of factors, including historical losses adjusted for current market conditions, the Company's customers' 8 Table of Contents financial condition, delinquency trends, aging behaviors of receivables and credit and liquidity indicators for industry groups, and future market and economic conditions. As of March 31, 2021, the allowance for credit losses was not material. Recently Issued Accounting Pronouncements Pending Adoption In March 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 eliminates certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for the Company for annual reporting periods beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2019-12 on its condensed consolidated financial statements. In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary relief from some of the existing rules governing contract modifications when the modification is related to the replacement of the London Interbank Offered Rate (“LIBOR”) or other reference rates discontinued as a result of reference rate reform. The ASU specifically provides optional practical expedients for contract modification accounting related to contracts subject to ASC 310, Receivables, ASC 470, Debt, ASC 842, Leases, and ASC 815, Derivatives and Hedging. The ASU also establishes a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients. For eligible contract modifications, the principle generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. The standard was effective upon issuance on March 12, 2020, and the optional practical expedients can generally be applied to contract modifications made and hedging relationships entered into on or before December 31, 2022. Borrowings under the Company’s note payable agreement bear interest based on LIBOR or an alternate rate. Provisions currently provide the Company with the ability to replace LIBOR with a different reference rate in the event that LIBOR ceases to exist. 2. Revenue Recognition The following table presents our revenues disaggregated by source: For the Three Months Ended March 31, (Dollars in Thousands) 2021 2020 FFS-patient care $ 169,578 $ 174,870 FFS-administrative services 15,411 14,555 Shared savings 17,833 16,439 Care management fees (PMPM) 8,570 6,230 Other revenue 2,215 848 Total Revenue $ 213,607 $ 212,942 Fee-for-service (“FFS”) patient care is primarily generated from third-party payers with which the Company has established contractual billing arrangements. The following table presents the approximate percentages by source of net operating revenue received for healthcare services we provided for the periods indicated: For the Three Months Ended March 31, 2021 2020 Commercial insurers 69 % 67 % Government payers 15 % 16 % Patient 16 % 17 % 100 % 100 % FFS-administrative services revenue is earned through the Company’s MSA with Non-Owned Medical Groups primarily based on a fixed percentage of net collections on patient care generated by those medical groups. Value Based Care (“VBC”) revenue is generated through Care management fee (PMPM) payments from payers to provide care coordination services to patients and through shared savings contracts with large commercial payer organizations and the U.S. Federal Government. 9 Table of Contents Contract Asset The Company has the following contract assets and unearned revenue: (Dollars in Thousands) March 31, 2021 December 31, 2020 Balances for contracts with customers Accounts receivable $ 116,720 $ 99,118 Unearned revenue $ 4,443 $ 2,759 Unearned Revenue Unearned revenue is presented on the condensed consolidated balance sheet under other current liabilities and represent payments made to, or due from, customers in advance of our performance. All contracts are less than or equal to twelve months. Changes in the balance of total deferred revenue during the three months ended March 31, 2021 are as follows: (Dollars in Thousands) December 31, 2020 Additions Revenue Recognized March 31, 2021 Unearned revenue $ 2,759 2,098 ( 414 ) $ 4,443 During the three months ended March 31, 2021, the Company recognized approximately $ 0.4 million of revenue related to amounts unearned as of December 31, 2020. Remaining Performance Obligations As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to continue receiving services at our facilities. 3. Goodwill and Intangible Assets, Net For the purposes of the goodwill impairment assessment, the Company as a whole is considered to be the reporting unit. The fair value of the reporting unit is estimated using a combination of three approaches, all equally weighted: a) discounted cash flow analysis (income approach), b) fair value of comparable transactions (transaction approach) and c) enterprise value to revenue multiple for comparable companies (market approach). Potential impairment is indicated when the carrying value of a reporting unit exceeds its estimated fair value. The Company’s carrying amount of goodwill at March 31, 2021 and December 31, 2020 is approximately $ 118.7 million. The most recently completed impairment test of goodwill was performed as of October 1, 2020 and the fair value of the reporting unit exceeded the carrying value and therefore it was determined that no impairment existed. No indicators of impairment were identified during the three months ended March 31, 2021. A summary of the Company’s intangible assets is as follows: March 31, 2021 December 31, 2020 (Dollars in thousands) Intangible Assets Accumulated Amortization Intangible Assets Accumulated Amortization Trade names $ 4,600 $ 1,514 $ 4,600 $ 1,457 Consumer customer relationships $ 2,500 $ 1,646 $ 2,500 $ 1,583 PMG customer relationships $ 600 $ 165 $ 600 $ 158 Management Service Agreement (Complete MD) $ 2,200 $ 756 $ 2,200 $ 722 $ 9,900 $ 4,081 $ 9,900 $ 3,920 Less accumulated amortization $ ( 4,081 ) $ ( 3,920 ) Intangible assets, net $ 5,819 $ 5,980 The remaining weighted average life of all amortizable intangible assets is approximately 10.5 years at March 31, 2021. Amortization expense for intangible assets was approximately $ 0.2 million for both the three months ended March 31, 2021 and 2020. 10 Table of Contents Estimated amortization expense for the Company’s intangible assets for the following five years is as follows: (Dollars in Thousands) Remainder of 2021 $ 482 2022 643 2023 643 2024 559 2025 393 Thereafter 3,099 Total $ 5,819 4. Leases The Company leases office space under various operating lease agreements. The initial terms of these leases range from 2 to 7 years and generally provide for periodic rent increases and renewal options. The components of lease expense were as follows (in thousands): (Dollars in Thousands) For the Three Months Ended March 31, 2021 Operating lease cost $ 446 Cash paid for amounts included in the measurement of lease liabilities - operating leases $ 529 Weighted-average remaining lease term - operating leases 5.31 Years Weighted-average discount rate - operating leases 3.5 % The aggregate future lease payments for operating leases years subsequent to March 31, 2021 are as follows: (Dollars in Thousands) 2021 $ 1,625 2022 2,213 2023 2,261 2024 2,274 2025 2,237 Thereafter 1,407 Total future lease payments 12,017 Imputed interest ( 1,085 ) Total $ 10,932 5. Property and Equipment, Net A summary of the Company’s property and equipment, net is as follows: (Dollars in Thousands) March 31, 2021 December 31, 2020 Furniture and fixtures $ 1,073 $ 1,073 Computer equipment 1,051 1,051 Leasehold improvements 4,863 4,863 6,987 6,987 Less accumulated depreciation and amortization ( 2,458 ) ( 2,173 ) Property and equipment, net $ 4,529 $ 4,814 11 Table of Contents 6. Accrued Expenses Accrued expenses consisted of the following: (Dollars in Thousands) March 31, 2021 December 31, 2020 Accrued employee compensation and benefits $ 6,022 $ 6,167 Bonuses payable 2,415 10,418 Other accrued expenses 13,786 14,600 Total accrued expenses $ 22,223 $ 31,185 7. Note Payable The Company’s note payable consists of the following: (Dollars in Thousands) March 31, 2021 December 31, 2020 Note payable $ 33,906 $ 34,125 Less debt issuance costs ( 519 ) ( 466 ) Less current portion ( 1,094 ) ( 875 ) Note payable, net $ 32,293 $ 32,784 On November 15, 2019, the Company entered into a Credit Agreement with a third-party financial institution. The debt agreement provides for up to $ 35.0 million in term loans that mature on November 15, 2024 with interest payable monthly at the lesser of LIBOR plus 2.0 % or ABR plus 1.0 % payable monthly ( 3.0 % at March 31, 2021), plus up to an additional $ 10.0 million of financing in the form of a revolving loan. The revolving loan 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 on November 15, 2019. During the first year of any loans, the financing allows for early repayment of part or all of the term loans in increments of $ 0.5 million with a pre-payment fee of 1 % of any debt prepaid. After the first year from any borrowing, the debt may be repaid without the pre-payment fee. During March 2020, the Company borrowed $ 10.0 million against the revolving loan, which bears interest at the lesser of LIBOR + 2.5 % or ABR + 1.5 % payable monthly and matures November 15, 2024. These borrowings were repaid in 2020 with $ 5.0 million repaid in July 2020 and $ 5.0 million repaid in September 2020. On July 17, 2020, the Company increased its capacity under the revolving loan to $ 15.0 million. As of March 31, 2021 there were no amounts outstanding under the revolving loan. Interest expense relating to the note payable and revolving loan was approximately $ 0.3 million and $ 0.5 million for the three months ended March 31, 2021, and 2020, respectively. Debt issuance costs relating to the term loans of approximately $ 0.5 million have been capitalized and are being amortized over the life of the loan using the effective interest method. Amortization expense of approximately $ 0.1 million was recorded for both the three months ended March 31, 2021 and 2020. Substantially all of the Company’s real and personal property serve as collateral under the above debt arrangements. The Credit Agreement requires the Company to maintain (i) a consolidated fixed charge coverage ratio not less than 1.25 to 1.0, and (ii) a consolidated leverage ratio of no more than 3.5 to 1.0 on March 31, 2021, and 3.0 to 1.0 thereafter. The company is in compliance with its debt covenants for the three months ended March 31, 2021 and 2020. Annual aggregate principal payments applicable to long-term debt for years subsequent to March 31, 2021 are as follows: (Dollars in Thousands) Remainder of 2021 $ 656 2022 1,750 2023 2,625 2024 28,875 2025 — Total $ 33,906 12 Table of Contents 8. Income Taxes The Company recorded an income tax provision of $ 2.0 million and $ 0.7 million for the three months ended March 31, 2021 and 2020, respectively. This represent an effective tax rate for the respective periods of 26.2 % and 11.1 %. The Company had a valuation allowance against its deferred tax asset effective March 31, 2020 and the tax expense for this period is limited to the increase in the deferred tax liability associated with an indefinite lived intangible. As of March 31, 2021, there is no longer a valuation allowance against the Company's deferred tax asset and the tax expense is primarily a result of the statutory rate applied to pretax book income. We consider both positive and negative evidence when evaluating the recoverability of our DTAs. The assessment is required to determine whether, based on all available evidence, it is more likely than not (i.e., greater than a 50% probability) that all or some portion of the DTAs will be realized in the future. As of March 31, 2020, the weight of all available positive evidence was not greater than the weight of all negative evidence and the valuation allowance remained against the deferred tax asset balance. As of March 31, 2021, there is no longer a valuation allowance against the deferred tax asset balance due to positive evidence outweighing the negative evidence . 9. Share-based Compensation Stock option plan The PH Group Holdings Corp. Stock Option Plan (the PH Group Option Plan) was created on January 17, 2014. The employees of the Company and its subsidiaries, consultants of the Company and the employees of Brighton Health Plan Services Holdings Corp. (BHPS) (a wholly-owned subsidiary of BHG Holdings) and its subsidiaries who have performed services for the Company were the participants of the PH Group Option Plan. The aggregate number of shares of common stock for which options may be granted under the PH Group Option Plan shall not exceed 4,229,850 shares. Effective August 11, 2016, the PH Group Option Plan was transferred to its parent and became the PH Group Parent Corp. Stock Option Plan (the PH Parent Option Plan). All other terms in the PH Group Option Plan remained unchanged in the PH Parent Option Plan at the effective date of the transfer. Effective August 28, 2018, the PH Parent Option Plan was amended and restated to increase the aggregate number of shares of common stock for which options may be granted from 4,229,850 shares to 18,985,846 shares. Stock option activity The following table summarizes information about the PH Parent Option Plan transactions: Options Outstanding Weighted- Average Exercise Price Weighted- Average Grant-Date Fair Value Weighted- Average Remaining Contractual Life Balance at January 1, 2021 18,300,959 2.01 0.34 7.82 Granted — — — Exercised — — — Forfeited ( 78,050 ) 2.01 0.42 Balance at March 31, 2021 18,222,909 $ 2.01 0.34 7.57 Exercisable options 3,276,976 $ 2.00 0.32 7.51 Share-based compensation expense The estimated fair value of the outstanding time-based options is recognized as share-based compensation expense over the vesting period of the options. For the three months ended March 31, 2021 and 2020, the Company recognized share-based compensation expense of approximately $ 0.1 million and $ 0.1 million, respectively, related to the time-based options, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. At March 31, 2021 the Company has approximately $ 0.7 million of unrecognized share-based compensation expense related to unvested time-based options. Future share-based compensation expense will be recognized on a straight-line basis over the remaining vesting period for the time-based options. The Company did not recognize any share-based compensation expense related to the performance-based options as the shares are only exercisable upon a liquidity event which did not occur during the period. 10. Related-Party Transactions On October 31, 2020, the $ 4.0 million of related party receivables was used to repay $ 4.0 million of the Notes payable to related parties, leaving $ 4.7 million of Notes payable to related parties. The Company paid interest of $ 0.2 million through October 31, 2020. 13 Table of Contents In addition, on December 22, 2020, the remaining $ 4.7 million of Notes payable to related parties were converted to a capital contribution, leaving no remaining Notes payable to related parties outstanding as of December 31, 2020. 11. Commitments and Contingencies There have been no material changes during the three months ended March 31, 2021 to commitments and contingencies previously stated in the Prospectus. 12. Concentrations of Credit Risk Our financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. While our cash and cash equivalents are managed by reputable financial institutions, the Company’s cash balances with the individual institutions may at times exceed the federally insured limits. At March 31, 2021, substantially all of the Company’s cash and cash equivalents were held at two financial institutions. The Company believes these financial institutions are financially sound and that minimal credit risk exists. The Company receives payment for medical services provided to patients by its physicians through contracts with payers. Six payers within the network accounted for approximately 73 % and 72 % of such payments for the three months ended March 31, 2021 and 2020, respectively. The Company evaluates accounts receivable to determine if they will ultimately be collected. In performing this evaluation, significant judgments and estimates are involved, such as past experience, credit quality, age of the receivable balance and current economic conditions that may affect ability to pay. As of March 31, 2021 and December 31, 2020, the Company had six payers within the network that made up approximately 70 % of accounts receivable. 13. Net Income (Loss) Per Share A reconciliation of net income (loss) available to common shareholders and the number of shares in the calculation of basic and diluted earnings (loss) per share was calculated as follows: For the Three Months Ended March 31, (in thousands, except for share and per share amounts) 2021 2020 Net income attributable to Privia Health Group, Inc. common stockholders $ 5,398 $ 5,414 Weighted average common shares outstanding - basic 95,985,817 95,931,549 Potentially dilutive stock options — — Weighted average common share outstanding - diluted 95,985,817 95,931,549 Earnings per share attributable to Privia Health Group, Inc. common stockholders – basic and diluted $ 0.06 $ 0.06 The treasury stock method is used to consider the effect of the potentially dilutive stock options. The following weighted-average outstanding shares of potentially dilutive securities were excluded from computation of diluted loss per share attributable to common shareholders for the period presented because including them would have been antidilutive: For the Three Months Ended March 31, 2021 2020 Potentially dilutive stock options to purchase common shares 18,222,909 17,600,258 Total potential dilutive shares 18,222,909 17,600,258 14. Segment Financial Information The Company determined in accordance with ASC Topic 280, Segment Reporting (“ASC 280”), that the Company operates in and reports as a single operating segment, which is to care for its patients’ needs. Operating segments are identified as components of an enterprise where separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”), or decision-making group, who reviews financial operating results on a regular basis for the purpose of allocating resources and evaluating financial performance. The Company defines its CODM as its Chief Executive Officer, who regularly reviews financial operating results on a consolidated basis for purposes of allocating resources and evaluating financial performance. Although the Company derives its revenues from a number of different geographic regions, the Company neither allocates resources based on the operating results from the individual regions, nor manages each individual region as a separate business unit. The Company’s CODM manages the operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess overall corporate profitability. As of March 31, 2021 and 2020, all of the Company’s long-lived assets were located in the United States and all revenue was earned in the United States. 14 Table of Contents 15. Subsequent Events Amended and Restated Certificate of Incorporation On May 3, 2021, in connection with the closing of the IPO, the Company amended and restated its certificate of incorporation (as amended and restated, the “Certificate of Incorporation”), which was filed with the Secretary of State of Delaware. Amended and Restated Bylaws On May 3, 2021, in connection with the closing of the IPO, the Company amended and restated its By-laws (as amended and restated, the “By-laws”). Option Plan Modification On April 1, 2021, contingent on the consummation of the IPO, the Board of Directors approved a modification to the PH Group Parent Corp. Stock Option Plan of the vesting conditions of certain outstanding stock option grants to certain employees and consultants. The modification accelerated by one year any time vested option that were not previously 100% vested and modified the vesting condition of the performance based options to vest 60 % at IPO, 20 % 12 months after IPO and 20 % 18 months after IPO. The modification also accelerated the CEO’s time based options by an additional four months such that 100 % of his time based options are vested. We expect to recognize stock-based compensation of $ 189.5 million in the second quarter of 2021 related to these modifications and we expect to recognize an additional $ 95.0 million of additional stock compensation expense over the eighteen months following the completion of the IPO. Omnibus Incentive Plan On April 6, 2021, the Company approved the Privia Health Group, Inc. 2021 Omnibus Incentive Plan (the “Plan”) which permits awards up to 10 % of our common stock issued and outstanding after the close of our IPO. Based upon 102,785,817 shares outstanding upon the closing of our IPO, there are 5,411,493 shares reserved for issuance under the Plan and 4,867,088 shares reserved for the options and restricted stock units issued on April 29, 2021. The Plan also allows for an automated increase on the first day of each fiscal year following the effective date of the Plan by an amount equal to the lesser of (i) 5 % of outstanding shares on December 31 of the immediately preceding fiscal year or (ii) such number of shares as determined by the Company’s board of directors in its discretion. The Plan provides for the granting of stock options at a price equal to at least 100 % of the fair market value of the Company’s Common Stock as of the date of grant. The Plan also provides for the granting of Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and other cash-based or other stock-based awards, all which must be granted at not less than the fair market value of the Company’s Stock as of the date of grant. Participants in the Plan may include employees, consultants, other service providers and non-employee directors. On April 29, 2021, the Company issued 1,183,871 restricted stock units and 3,683,217 options, with a strike price equal to the IPO offering price. These issuances are expected to generate stock compensation expense of $ 62.3 million to be expensed over the next four years starting on the effective date of the IPO as both the restricted stock units and stock options vest. Anthem Private Placement On May 3, 2021, concurrent with the closing of its IPO, the Company issued and sold, at $ 23.00 per share, in a private placement to an affiliate of Anthem, Inc. (the “Investor”) 4,000,000 shares of common stock, par value $ 0.01 per share, of the Company for an aggregate purchase price of $ 92 million (the “Private Placement”). As of May 3, 2021, the Investor holds approximately 3.9 % of the issued and outstanding common stock of the Company. The securities issued to the Investor in the Private Placement were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933. 15 Table of Contents