Privia Health Group, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2021. Changes to our Internal Controls over Financial Reporting There were no changes made to the Company’s internal control over financial reporting during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Inherent Limitation on the Effectiveness of Internal Control The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any 83 Ta b le of Contents evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. 84 Ta b le of Contents ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS. Not Applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE We adopted a written Code of Ethics and business conduct that applies to our directors, executive officers and employees, including our Chief Executive Officer, President and Chief Operating Officer, General Counsel, Chief Financial Officer, principal accounting officer, the controller and all persons performing similar functions. A current copy of the code is posted under “Governance” on the Investor Relations section of our website, our website, ir.priviahealth.com. Any waiver from the Code of Ethics and any amendments to the Code of Ethics will be disclosed on such page of the Company’s website. The information required by this item will be set forth in the definitive proxy statement to be filed with the SEC in connection with the Annual Meeting of Stockholders within 120 days after December 31, 2021 (the “Proxy Statement”) and is incorporated into this Annual Report on Form 10-K by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference. 85 Ta b le of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of the Annual Report on Form 10- K: 1. Financial Statements: The accompanying Index to Consolidated Financial Statements on page F-1 of this annual report on Form 10-K is provided in response to this item. 2. Financial Statement Schedules See Schedule II—Valuation and Qualifying Accounts for each of the three years ended December 31, 2021, 2020, and 2019 appearing on page F-25 of this report. (b) Exhibits The exhibits listed in the following “Exhibit Index” are filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K 86 Ta b le of Contents ITEM 15. EXHIBITS Exhibit Number Description Form Exhibit File No. Filing Date Filed Herewith 3.1+ Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 3.1 333-255086 04/07/2021 3.2+ Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 3.2 333-255086 04/07/2021 4.1+ Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 4.1 333-255086 04/07/2021 4.2+ Description of Capital Stock X 10.1+ § 2021 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 10.1 333-255086 04/07/2021 10.2+ § Employment Agreement between Privia Health Group, Inc. and Shawn Morris, dated April 13, 2018 (incorporated herein by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 10.2 333-255086 04/07/2021 10.3+ § Employment Agreement between Privia Health Group, Inc. and Parth Mehrotra, dated January 1, 2018 (incorporated herein by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 10.3 333-255086 04/07/2021 10.4 § Annual Merit Increase and Bonus Payment Memo for Parth Mehrotra dated March 12, 2021 S-1 X 10.5+ § Employment Agreement between Privia Health Group, Inc. and Thomas Bartrum, dated February 25, 2019 (incorporated herein by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 7, 2021) S-1 10.4+ 333-255086 04/07/2021 10.6+ § Employment Agreement first amendment between Privia Health Group, Inc. and Thomas Bartrum, dated April 1, 2020 X 10.7+ § Employment Agreement second amendment between Privia Health Group, Inc. and Thomas Bartrum, dated April 16, 2021 X 10.8+ § Employment Agreement third amendment between Privia Health Group, Inc. and Thomas Bartrum, dated March 24, 2022 X 10.9+ § Employment Agreement, between Privia Health Group, Inc. and Jeffrey S. Sherman dated as of January 2, 2022,(incorporated herein by reference to Exhibit 10.1 to 8-K (File No. 001-40365), filed with the SEC on January 6, 2022) 8-K 10.1 001-40365 01/06/2022 10.10+ § Separation and Release of Claims Agreement, dated as of March 21, 2022, between the Company and Jeffrey S. Sherman. 8-K 10.1 001-40365 03/22/2022 10.11+ § Employment Agreement, between Privia Health Group, Inc. and David Mountcastle dated as of March 21, 2022. 8-K 10.2 001-40365 03/22/2022 10.12+ Form of Shareholder Rights Agreement between Privia Health Group, Inc. and the other signatories party thereto 8-K 10.2+ 001-40365 05/03/2021 10.13+ Form of Registration Rights Agreement between Privia Health Group, Inc. and the other signatories party thereto 8-K 10.1+ 001-40365 05/03/2021 10.14+ § Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.7 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 22, 2021) S-1 10.7+ 333-255086 04/22/2021 10.15+ § Form of 2021 Omnibus Plan Restricted Stock Unit Award for Employees (incorporated herein by reference to Exhibit 10.8 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 22, 2021) S-1 10.8+ 333-255086 04/22/2021 10.16+ § Form of 2021 Omnibus Plan Restricted Stock Unit Award for Non-Employee Directors (incorporated herein by reference to Exhibit 10.9 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 22, 2021) S-1 10.9+ 333-255086 04/22/2021 10.17+ § Form of 2021 Omnibus Plan Stock Option Award (incorporated herein by reference to Exhibit 10.10 to the registrant’s Registration Statement on Form S-1 (File No. 333-255086), filed with the SEC on April 22, 2021) S-1 10.1 333-255086 04/22/2021 87 Ta b le of Contents 10.18+ § Amendment No. 1 to the Registration Rights Agreement between Privia Health Group, Inc. and the other signatories party thereto dated October 29, 2021 10-Q 10.11 211-388036 11/08/2021 10.19 + Assumption Agreement and Third Amendment to the Credit Agreement, dated August 27, 2021, by and among Privia Health Group, Inc., as parent guarantor, Privia Health, LLC, as the borrower, certain other subsidiaries of Privia Health Group, Inc., as guarantors, Silicon Valley Bank, as administrative agent and collateral agent, and the several lenders from time to time party thereto (including conformed copy of the Credit Agreement attached as Exhibit B thereto). 8-K 10.1 211-221127 08/30/2021 10.20+ § Second Amended and Restated PH Group Parent Corp. Stock Option Plan S-8 99.2 333-255598 04/29/2021 10.21+ § Form of Non-Qualified Stock Option Agreement under the Second Amended and Restated PH Group Parent Corp. Stock Option Plan S-8 99.3 333-255598 04/29/2021 10.22+ § Form of Amendment to Non-Qualified Stock Option Agreement under Second Amended and Restated PH Group Parent Corp. Stock Option Plan S-8 99.4 333-255598 04/29/2021 10.23+ § Notice of Modification of Option Agreement X 21.1 Subsidiaries of the registrant X 23.1 Consent of Independent Registered Public Accounting Firm X 31.1 Certification of the Chief Executive Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. X 31.2 Certification of the Chief Financial Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. X 32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, filed herewith. X 32.2* Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, filed herewith. X 101.INS XBRL Instance Document ** X 101.SCH XBRL Taxonomy Schema ** X 101.CAL XBRL Taxonomy Definition ** X 101.DEF XBRL Taxonomy Calculation ** X 101.LAB XBRL Taxonomy Labels ** X 101.PRE XBRL Taxonomy Presentation ** X + Previously filed * The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. ** The financial information contained in these XBRL documents is unaudited. § Indicates a management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY None. 88 Ta b le of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Privia Health Group, Inc. Date: March 25, 2022 By: /s/ Shawn Morris Name: Shawn Morris Title: Chief Executive Officer 89 Ta b le of Contents Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Shawn Morris Chief Executive Officer and Director (principal executive officer) March 25, 2022 Shawn Morris /s/ David Mountcastle Executive Vice President and Chief Financial Officer (principal financial and accounting officer) March 25, 2022 David Mountcastle /s/ Jeff Bernstein Director March 25, 2022 Jeff Bernstein /s/ Jeff Butler Director March 25, 2022 Jeff Butler /s/ David King Director March 25, 2022 David King /s/ Patricia Maryland Director March 25, 2022 Patricia Maryland /s/ Thomas McCarthy Director March 25, 2022 Thomas McCarthy /s/ Jaewon Ryu Director March 25, 2022 Jaewon Ryu /s/ William M. Sullivan Director March 25, 2022 William M. Sullivan /s/ Will Sherrill Director March 25, 2022 Will Sherrill 90 Ta b le of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) F- 2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 4 Consolidated Statements of Stockholders’ Equity F- 5 Consolidated Statements of Cash Flows F- 6 Notes to the Consolidated Financial Statements F- 7 Financial Statements Schedule II—Valuation and Qualifying Accounts F- 26 F-1 Ta b le of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Privia Health Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Privia Health Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Baltimore, Maryland March 25, 2022 We have served as the Company’s auditor since 2020. F-2 Ta b le of Contents Privia Health Group, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 320,577 $ 84,633 Accounts receivable 117,402 99,118 Prepaid expenses and other current assets 8,697 6,333 Total current assets 446,676 190,084 Non-current assets: Property and equipment, net 4,502 4,814 Right-of-use asset 9,634 — Intangible assets, net 59,738 5,980 Goodwill 127,938 118,663 Deferred tax asset 33,364 4,953 Other non-current assets 4,521 4,475 Total non-current assets 239,697 138,885 Total assets $ 686,373 $ 328,969 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 45,985 $ 39,252 Physician and practice liability 140,708 106,811 Current portion of note payable 875 875 Operating lease liabilities, current 2,893 — Total current liabilities 190,461 146,938 Non-current liabilities: Note payable, net of current portion 31,688 32,784 Operating lease liabilities, non-current 11,043 — Other non-current liabilities 3,000 5,595 Total non-current liabilities 45,731 38,379 Total liabilities 236,192 185,317 Commitments and contingencies (Note 13) Stockholders’ equity: Common stock, $ 0.01 par value, 1,000,000,000 and 150,000,000 shares authorized; 107,837,741 and 95,985,817 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively 1,078 960 Additional paid-in capital 633,902 165,666 Accumulated deficit ( 208,108 ) ( 19,878 ) Total Privia Health Group, Inc. stockholders’ equity 426,872 146,748 Non-controlling interest 23,309 ( 3,096 ) Total stockholders’ equity 450,181 143,652 Total liabilities and stockholders’ equity $ 686,373 $ 328,969 The accompanying notes are an integral part of these consolidated financial statements. F-3 Ta b le of Contents Privia Health Group, Inc. Consolidated Statements of Operations (in thousands, except share and per share data) For the Years Ended December 31, 2021 2020 2019 Revenue $ 966,220 $ 817,075 $ 786,360 Operating expenses: Physician and practice expense 727,827 629,487 622,632 Cost of platform 174,731 105,006 95,256 Sales and marketing 22,750 11,343 9,156 General and administrative 255,884 44,016 41,827 Depreciation and amortization 2,464 1,843 1,427 Total operating expenses 1,183,656 791,695 770,298 Operating (loss) income ( 217,436 ) 25,380 16,062 Interest expense 1,070 1,917 6,910 (Loss) income before (benefit from) provision for income taxes ( 218,506 ) 23,463 9,152 (Benefit from) provision for income taxes ( 27,857 ) ( 7,441 ) 1,207 Net (loss) income ( 190,649 ) 30,904 7,945 Less: Loss attributable to non-controlling interests ( 2,419 ) ( 340 ) ( 299 ) Net (loss) income attributable to Privia Health Group, Inc. $ ( 188,230 ) $ 31,244 $ 8,244 Net (loss) income per share attributable to Privia Health Group, Inc. stockholders – basic and diluted $ ( 1.83 ) $ 0.33 $ 0.09 Weighted average common shares outstanding – basic and diluted 102,952,370 95,950,062 95,931,549 The accompanying notes are an integral part of these consolidated financial statements. F-4 Ta b le of Contents Privia Health Group, Inc. Consolidated Statements of Stockholders’ Equity (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 Balance at January 1, 2019 95,931,549 $ 959 $ 146,904 $ ( 59,366 ) $ 88,497 $ ( 2,457 ) $ 86,040 Capital contribution — — 13,264 — 13,264 — 13,264 Share-based compensation expense — — 207 — 207 — 207 Net income (loss) — — — 8,244 8,244 ( 299 ) 7,945 Balance at December 31, 2019 95,931,549 959 160,375 ( 51,122 ) 110,212 ( 2,756 ) 107,456 Capital contribution — — 4,700 — 4,700 — 4,700 Stock option exercise 54,268 1 107 — 108 — 108 Share-based compensation expense — — 484 — 484 — 484 Net income (loss) — — 31,244 31,244 ( 340 ) 30,904 Balance at December 31, 2020 95,985,817 960 165,666 ( 19,878 ) 146,748 ( 3,096 ) 143,652 Issuance of common stock upon closing of initial public offering 9,725,000 97 210,897 — 210,994 — 210,994 Issuance of common stock upon exercise of stock options and vesting of restricted stock units 2,126,924 21 3,808 — 3,829 — 3,829 Stock-based compensation expense — — 253,531 — 253,531 — 253,531 Contributed non-controlling interest — — — — — 28,824 28,824 Net loss — — — ( 188,230 ) ( 188,230 ) ( 2,419 ) ( 190,649 ) Balance at December 31, 2021 107,837,741 $ 1,078 $ 633,902 $ ( 208,108 ) $ 426,872 $ 23,309 $ 450,181 The accompanying notes are an integral part of these consolidated financial statements. F-5 Ta b le of Contents Privia Health Group, Inc. Consolidated Statements of Cash Flows (in thousands) For the Years Ended December 31, 2021 2020 2019 Cash flows from operating activities Net (loss) income $ ( 190,649 ) $ 30,904 $ 7,945 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation 1,152 1,188 784 Amortization of intangibles 1,312 642 643 Amortization of debt issuance costs 157 134 332 Stock-based compensation 253,531 484 207 Deferred tax benefit ( 28,411 ) ( 7,834 ) 716 Changes in asset and liabilities: Accounts receivable ( 14,642 ) ( 21,779 ) ( 6,178 ) Prepaid expenses and other current assets ( 1,269 ) ( 962 ) ( 151 ) Other non-current assets and right-of-use asset ( 9,680 ) 1,194 ( 2,426 ) Accounts payable and accrued expenses 1,262 9,706 2,079 Physician and practice liability 33,897 24,542 15,571 Operating lease liabilities 13,936 — — Other long-term liabilities ( 5,538 ) 672 4,836 Net cash provided by operating activities 55,058 38,891 24,358 Cash from investing activities Purchases of property and equipment ( 547 ) ( 380 ) ( 5,709 ) Business acquisitions, net of cash acquired ( 32,228 ) — — Net cash used in investing activities ( 32,775 ) ( 380 ) ( 5,709 ) Cash flows from financing activities Proceeds from initial public offering 223,685 — — Payments of underwriting fees, net of discounts and offering costs ( 12,691 ) — — Note payable to affiliate — — ( 15,250 ) Repayment of note payable ( 875 ) ( 875 ) ( 30,000 ) Proceeds from note payable — — 35,000 Proceeds from exercised stock options 3,829 108 — Debt issuance costs ( 287 ) — ( 618 ) Proceeds from line of credit — 10,000 — Line of credit payments — ( 10,000 ) — Net cash provided by (used in) financing activities 213,661 ( 767 ) ( 10,868 ) Net increase in cash and cash equivalents 235,944 37,744 7,781 Cash and cash equivalents at beginning of period 84,633 46,889 39,108 Cash and cash equivalents at end of period $ 320,577 $ 84,633 $ 46,889 Supplemental disclosure of cash flow information: Interest paid $ 888 $ 1,928 $ 9,200 Income taxes paid $ 504 $ 381 $ 316 Conversion of notes payable to related parties to capital contribution $ — $ 4,700 $ 13,264 The accompanying notes are an integral part of these consolidated financial statements. F-6 Ta b le of Contents Privia Health Group, Inc. Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Organization Privia Health Group, Inc. (“we”, “our” the “Company” “Privia”), 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 December 31, 2021, Privia operates in eight 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) West Texas (Abilene, Texas); 6) Central Florida; 7) the state of Tennessee and 8) the state of California. 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. Privia Physicians typically enter into a PMSA with a medical group, which requires the Privia Physician to provide healthcare services through and on behalf of the medical group. In conjunction with the PMSA, the medical group enters a Support Services Agreement (“SSA”) with the Privia Physician’s historic practice entity (“Affiliated Practice”) whereby the Affiliated Practice provides certain subcontracted services to the medical group to allow the medical group to operate at the practice location. The Company does not own any Affiliated Practice, nor does the Company have risk of loss related to the Affiliated Practices; rather, they are typically owned by certain Privia Physicians. The Company’s ownership varies by state, creating three types of medical groups: Owned Medical Groups, Non-Owned Medical Groups and Friendly Medical Groups (which are also Non-Owned Medical Groups). The Company majority owns Owned Medical Groups in those markets where medical group ownership is allowed with Privia Physicians owning, in the aggregate, the minority interest in the medical group. In other markets where state regulations do not allow the Company to own the medical group, our “Non-Owned Medical Groups” are either (a) 100 % owned by the Privia Physicians or (b) majority owned, indirectly through a professional entity (“Nominee PC”), by a licensed physician holding a Privia leadership position (such physician leader, a “Nominee Physician” and each such Non-Owned Medical Group owned in this manner, a “Friendly Medical Group”). Currently, the Company has Friendly Medical Groups only in the Tennessee and West Texas. The Company has entered into a restriction agreement with each of its Nominee Physicians and their respective Nominee PCs, which provides the Company the right to direct the transfer of each Nominee PC’s ownership in the Friendly Medical Groups to other licensed physicians, among other matters. Owned Medical Groups and Friendly Medical Groups are consolidated into the Company, while Non-Owned Medical Groups are not. For Non-Owned Medical Groups and Friendly Medical Groups, please refer to the discussion of “Variable Interest Entities” for further discussion. 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 four where the Company is at least the majority owner. Within each market, Privia has three different sources of revenue: 1) Fee-for-service (“FFS”) revenue consisting of: a) FFS-patient care revenue which is primarily earned through Owned Medical Groups and b) FFS-administrative services revenue which is primarily earned by owned MSOs from Non-Owned Medical Groups through the MSAs; 2) VBC revenue consisting of: a) care management fees (“PMPM”) and b) shared savings both of which are primarily earned through Company-owned Accountable Care Organizations (“ACOs”) in each market; and 3) Other revenue which is earned from services provided to patients of both Owned and Non-Owned Medical Groups and CARES Act funds received. 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. On May 3, 2021, the Company also sold 4,000,000 shares to an affiliate of Anthem, Inc. (“Anthem”) in a private placement. In aggregate, the shares issued in the offering and Anthem private placement generated gross proceeds of $ 223.7 million and $ 211.0 million in net proceeds, which is net of underwriters’ discounts and commissions, and other offering costs. Basis of Presentation The 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 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. F-7 Ta b le of Contents All significant intercompany transactions are eliminated in consolidation. 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. If the Company determines that an entity in which it holds a contractual, or ownership, interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively. The Company evaluated its relationship with (a) Non-Owned Medical Groups and their Affiliated Practices, (b) Friendly Medical Groups and their Affiliated Practices, and (c) 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 (whether those of Owned Medical Groups, Non-Owned Medical Groups or Friendly Medical Groups); nor does the Company have an ownership in Non-Owned Medical Groups or Friendly Medical Groups. The PMSA and support services agreement (“SSA”) entered by Non-Owned Medical Groups and Friendly 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. For Friendly Medical Groups, in addition to the MSA, the Company has a contractual relationship, evidenced by a restriction agreement (each a “Restriction Agreement”) with its Nominee Physicians and their respective Nominee PCs. 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 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). However, management has determined, based on the provisions of the Restriction Agreement by and among the Company, the Nominee Physicians and their respective Nominee PCs, the governing documents of the Friendly Medical Groups, and after considering the requirements of ASC 810, that the Company should consolidate the financial position or results of operations of the Friendly Medical Groups and the Nominee PCs, but not the Affiliated Practices of the Friendly Medical Groups. ASC 810 requires the Company to consolidate the financial position, results of operations and cash flows of a Non-Owned Medical Group affiliated by means of a service agreement if the Non-Owned Medical Group is a VIE and the Company is its primary beneficiary. A Non-Owned Medical Group would be considered a VIE if (a) it is thinly capitalized (i.e., the equity is not sufficient to fund the Non-Owned Medical Group’s activities without additional subordinated financial support) or (b) the equity holders of the Non-Owned Medical Group as a group have one of the following four characteristics: (i) lack the power to direct the activities that most significantly affect the Non-Owned Medical Group’s economic performance, (ii) possess non-substantive voting rights, (iii) lack the obligation to absorb the Non-Owned Medical Group’s expected losses, or (iv) lack the right to receive the Non-Owned Medical Group’s expected residual returns. The characteristics of both (a) and (b) do not exist and as such the 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 service agreement for the years ended December 31, 2021, 2020 and 2019. 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 the SSA, and the Company determined they do not represent VIEs as they do not meet the criteria in ASC 810 for similar reasons outlined above. The Company, however, does meet the criteria for consolidation of the Nominee PCs and the Friendly Medical Groups based on the discussion above. During the fourth quarter of 2021, the Company launched Privia Medical Group West Texas, PLLC, formerly known as Abilene Diagnostic Clinic, PLLC (“WTX Friendly Medical Group”). WTX Friendly Medical Group is a physician-owned Medical Group, with PMG West Texas Holdings, PLLC (“WTX Nominee PC”), a Texas professional limited liability company entirely owned by a licensed physician with a leadership role in the Company, owning majority membership interests and having governance and control rights via the governing documents of WTX Friendly Medical Group. The Company has a contractual relationship with WTX Nominee PC through a Restriction Agreement. The VIE analysis was performed, and the Company determined that the relationship between Company, WTX Nominee PC and WTX Friendly Medical Group does represent a VIE and as such is consolidated as they do meet the criteria in ASC 810. F-8 Ta b le of Contents Similarly, during the fourth quarter of 2021, the Company established a second Friendly Medical Group in the State of Tennessee - Privia Medical Group Tennessee, PLLC (“TN Friendly Medical Group”). TN Friendly Medical Group is a physician owned Medical Group, with PMG-TN Physicians, PLLC (“TN Nominee PC”), a Tennessee professional limited liability company entirely owned by a licensed physician with a leadership role in the Company, owning majority of the membership interests therein and having governance and control rights via the governing documents of TN Friendly Medical Group. Again, the same analysis was performed, and the Company determined that the relationship between Company, TN Nominee PC and TN Friendly Medical Group does represent a VIE and as such is consolidated because they do meet the criteria in ASC 810. Additionally, during the fourth quarter of 2021, the Company entered the California market through an affiliation with BASS Medical Group, one of the Greater 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 in BASS Management Services Organization, LLC, now BASS Privia Management Company of California, LLC (“BPMC”), which is the exclusive provider of management services to BASS Medical Group. BPMC provides management and other administrative services, as well as various other services to medical practices and others. The Company performed the same analysis and determined that BPMC does not represent a VIE as it does not meet the criteria in ASC 810 but given that Privia owns 51 % of the voting interest in the entity, the entity is consolidated as a result. As a result of the PMG West Texas and PMG-TN transactions, the aggregated carrying value of the current assets and liabilities included in the consolidated balance sheets after elimination of intercompany transactions and balances were $ 4.2 million and $ 4.2 million respectively, as of December 31, 2021. Total revenues and operating expenses were $ 5.8 million and $ 5.8 million, respectively, from the date of acquisition through December 31, 2021. 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 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, stock-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 16 “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 years ended and as of December 31, 2021 and 2020, 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. 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 F-9 Ta b le of Contents 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 year ended December 31, 2021: • 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 $ 0.8 million is recorded in accrued expenses on the balance sheet as of December 31, 2021 related to this deferral and the Company intends to remit payment by the end of 2021; and • The Company received $ 0.8 million and $ 13.3 million in grant funds from the Provider Relief Fund under the CARES Act during the years ended December 31, 2021 and 2020, respectively. Cash and Cash Equivalents The Company considers all unrestricted, liquid financial instruments purchased with original maturity dates of three months or less to be cash equivalents. Cash equivalents are stated at cost which approximates fair value. Accounts Receivable Substantially all of the Company’s accounts receivable relate to providing health care services to patients whose costs are primarily paid by federal and state governmental authorities or commercial insurance companies. The Company reports accounts receivable at an amount equal to the consideration the Company expects to receive in exchange for providing healthcare services to patients, which is estimated using historical reimbursement rates and an analysis of past experience to estimate potential adjustments. Management writes-off receivables when they are deemed uncollectible because of circumstances that affect the ability of payers and self-pay patients to make payments as they occur. While write-offs of customer accounts have historically been within management’s expectations and the provisions established, management cannot guarantee that future write-offs will be consistent with historical experience, which could result in material differences when compared to the Company’s allowances and related provisions. Unearned Revenue The Company records unearned revenue, which is a contract liability, when it has an obligation to provide services and payment is received in advance of performance of those services. Property and Equipment, Net Property and equipment consist of furniture and fixtures, leasehold improvements, and computer hardware and software and are stated at cost, less accumulated depreciation and amortization. Depreciation is recognized on a straight-line method over the assets’ estimated useful lives, which for leasehold improvements are the lesser of the lease terms or the life of the asset, and three to seven years for other property and equipment. Property and equipment consisting of leasehold improvements, furniture, computers and office equipment. Internal-Use Software The Company capitalizes costs related to internal-use software during the application development stage including consulting costs and compensation expenses related to employees who devote time to development projects. Costs incurred in the preliminary stages of development activities and post implementation activities are expensed in the period incurred and included in cost of platform expense in the consolidated statements of operations. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. The Company records capitalized software development costs in property and equipment, net. Capitalized internal-use software costs are amortized on a straight-line basis over the software’s estimated useful life. Business Combination Accounting for business combinations requires us to allocate the fair value of purchase considerations to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values, which were determined primarily using the income method. The excess of the fair value of purchase consideration over the fair values of these identified assets and liabilities is recorded as goodwill. Such valuations require us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, revenue growth rates, medical claims expense, cost of care expenses, operating expenses, discount rate, contract terms and useful life from acquired assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. During the year ended December 31, 2021, Company completed several acquisitions to strengthen its current market share in existing markets or to F-10 Ta b le of Contents expand into new markets. The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Each of the Company’s acquisitions was accounted for using the acquisition method pursuant to the requirements of FASB ASC Topic 805, Business Combinations (“ASC 805”) . The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date of acquisition. For additional details, refer to Note 3 “Business Combinations.” Impairment of Long-Lived Assets Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss can be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss is based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2021 or 2020. Goodwill Goodwill represents the excess of the purchase price, plus the fair value of any non-controlling interests in the acquiree, over the fair value of identifiable net assets acquired. The Company performs a qualitative assessment on goodwill at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. If it is determined in the qualitative assessment that the fair value of a reporting unit is more likely than not below its carrying amount, then the Company will perform a quantitative impairment test. The quantitative goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. Any excess in the carrying value of a reporting unit’s goodwill over its fair value is recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit. The Company completes a single assessment of Goodwill as it has one reporting unit. For the years ended December 31, 2021, 2020 and 2019, there was no impairment loss related to goodwill. For additional details, refer to Note 4 “Goodwill and Intangible Assets, Net.” Intangible Assets, net Definite-lived intangible assets represent the estimated fair value of intangible assets acquired. Amortization is calculated using the straight-line method over the estimated useful lives of the intangible assets which are as follows: Trade names 20 years Consumer customer relationships 10 years FFS customer relationships 24 years Management Service Agreement (Complete MD) 16 years Physician network 15 years Payer contracts 21 years Management Service Agreement (BPMC) 21 years The Company reviews the carrying value of its finite-lived intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If these future undiscounted cash flows are less than the carrying value of the asset, then the carrying amount of the asset is written down to its fair value, based on the related estimated discounted future cash flows. The factors considered by management in performing this assessment include current operating results; trends and prospects; the manner in which the intangible assets are used; and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment was recorded for the years ended December 31, 2021, 2020 and 2019. For additional details, refer to Note 4 “Goodwill and Intangible Assets, Net.” Debt Issuance Costs Debt issuance costs represent costs incurred to issue the Company’s note payable and are recorded as a direct reduction to the Company’s note payable. These costs are amortized over the term of the applicable indebtedness using the effective interest method. Amortization is included in interest expense in the accompanying consolidated statements of operations and comprehensive income (loss). Revenue Recognition Beginning January 1, 2019, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective approach. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an F-11 Ta b le of Contents amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: i. Identify the contract(s) with a customer; ii. Identify the performance obligations in the contract; iii. Determine the transaction price; iv. Allocate the transaction price to the performance obligations in the contract; and v. Recognize revenue as the entity satisfies a performance obligation. FFS Revenue FFS-patient care The Company’s FFS-patient care revenue is primarily generated from providing healthcare services to patients. Providing medical services to patients represents our performance obligation under these third party payer agreements, and accordingly, the transaction price is allocated entirely to that one performance obligation. We recognize revenue as services are rendered and approved by the Privia Providers, which is typically a single day for each service. We receive payment for services from third party payers, as well as from patients who have health insurance, but are also financially responsible for some or all of the service in the form of co-pays, coinsurance or deductibles. Patients who do not have health insurance are required to pay for their services in full. FFS-patient care revenue is reported net of provisions for contractual allowances from third-party payers and patients. We have certain agreements with third-party payers that provide for reimbursement at amounts different from our standard billing rates. The differences between the estimated reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenue to arrive at FFS-patient care revenue. We determine our estimate of implicit price concessions based on our historical collection experience with classes of patients using a portfolio approach as a practical expedient to account for patient contracts as collective groups rather than individually. The financial statement effects of using this practical expedient are not materially different from an individual contract approach. Subsequent changes to the estimate of the transaction price (determined on a portfolio basis when applicable) are generally recorded as adjustments to revenue in the period of the change. For the years ended December 31, 2021, 2020 and 2019, changes in the Company’s estimates of implicit price concessions, contractual adjustments, and expected payments for performance obligations satisfied in prior periods were not significant. With respect to our treatment of revenue from Owned Medical Groups, it is necessary to assess whether we are the principal or the agent with respect to FFS-patient care revenue in light of the fact that healthcare services are furnished by Privia Providers rather than employees of the Owned Medical Groups. ASC 606-10-55-37A indicates that an entity is a principal if it obtains control of a right to a service to be performed by another party, which gives the entity the ability to direct that party to perform the services to the customer on the entity’s behalf. The Owned Medical Groups, which are each majority-owned and controlled by us, own the contractual relationships with the patients and the third party payers and they direct Privia Providers to perform healthcare services on the Company’s behalf. Although we are prohibited by law from interfering in the physician-patient relationship or making clinical care decisions, our Owned Medical Groups are responsible for the fulfillment of healthcare services to patients. Further, we employ Chief Medical Officers and Medical Directors who provide clinical oversight and direction over the clinical affairs of the Owned Medical Groups. In addition, the Owned Medical Group provides the care coordination activities, patient outreach and education activities, and sets quality standards for our Privia Providers. We also verify that Privia Providers have the proper qualifications (e.g., correct licenses, certificates, etc.) for our Owned Medical Groups, for ourselves and as a delegate on behalf of certain third-party payers. In addition to oversight of health care services, the Owned Medical Group is also the party primarily responsible for providing the services to patients and maintains discretion in establishing pricing for all services through agreements with patients and their insurance payers. The Owned Medical Groups negotiate and enter into provider agreements with third-party payer insurance companies, which outline the obligations of the Owned Medical Group and the third-party payers in connection with providing patient care services to covered patients. This includes setting the reimbursement rate for all services provided by the Owned Medical Groups. In assessing who is the principal in providing the patient care services, the Company considered who controls the provision of patient care services. As a result of our oversight of Owned Medical Groups (including setting the expectations for the Owned Medical Group’s patients and the commercial payers’ expectations of the Owned Medical Groups) and the contractual relationships with patients and their third-party payers, we are the principal in these relationships. FFS-administrative services The Company’s FFS-administrative services business provides administration and management services pursuant to MSA with Non-Owned Medical Groups. The Company’s MSAs with the 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 revenue cycle management 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. F-12 Ta b le of Contents 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. The margin, if applicable, is fixed based on the MSAs; however, the cost of supplying certain services can fluctuate during the life of the MSAs. In certain MSAs, the Company is paid a percentage of net collections. The percentage is fixed per the MSAs; however, the net collections can fluctuate during the life of the contract. Under each MSA, there is a single performance obligation to provide a series of administration and management services required for the contract period. The Company believes that each Non-Owned Medical Group receives the management and administrative services each day and has concluded that an output method is appropriate for recognizing administrative services fee revenue. Administrative fees are reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for the provision of administration and management services to the Non-Owned Medical Groups. In addition, certain of our MSAs include rebates to the customers in the event that certain conditions occur. The Company estimates the transaction price using the most likely amount methodology and amounts are included in the net transaction price to the extent that it is probable that a significant reversal will not occur once any uncertainty associated with the variable consideration is subsequently resolved. The Company reduces the amount of FFS – administrative services revenue by the amount of any rebates earned by its customers. No rebates have been earned for years ended December 31, 2021, 2020 and 2019. VBC Revenue The Company’s VBC business consists of its clinically integrated network and ACOs which bring together independent physician practices within our medical groups to focus on sharing data, improving care coordination, and collaborating on initiatives to improve outcomes and lower healthcare spending. The Company has contracts with the U.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) Care management fees on a per member per month basis and (2) on a shared savings basis. Care management Under the PMPM basis, the Company is paid a PMPM rate for each covered individual who is attributed by the payer to the Company (“attributed members”). The Company records revenue in the month for which the PMPM rate applies and the member was attributed. The PMPM rate is based on a predetermined monthly contractual rate for each attributed member regardless of the volume of care coordination services provided under the contracts with the payers. The PMPM rate varies based on payer and product. Revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for the provision of care coordination services to its population of attributed members. The Company’s contracts with payers have a single performance obligation that consists of a series of services for the provision of care coordination services for the population of attributed members for the duration of the contract. The transaction price for the contracts is entirely variable, as it is primarily based on a PMPM rate on monthly attributed membership, which can fluctuate during the life of the contract. The majority of the Company’s net PMPM transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series and is recognized as revenue in the month in which attributed members are entitled to care coordination services. Shared Savings Under the shared savings basis, the Company is offered financial incentives to increase their accountability for the cost, quality and efficiency of the care provided to the population of attributed members. The Company is paid the financial incentives when, for a given twelve-month measurement period, their performance on quality of care and utilization meets or exceeds the standards set by the payers as outlined in the contracts and when savings are achieved for medical costs associated with the population of attributed members. The payers analyze the activities during the measurement period using the agreed upon benchmarks, metrics and performance criteria to determine the appropriate payments to the Company. The Company estimates the transaction price by analyzing the activities during the relevant time period in contemplation of the agreed upon benchmarks, metrics, performance criteria, and attribution criteria based on those and any other contractually defined factors. Revenue is not recorded until the price can be estimated by the Company and to the extent that it is probable that a significant reversal will not occur once any uncertainty associated with the variable consideration is subsequently resolved. Revenue is recorded during the period when the services were provided during a pre-set twelve-month annual measurement period. 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 concierge services, virtual visits, virtual scribes and coding, clinical trials, behavioral health management, and partnerships with self-insured employers to offer direct primary care to their employees. CARES Act funds received have been recorded within other revenue on the statement of operation through December 31, 2020. F-13 Ta b le of Contents Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, other receivables, accounts payable, and note payable. The Company considers the carrying values of cash and cash equivalents, accounts receivable, other receivables, accounts payable, notes payable to related parties and note payable to be indicative of their respective fair values. The carrying amount for notes payable is deemed to approximate fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy for fair value measurements exists based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments are considered Level 1 assets and liabilities, with the exception of note payable which is considered Level 2. 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 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 consolidated statements of operations. Income Taxes The Company accounts for income taxes in accordance with the provisions of ASC Topic 740, Income Taxes (“ASC 740”). ASC 740 requires that income tax accounts be computed using the asset and liability method. Deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Should the Company determine that it is more likely than not that some portion or all of its deferred tax assets will not be realized, a valuation allowance to the deferred tax assets would be established in the period such determination was made. State corporate taxes were calculated based on a blended rate calculated based on the Company’s allocation and apportionment to the states. Calculation under the blended rate does not result in a material difference. ASC 740 requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more likely than not recognition threshold, the tax effect is recognized at the largest amount of the benefit that has greater than a fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance for classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires that a liability created for unrecognized tax benefits be presented as a separate liability and not combined with deferred tax liabilities or assets. At December 31, 2021, and 2020, the Company believes it has appropriately accounted for any unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. As of December 31, 2021, the periods subject to examination by the Company’s major jurisdictions (federal and various states) are generally for the years December 31, 2018 through December 31, 2020. Physician and Practice Liability The Company has certain amounts payable to its physicians and their related physician practices that represent physician salaries and other required distributions pursuant to the service agreements which have not yet been paid. F-14 Ta b le of Contents 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, which is defined as 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 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. Physician and Practice Expense Physician payments are set payments made to physicians associated with Owned Medical Groups. These payments are set and adjusted as necessary, pursuant to Owned Medical Groups’ Board of Directors’ approved guidelines with variances specifically approved by the Owned Medical Groups’ Board of Directors. Practice related payments are used to cover an Affiliated Practice’s staff salary and benefits, medical supplies, rent and other occupancy costs, insurance and office supplies. Affiliated Practices are not owned by the Company and the Company bears no responsibility for any losses incurred by Affiliated Practices. Affiliated Practices are paid a variable amount based on collections and the services provided. Cost of Platform Cost of platform represents the direct costs the Company incurs to provide services to our Privia Physicians and their practices. It includes third-party electronic medical records and practice management software expenses, employee-related expenses, including salaries and employee benefits costs, stock-based compensation, as well as consulting expenses, travel-related expenses and technology related expenses for the team. Cost of platform excludes depreciation and amortization expense. Third-party electronic medical records and practice management software expenses are paid on a percentage of revenue basis, while employee-related expenses are variable based on the number of employees used to service our implemented physicians. Sales and Marketing Sales and marketing expenses consist of employee-related expenses, including salaries, stock-based compensation, commissions, and employee benefits costs, for all of the Company’s employees, engaged in marketing, sales, community outreach, and sales support. These employee-related expenses capture all costs for both our field-based and corporate sales and marketing teams. 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, operations, clinical and quality support, finance, legal, human resources, and development departments. In addition, general and administrative expenses include all corporate technology and occupancy costs. Advertising Costs Advertising costs for the Company are expensed as incurred. Advertising expense was approximately $ 1.2 million, $ 0.8 million, $ 1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Stock-Based Compensation The Company accounts for share-based compensation in accordance with the expense recognition provisions of ASC 718, Compensation–Stock Compensation (“ASC 718”), which requires the issuer to recognize compensation expense for all share-based payments made to employees based on the fair value of the share-based payment at the date of grant. Up until April 2021,the estimated F-15 Ta b le of Contents fair value of share-based payments granted to the Company’s employees was determined using the Monte-Carlo option pricing model, which requires inputs based on certain subjective assumptions, including expected term of the option, expected stock price volatility, the risk free interest rate for a period that approximates the expected term of the option and the Company’s expected dividend yield (See Note 10 “Stockholders’ Equity”). The share-based payments granted or modified prior to April 2021 to employees of the Company do not have quoted market prices, and changes in subjective input assumptions can materially affect the fair value estimate. Since April 2021, the Company has estimated the fair value of the options granted to Company’s employees and contractors using the Black-Scholes option-pricing model. Option valuation models require several inputs, such as the expected stock price volatility, the fair value of the stock, the risk free rate, the expected term of the award and the dividend yield. The Company records share-based compensation forfeitures as a reversal of previously recognized compensation expense as the forfeitures occur. For additional details refer to Note 10 “Stockholder Equity.” Net Income (Loss) per Share Attributable to Common Stockholders Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net (loss) income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The treasury stock method is used to consider the effect of the potentially dilutive stock options. Diluted net (loss) income attributable to common stockholders is computed by adjusting (loss) income attributable to common stockholders to allocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options. Diluted net (loss) income per share attributable to common stockholders is computed by dividing the diluted net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding for the period, including common stock equivalents. In periods when the Company has incurred a net loss, options to purchase common stock are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. 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 5 “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 year ended December 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' financial condition, delinquency trends, aging behaviors of receivables and credit and liquidity indicators for industry groups, and future market and economic conditions. As of December 31, 2021, the allowance for credit losses was not material. In December of 2019, 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. The Company completed our evaluation, and note no material impact as a result of the adoption as of December 31, 2021. Recently Issued Accounting Pronouncements Pending Adoption 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 F-16 Ta b le of Contents 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 Credit Facilities 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 Years Ended December 31, (Dollars in Thousands) 2021 2020 2019 FFS-patient care $ 772,482 $ 647,314 $ 676,157 FFS-administrative services 68,805 58,278 48,510 Shared savings 83,016 66,414 39,854 Care management fees (PMPM) 36,503 26,766 18,547 Other revenue 5,414 18,303 3,292 Total Revenue $ 966,220 $ 817,075 $ 786,360 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 revenue received for healthcare services we provided for the periods indicated: For the Years Ended December 31, 2021 2020 2019 Commercial insurers 69 % 69 % 67 % Government payers 17 % 17 % 17 % Patient 14 % 14 % 16 % 100 % 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 per member per month 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. Contract Asset and Liabilities The Company has the following contract assets and unearned revenue: (Dollars in Thousands) December 31, 2021 December 31, 2020 Balances for contracts with customers Accounts receivable $ 117,402 $ 99,118 Unearned revenue $ 404 $ 2,759 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. Business Combinations During the fourth quarter of 2021, the Company completed several acquisitions to expand operations into new markets. The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Each of the Company’s acquisitions was accounted for using the acquisition method pursuant to the requirements of ASC 805. The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions in 2021 have not been included as the results are immaterial individually and in the aggregate. F-17 Ta b le of Contents On October 1, 2021, the Company launched WTX Friendly Medical Group, a physician-owned Medical Group, with WTX Nominee PC, an entity entirely owned by Physician Nominee, owning majority membership interests and having governance and control rights via the governing documents of WTX Friendly Medical Group. Refer to Note 1 “Organization and Summary of Significant Accounting Policies” for additional details regarding governance and controls rights. The Company has a contractual relationship with WTX Nominee PC and its Physician Nominee owner through a Restriction Agreement. WTX Nominee PC owns 67 % of interest in WTX Friendly Medical Group. On October 13, 2021,the Company entered the California market through an affiliation with BASS Medical Group, one of the Greater 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 in BASS Management Services Organization, LLC, now BASS Privia Management Company of California, LLC (“BPMC”), which is the exclusive provider of management services to BASS Medical Group. BPMC provides management and other administrative services, as well as various other services to medical practices and others. The Company acquired a 51 % interest in BPMC. The purchase price for the 2021 acquisitions has been preliminarily allocated as follows: (Dollars in thousands) Total Acquisitions for the Year Ended December 31, 2021 Cash paid, net of cash acquired $ 32,228 Contingent payables 2,942 Total consideration $ 35,170 Accounts receivable, lease receivable, prepaids, and other current assets $ 4,735 Fixed assets 292 Accounts payable and other current liabilities assumed ( 5,378 ) Payer contract intangible 2,750 Physician network intangible 1,520 Management services agreement intangible 50,800 Goodwill 9,275 Fair value of non-controlling interests ( 28,824 ) Total acquired net assets $ 35,170 The goodwill relating to these acquisitions are primarily attributable to synergies related to assembled workforce and operational and administrative synergies. Goodwill is measured as the excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date. For some of the acquisitions in 2021, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 2021 based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material. 4. 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 Company recognizes the excess of the purchase price, plus the fair value of any non-controlling interests in the acquiree, over the fair value of identifiable net assets acquired as goodwill. The Company performs a qualitative assessment on goodwill at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. If it is determined in the qualitative assessment that the fair value of a reporting unit is more likely than not below its carrying amount, then the Company will perform a quantitative impairment test. The quantitative goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. Any excess in the carrying value of a reporting unit’s goodwill over its fair value is recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit. The Company’s carrying value of goodwill at December 31, 2021 and 2020 is $ 127.9 million and $ 118.7 million, respectively. No indicators of impairment were identified during the years ended December 31, 2021, 2020, and 2019. During the fourth quarter of 2021, Privia entered into two new markets resulting in the recording of goodwill. We launched PMG West Texas (“WTX Friendly Medical Group”). Additionally, during the fourth quarter of 2021, we entered the California market through the acquisition of BASS Privia Management Company of California, LLC (“BPMC”), the exclusive provider of management services to BASS Medical Group, Privia acquired 51 % ownership in BPMC, which provides management and other administrative services to BASS Medical Group. During the year ended December 31, 2021 the company recognized goodwill with a value of $ 9.3 F-18 Ta b le of Contents million in connection with the WTX Friendly Medical Group and BPMC acquisitions, which represented the excess of the purchase price over the fair value of the net assets acquired. Goodwill balances at December 31, 2021 and 2020 was as follows: (Dollars in thousands) Balance as of December 31, 2020 $ 118,663 Goodwill recorded for WTX Friendly Medical Group and BPMC acquisitions 9,275 Balance as of December 31, 2021 $ 127,938 A summary of the Company’s intangible assets is as follows: December 31, 2021 December 31, 2020 (Dollars in thousands) Intangible Assets Accumulated Amortization Intangible Assets Accumulated Amortization Trade names $ 4,600 $ 1,689 $ 4,600 $ 1,457 Consumer customer relationships 2,500 1,835 2,500 1,583 PMG customer relationships 600 184 600 158 Management Service Agreement (Complete MD) 2,200 860 2,200 722 Physician network 1,520 26 — — Payer contracts 2,750 33 — — Management Service Agreement (BPMC) 50,800 605 — — 64,970 $ 5,232 9,900 $ 3,920 Less accumulated amortization ( 5,232 ) ( 3,920 ) Intangible assets, net $ 59,738 $ 5,980 The remaining weighted average life of all amortizable intangible assets is approximately 18.92 years at December 31, 2021. Amortization expense for intangible assets was approximately $ 1.3 million for the year ended December 31, 2021 and $ 0.6 million for the years ended December 31, 2020 and 2019, respectively. Estimated amortization expense for the Company’s intangible assets for the following five years is as follows: (Dollars in Thousands) 2022 $ 3,293 2023 3,293 2024 3,210 2025 3,043 2026 3,043 Thereafter 43,856 Total $ 59,738 F-19 Ta b le of Contents 5. Leases The Company leases office space under various operating lease agreements. The initial terms of these leases range from 2 to 9 years and generally provide for periodic rent increases and renewal options. The difference between the operating lease right-of-use assets and operating lease liabilities resulted from the reclassification of deferred rent and lease incentives, previously included in other-non-current liabilities, of $ 5.3 million to operating right-of-use assets. The components of lease expense were as follows (in thousands): (Dollars in Thousands) For the Year Ended December 31, 2021 Operating lease cost $ 2,116 Cash paid for amounts included in the measurement of lease liabilities - operating leases $ 2,316 Weighted-average remaining lease term - operating leases 5.1 Years Weighted-average discount rate - operating leases 3.5 % The aggregate future lease payments for operating leases in the years subsequent to December 31, 2021 are as follows: (Dollars in Thousands) 2022 $ 2,893 2023 2,962 2024 2,996 2025 2,980 2026 2,173 Thereafter 1,231 Total future lease payments 15,235 Imputed interest ( 1,145 ) Total $ 14,090 6. Property and Equipment, Net A summary of the Company’s property and equipment, net is as follows: (Dollars in Thousands) December 31, 2021 December 31, 2020 Furniture and fixtures $ 1,110 $ 1,073 Computer equipment 1,864 1,051 Leasehold improvements 4,827 4,863 7,801 6,987 Less accumulated depreciation and amortization ( 3,299 ) ( 2,173 ) Property and equipment, net $ 4,502 $ 4,814 7. Account Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following: (Dollars in Thousands) December 31, 2021 December 31, 2020 Accounts payable $ 2,973 $ 5,235 Accrued employee compensation and benefits $ 7,491 $ 6,167 Bonuses payable 12,292 10,418 Other accrued expenses 23,229 17,432 Total accounts payable and accrued expenses $ 45,985 $ 39,252 F-20 Ta b le of Contents 8. Note Payable The Company’s Credit Facilities consists of the following: (Dollars in Thousands) December 31, 2021 December 31, 2020 Note payable $ 33,250 $ 34,125 Less debt issuance costs ( 687 ) ( 466 ) Less current portion ( 875 ) ( 875 ) Note payable, net $ 31,688 $ 32,784 On November 15, 2019, the Company entered into a Credit Agreement (the “Original Credit Agreement”) by and among Privia Health, LLC, as the borrower, PH Group Holdings Corp., as a guarantor, certain subsidiaries of Privia 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 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 December 31, 2021), 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 on November 15, 2019. On August 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 to August 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 ending September 30, 2021 through and including June 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. As of December 31, 2021, the Company had $ 33.3 million in principal amount of indebtedness outstanding under the Term Loan Facility. As of December 31, 2021, “springing” financial covenants were not applicable. During March 2020, the Company borrowed $ 10.0 million under the Revolving Loan Facility, which bore interest at the lesser of LIBOR + 2.5 % or ABR + 1.5 % payable monthly. These borrowings were repaid in 2020 with $ 5.0 million repaid in July 2020 and $ 5.0 million repaid in September 2020. On August 30, 2021, the Company increased its capacity under the Revolving Loan Facility from $ 15.0 million to $ 65.0 million. As of December 31, 2021 and 2020 there were no amounts outstanding under the Revolving Loan Facility. Interest expense relating to the Credit Facilities was approximately $ 1.1 million, $ 1.9 million and $ 4.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Debt issuance costs relating to the Credit Facilities of approximately $ 0.7 million have been capitalized and are being amortized over the life of the Credit Facilities using the effective interest method. Amortization expense of approximately $ 0.2 million, $ 0.1 million and $ 0.3 million was recorded for the years ended December 31, 2021, 2020 and 2019, respectively. Substantially all of the Company’s real and personal property serve as collateral under the above debt arrangements. F-21 Ta b le of Contents Annual aggregate principal payments applicable to the note payable for years subsequent to December 31, 2021 are as follows: (Dollars in Thousands) 2022 $ 875 2023 875 2024 1,313 2025 1,750 2026 28,437 Thereafter — Total $ 33,250 9. Income Taxes The (benefit from) provision for income taxes for years ending December 31, 2021, 2020 and 2019 are as follows: December 31, (Dollars in Thousands) 2021 2020 2019 Current: Federal $ — $ — $ — State and Local 345 363 492 Total current 345 363 492 Deferred: Federal ( 23,650 ) ( 6,440 ) 546 State and Local ( 4,552 ) ( 1,364 ) 169 Total deferred ( 28,202 ) ( 7,804 ) 715 Total (benefit from) provision for incomes taxes $ ( 27,857 ) $ ( 7,441 ) $ 1,207 Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 are as follows: (Dollars in Thousands) December 31, 2021 December 31, 2020 Deferred tax assets Net operating loss carryforwards $ 10,911 $ 9,758 Stock compensation 28,767 657 Lease liability 2,416 — Other accruals 545 531 Total gross tax assets 42,639 10,946 Less: valuation allowance — — Total deferred tax assets 42,639 10,946 Deferred tax liabilities Fixed and intangible assets ( 7,980 ) ( 5,993 ) Right-of-use asset ( 1,295 ) — Total deferred tax liabilities ( 9,275 ) ( 5,993 ) Deferred tax assets, net $ 33,364 4,953 For the years ended December 31, 2021 and 2020, the Company completed an assessment of the likelihood of realizing all or some portion of its net deferred tax assets. Based on an analysis of the positive and negative evidence, the Company determined it was more likely than not that the Company will be in a position to realize the benefits of the deferred tax asset as a result of consistent profitability excluding non-recurring stock compensation charges in connection with the Company's IPO. As such, no valuation allowance was recorded in either year. As of December 31, 2021, the Company has generated federal and state net operating loss carryforwards of approximately $ 45.5 million and $ 27.0 million (post-apportioned state NOL) respectively, that begin to expire in 2034. F-22 Ta b le of Contents The following is a reconciliation of income tax computed at the U.S. federal statutory income tax rate to the (benefit from) provision for income taxes: Amount Percent December 31, December 31, (Dollars in Thousands) 2021 2020 2019 2021 2020 2019 Tax (benefit) provision computed at Federal statutory income tax rate $ ( 45,806 ) $ 4,927 $ 1,922 21.0 % 21.0 % 21.0 % Stock compensation 21,399 — 124 ( 9.8 ) — 1.4 State tax expense, net of Federal benefit ( 4,280 ) 1,426 901 2.0 6.1 9.8 Change in valuation allowance — ( 13,710 ) ( 2,125 ) — ( 58.4 ) ( 23.2 ) Rate change 10 ( 56 ) — — ( 0.2 ) — Other 820 ( 28 ) 385 ( 0.4 ) ( 0.1 ) 4.2 (Benefit from) provision for income taxes $ ( 27,857 ) $ ( 7,441 ) $ 1,207 12.8 % ( 31.6 ) % 13.2 % The stock compensation impacting the income tax provision are primarily attributable to stock-based compensation expense that is not deductible under Section 162(m) offset by tax deductible stock based compensation. The 2021, 2020, 2019 and 2018 federal and state income tax returns are within the statute of limitations (“SOL”) and are currently not under examination by any federal or state tax authority. The Company assesses the uncertainty in its income tax positions to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For the tax position meeting the more-likely-than-not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with the relevant taxing authority. As of December 31, 2021 and 2020, the Company had not recorded any reserves for uncertain tax positions or related interest and penalties. 10. Stockholders’ Equity Anthem Private Placement On May 3, 2021, concurrent with the closing of its IPO, the Company issued and sold, 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”), or $ 23.00 per share, in a private placement to an affiliate of Anthem. 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. 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” or “Prior 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. 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 options 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 the 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 recognized stock-based compensation of $ 195.1 million in the second quarter of 2021 related to these modifications. On April 6, 2021, the Company approved the Privia Health Group, Inc. 2021 Omnibus Incentive Plan (the “Plan”) which permits awards up to 10,278,581 shares of the Company’s common stock. The Plan also allows for an automatic 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 Compensation Committee 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 F-23 Ta b le of Contents Stock, Restricted Stock Units (“RSUs”), 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 common stock as of the date of grant. Participants in the Plan may include employees, consultants, other service providers and non-employee directors. On the effective date of the IPO, the Company issued 1,183,871 restricted stock units at the offering price and 3,683,217 options, with an exercise price equal to the offering price. These issuances are expected to generate stock-based compensation expense of $ 62.3 million to be recognized over the next four years starting on the effective date of the IPO as both the restricted stock units and stock options vest. The 2021 Plan is intended as the successor to and continuation of the PH Parent Option Plan. No additional stock awards will be granted under the PH Parent Option Plan. 2021 Employee Stock Purchase Plan In April 2021, the Company’s Board of Directors approved the Company’s 2021 Employee Stock Purchase Plan (“2021 ESPP”). The 2021 ESPP became effective upon the execution of the underwriting agreement for the Company’s IPO in April 2021. Per the Plan, shares may be newly issued shares, treasury shares or shares acquired on the open market. The Compensation Committee may elect to increase the total number of Shares available for purchase under the Plan as of the first day of each Company fiscal year following the Effective Date in an amount equal to up to one percent ( 1 %) of the shares issued and outstanding on the immediately preceding December 31; provided that the maximum number of shares that may be issued under the Plan in any event shall be 10,278,581 shares. As of the IPO, the Company has reserved 1,027,858 shares of common stock for issuance under the 2021 ESPP. As of December 31, 2021, no shares of been issued under this plan. Stock option activity For the Options granted under the 2021 Omnibus Incentive Plan, Privia used a Black-Scholes option pricing model to determine the fair value. Option valuation models require several inputs, such as the expected stock price volatility, the fair value of the stock, the risk free rate, the expected term of the award and the dividend yield. Below outlines the assumptions used in the Black-Scholes modeling and calculation of the option fair value. • Volatility - We determine volatility based on the historical stock volatilities of a group of publicly listed guideline companies over a period equal to the expected terms of the options, as we do not have sufficient trading history to determine the volatility of our common stock. • Fair value of common stock - Prior to our IPO in April 2021, we estimated the fair value of our common stock using various valuation methodologies, including valuation analyses performed by third-party valuation firms. After the IPO, we used the publicly quoted price as the fair value of our common stock. • Risk-free interest rate - We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each option group. • Expected term - The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumption is based on the simplified method in which the expected term is equal to the average of the stock-based award’s weighted-average vesting period and its contractual term. We expect to continue using the simplified method until sufficient information about historical behavior is available. • Dividend yield - We have not declared or paid any cash dividend and do not currently plan to pay a cash dividend in the foreseeable future. Consequently, we used an expected dividend yield of zero. The post-IPO grant date fair value was based on the assumptions of risk free rate of 1.24 %, volatility of 40.16 %, and 6.5 years expected term. The following table summarizes stock option activity under the PH Parent Option Plan and Plan: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life Aggregate Intrinsic Value (in thousands) Outstanding at January 1, 2021 18,300,959 $ 2.01 7.82 $ — Granted 3,753,317 23.15 Exercised ( 1,935,302 ) 2.02 Forfeited ( 202,772 ) 10.87 Balance at December 31, 2021 19,916,202 $ 5.90 9.36 $ 398,117 Exercisable at December 31, 2021 10,826,434 $ 2.01 9.08 $ 258,296 F-24 Ta b le of Contents RSU Activity The following table summarizes the RSU activity under the 2021 Plan: Number of Shares Grant Date Fair Value Unvested and outstanding at December 31, 2020 — $ — Granted 1,199,315 23.19 Vested ( 195,652 ) 23.00 Forfeited ( 18,762 ) 23.00 Unvested and outstanding at December 31, 2021 984,901 $ 23.23 Stock-based compensation expense Total stock-based compensation expense was approximately $ 253.5 million, $ 0.5 million and $ 0.2 million for the years ended December 31, 2021 2020, 2019 respectively. A tax benefit of approximately $ 7.1 million for the year ended December 31, 2021 and $ 0.0 million for the years ended December 2020 and 2019, respectively, was included in the Company’s net operating loss carry-forward that could potentially reduce future tax liabilities. At December 31, 2021, there was approximately $ 93.2 million of unrecognized stock-based compensation expense related to unvested options and RSUs, net of forfeitures, that is expected to be recognized over a weighted-average period of 1.0 year. As of December 31, 2021, the total intrinsic value of options exercised and the total fair value of shares vested for the 2021 period was approximately $ 51.7 million and $ 174.6 million, respectively. Stock-based compensation expense was classified in the consolidated statements of operations as follows: For the Years Ended December 31, (Dollars in Thousands) 2021 2020 2019 Cost of platform $ 43,888 $ — $ — Sales and marketing 8,944 — — General and administrative 200,699 484 207 Total stock-based compensation $ 253,531 $ 484 $ 207 11. Employee Benefit Plans The Company has a voluntary 401(k) savings plan that provides a 3.0 % safe harbor contribution to all employees. In addition, a minimum profit-sharing contribution is required to satisfy year end plan testing. The profit-sharing contribution was approximately 1.4 % in 2021, 2020 and 2019. The Company made contributions of approximately $ 2.3 million, $ 2.4 million and $ 2.0 million for the years ended December 31, 2021, 2020 and 2019, respectively, recorded within cost of platform, sales and marketing and general and administrative expenses in the accompanying consolidated statements of operations. 12. Related-Party Transactions On October 31, 2020, $ 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. 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. 13. Commitments and Contingencies There are no material commitments and contingencies as of December 31, 2021 and 2020. 14. 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 December 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 75 %, 75 % and 74 % for the twelve month periods ended December 31, 2021, 2020, and 2019 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 December 31, 2021 and 2020, the Company had six payers within the network that made up approximately 68 % and 70 % of accounts receivable, respectively. F-25 Ta b le of Contents 15. Net (Loss) Income Per Share A reconciliation of net (loss) income available to common shareholders and the number of shares in the calculation of basic and diluted earnings (loss) income per share was calculated as follows: For the Years Ended December 31, (in thousands, except for share and per share amounts) 2021 2020 2019 Net (loss) income attributable to Privia Health Group, Inc. common stockholders $ ( 188,230 ) $ 31,244 $ 8,244 Weighted average common shares outstanding - basic and diluted 102,952,370 95,950,062 95,931,549 Earnings per share attributable to Privia Health Group, Inc. common stockholders – basic and diluted $ ( 1.83 ) $ 0.33 $ 0.09 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 Years Ended December 31, 2021 2020 2019 Potentially dilutive stock options and RSUs to purchase common shares 20,901,103 18,300,959 17,647,833 Total potentially dilutive shares 20,901,103 18,300,959 17,647,833 16. 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 December 31, 2021 and 2020, all of the Company’s long-lived assets were located in the United States. Schedule II - Valuation and Qualifying Accounts For Each of The Three Years Ended December 31, 2021, 2020, and 2019 The following Financial Statement Schedule along with the report thereon of PricewaterhouseCoopers LLP dated March 25, 2022, should be read in conjunction with the consolidated financial statements. Financial Statement Schedules not included in this filing have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. Income Tax Valuation Allowance Balance at Beginning of Year Charged to costs and expenses Acquisitions Deductions Balance at End of Year Year ended December 31, 2021 $ — $ — $ — $ — $ — Year ended December 31, 2020 $ 13,710 $ — $ — $ ( 13,710 ) $ — Year ended December 31, 2019 $ 15,804 $ — $ — $ ( 2,094 ) $ 13,710 F-26