Privia Health Gr Q3 2026 Earnings Call Transcript

Privia Health Gr (NASDAQ:PRVA) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Privia Health Gr reported a 12% growth in implemented providers and a 19.2% increase in value-based attributed lives for the first nine months of 2026, resulting in a 12% growth in practice collections and a 21.9% increase in adjusted EBITDA.

The company raised its 2026 guidance, expecting to reach 6,000 clinicians by year-end with an 11.5% growth over 2025, and adjusted EBITDA growth of 23.9%.

Privia Health Gr announced the acquisition of American Choice Healthcare MSSP ACO for $36 million, expanding its footprint in 10 existing states and adding three new states, with positive contributions expected in 2027.

The company is exiting its Montana partnership with Surgery Partners, which is not expected to materially impact adjusted EBITDA in 2027.

Privia Health Gr highlighted its five strategic growth pillars, focusing on organic growth, value-based care, acquisitions, and expanding its total addressable market.

The company ended Q3 with $446.3 million in cash and no debt, projecting to end the year with at least $520 million in cash.

Privia Health Gr expressed confidence in its ability to maintain sustainable growth and profitability, leveraging its strong balance sheet and strategic acquisitions.

Full Transcript

OPERATOR

On your telephone, you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Robert Borchert, SVP of Investor and Corporate Communications. Please go ahead.

Robert Borchert (SVP of Investor and Corporate Communications)

Thank you, Elliot, and good morning, everyone. Joining me are our CEO, Parth Mehrotra, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com along with today’s press release and slide presentation. Following our prepared comments, we will open the line for questions. Please limit yourself to one question only and return to the queue if you have a follow-up so we can get to as many questions as possible.

Today’s reported results are preliminary and are not final until our Form 10-Q for the third quarter and nine-month periods ended September 30, 2026, is filed with the Securities and Exchange Commission. Some of our statements today may be forward-looking in nature, based on our current expectations and view of our business as of November 5, 2026. Statements such as those related to our future financial and operating performance and future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially.

These statements should be considered along with our cautionary statements in today’s press release and the risk factors described in our most recent SEC filings. Finally, we may refer to certain non-GAAP financial measures on the call, and reconciliations of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now I’d like to hand the call over to our CEO, Parth Mehrotra.

Parth Mehrotra (Chief Executive Officer)

Thank you, Robert, and good morning, everyone. Today I’ll summarize our performance, market presence, and growth strategy, and David will discuss our financial results and updated 2026 guidance before we take your questions. Privia Health continues to demonstrate strong momentum and operational excellence across all aspects of our business. We delivered robust new provider signings, giving us clear visibility into our implementation pipeline for the remainder of 2026 and into 2027. Implemented providers grew 12.2% and value-based attributed lives increased 19.2% compared to the first nine months of 2025. This drove year-to-date practice collections growth of 12% and adjusted EBITDA growth of 21.9%.

EBITDA margin as a percentage of care margin increased to 28.8% as we continue to scale our operating cost structure. Given our strong year-to-date results, we are raising our 2026 outlook above the high end of our initial guidance for all key financial metrics. Implemented providers are now expected to be at the high end of our initial guidance. We expect to reach 6,000 clinicians by year end, which is 11.5% growth over 2025. The midpoint of our adjusted EBITDA guidance is now above the high end of our initial guide and represents 23.9% growth over last year.

Separately, we are exiting our Montana partnership with Surgery Partners effective January 2027. We support 69 providers and generate approximately 23 million in annual practice collections in the state. This is expected to have no material impact to our adjusted EBITDA in 2027. This week we announced the acquisition of American Choice Healthcare MSSP ACO, a wholly owned subsidiary of Cano Health, for approximately 36 million in cash. The Accountable Care Organization is expected to care for more than 36,000 attributed lives participating in the Medicare Shared Savings Program beginning January of 2027. The transaction is expected to have minimal impact on all key metrics in 2026 and positively contribute to attributed lives and adjusted EBITDA in 2027.

This will expand the Privia Care Partners VBC footprint in 10 existing states as well as three new states beginning next year. This is a quality addition to our Care Partners presence as we continue to supplement our organic growth engine with tuck-in acquisitions. Privia has a highly durable growth algorithm driven by a strong value proposition for community providers across 50 plus specialties, all patient demographics, and payment structures. We have an exceptional sales engine, high retention rates, and a proven track record in value-based care that is resonating very well with our addressable market.

We have five core pillars that drive our growth. First, organic growth in existing practices is essential to our value proposition for physician partners. Our operating teams actively work with practices to expand their patient and provider panels. Our practices also see meaningful operational improvements that drive revenue optimization and practice profitability. This growth scales naturally with each market’s expanding care delivery network. Second, organic growth in existing markets through the addition of new care centers continues to be a key driver of growth. Businesses such as clinical research and other ancillary services also drive incremental revenue where we have local and regional density.

Third, organic growth in value-based care is supported by increasing attribution as a result of the two prior growth categories, in addition to improving clinical performance in existing programs and entering new value-based contracts. Fourth, our strong balance sheet enables us to deploy capital through acquisitions and partnerships across both new and existing markets. Our business development activities target a variety of assets. Given our flexible partnership model, we remain highly opportunistic and disciplined in the current landscape for medical groups and value-based care entities.

And finally, we expect to strategically expand our total addressable market by investing in adjacent lines of businesses and new capabilities over time. Ultimately, our goal through these five strategic growth pillars is to build one of the largest community-based care delivery networks in the country that delivers high-quality, low-cost care with exceptional provider satisfaction and patient outcomes. Privia’s footprint of community-based medical groups and value-based entities comprises 25 states and the District of Columbia. We now have 5,893 implemented providers caring for over 6.3 million patients in 1,400 care center locations. Our footprint today remains a very small subset of our total addressable market of more than 1 million credentialed providers and their underlying patient populations across the country. This gives us the confidence to continue to compound growth across our key operating and financial metrics for many years to come.

Privia now serves over 1.67 million attributed lives in value-based arrangements across more than 130 commercial, Medicare, Medicare Advantage, and Medicaid programs. Commercial attributed lives increased 11.8% from last year to reach 966,000. Lives attributed to the CMS Medicare programs were up 59%. Medicare Advantage and Medicaid attribution increased 12.6% and 12.7%, respectively. The balance and diversification of Privia’s providers and payer contracts gives us the confidence in our ability to build scale and profitability without depending on any one particular program.

David will now review our recent financial results, balance sheet strength, and our updated 2026 guidance in more detail.

David Mountcastle (Chief Financial Officer)

Thank you, Parth. Privia Health’s strong operational execution and growth continued through the third quarter. Implemented providers grew 249 sequentially from Q2 to reach 5,893 at September 30th, an increase of 12.2% year over year. Implemented provider growth, as well as strong ambulatory utilization trends and value-based performance, led the year-to-date practice collections growing 12% from a year ago to reach 2.91 billion. Adjusted EBITDA, which is reconciled to GAAP net income in the appendix, increased 21.9% over the first nine months last year to reach 114.7 million, or 28.8% of care margin.

This highlights our highly predictable revenue and care margin engine, with operating leverage across both cost of platform and G&A to generate strong EBITDA margins while investing across all markets. We ended the third quarter with $446.3 million in cash and no debt. We expect approximately 70% of full-year adjusted EBITDA to convert to free cash flow and expect to end the year with at least 520 million in cash on our balance sheet. This accounts for the American Choice Healthcare transaction and assumes the 2025 MSSP cash settlement and related provider disbursements occur before year end based on our current accruals. This does not include any potential additional capital deployment for business development.

Our core financial outlook remains very strong, and we look forward to CMS delivering final MSSP 2025 performance results this month. Our strong year-to-date performance has provided us with excellent visibility and confidence to raise our 2026 outlook above the high end of initial guidance across all key financial metrics. Implemented providers are now expected to reach the high end of our initial guidance of 6,000 clinicians. Using the midpoints of our new 2026 guidance, attributed lives growth is expected to increase 9.2% over 2025.

We expect practice collections to grow at 13.1% and care margin 16.3% at their respective midpoints. We are also guiding to adjusted EBITDA growth of 23.9% at the midpoint. Privia Health continues to drive consistent, sustainable growth and profitability given our differentiated business, consistent execution, and compounding economic model. Our consistent track record over the past nine years across economic, political, and regulatory cycles speaks to the strength and durability of our business. We look forward to continuing to serve our clinicians and their patients on our long-term journey together. Operator, we are now ready to take questions.

OPERATOR

Thank you. At this time we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Elizabeth Anderson of Evercore ISI. Your line is now open.

Elizabeth Anderson (Analyst)

Hi, guys. Good morning, and thanks for the question. As we think about your recent acquisition of American Choice, can you talk about where you see the specific opportunities? Why was that a good fit for Privia? And then maybe a little bit more, zooming out a little bit, obviously with the Montana exit, and maybe there were some specific dynamics there. I guess what, in your experience as you’ve had more time, sort of makes things sort of a good or maybe not a less good fit?

Parth Mehrotra (Chief Executive Officer)

Yeah, thanks for the question, Elizabeth. Look, I mean we’ve talked about our balance sheet strength, how well we’ve done over the last five, six years, relatively, given all the changes in the industry, regulatory program changes. I think we are seeing assets that come available from sellers. You know that in case of Evolent acquisition it was a non-core asset, they needed to delever the balance sheet. In case of KANO we looked at this asset when the company went through its Chapter 11 filing.

Ultimately the debt owners owned the business and obviously they needed to exit eventually, which happened now. And you can again see, like, you know, the REACH program sunset, a lot of lives had to convert to either LEED or MSSP. So that causes a lot of disruption. We talked about that in the last call, and this was an example of the asset being available at very attractive multiples well below where we trade. And so I think we continue to look for those opportunities where we can do accretive transactions.

And then I think broadly to your question, I think we continue to see this dichotomy where similar assets that cater to same patient populations, similar CMS programs, there’s a wide variety of those available in the market. Some of the ones that are still privately owned, venture capital-backed or private equity-owned, the expectations of the multiple is still pretty high relative to the quality of the asset or the scale of the asset. And on the other hand we are seeing assets like KANO and Evolent being available at very attractive multiples.

So I think we’re going to continue to be very disciplined. We think we have a good playbook where we can acquire these assets, integrate them in our model, scale them, get some synergies, hopefully improve performance over time. That’s the thesis and we could just continue to run the playbook. I think if you look at our bubble chart on slide 8, like we now have over 550,000 MA lives. That’s a pretty big book across both Medicare Advantage and MSSP. And I think we’ll just continue to expand that. We see a great opportunity for a business like ours to continue to play the MA theme, as that’s pretty important to lower cost, improve outcomes for the payers. So I think that’s the big picture and I think we’re at a very good position of strength to keep doing that.

OPERATOR

Thank you. Our next question comes from the line of Whit Mayo of Leerink Partners. Your line is now open.

Whit Mayo (Analyst)

Hey, thanks. I think the physician fee schedule was finalized yesterday. Just wanted to get any early read you may have on that with your ACOs with the ACPT relief. And have you disclosed what you’re assuming for the 2025 MSSP cash settlement? Thanks.

David Mountcastle (Chief Financial Officer)

Yeah, thanks, Whit. Yeah. So it just came in last night as we were getting ready for today. I think our initial read is there are a lot of puts and takes for various aspects, but overall I think it’s pretty in line with what we expected. It doesn’t change our guidance for this year or into next year, our expectations, anything meaningfully. I think there’s some nuances both up or down, but broadly speaking, we think it was pretty much in line with what we expected from that perspective.

OPERATOR

Thank you. Our next question comes from the line of Matthew Gilmore of KeyBank. Your line is now open.

Matthew Gilmore (Analyst)

Hey, good morning. Thanks for the question. On the durable growth topic, one area Parth highlighted was expanding your TAM via adjacent lines of business and acquiring new capabilities. I think even transformational, some of that was new to us at least. Can you maybe put some parameters around the type of adjacent lines of business or capabilities that would make sense for Privia?

Parth Mehrotra (Chief Executive Officer)

Yeah, absolutely. I mean, look, I mean that is very probabilistic in terms of when an opportunity is available, the quality of the asset, how core is it to our core business or not? I think we’re trying to be mutually exclusive and collectively exhaustive in the list of things that can drive growth. I just think if you look at our balance sheet, we’ve got over 500 million of cash. If you look at our EBITDA guidance this year, consensus next year, even if you assume a very conservative two, two and a half times leverage, you know, we’ve got 8 to 900 million of capacity to do cash acquisitions.

And obviously equity is a component. You know, healthcare services typically consolidates over time. Assets become available publicly or privately. And I think this industry will be no different. So I think whether over time, look, our vision continues to be building one of the leading, if not the leading, physician organization in the country, catering to independent providers across all patient panels, all payers. We’ve got the core Privia Health Gr model, the single TIN model, which is very unique. We obviously are now doing Care Partners in a very scaled way with a couple of acquisitions here. And I think there could be assets that may have an employment structure to it, which we haven’t done, but they could be available to get density in the markets.

Ancillaries is a big play out of inpatient facilities. Ancillaries are going to be driving costs lower, improving quality. I think you’ve seen a lot of shift there. So I think whether it’s that, whether it’s in-home, whether it’s virtual, the advent of AI and technology will make some of these models become much more easier to operate. So I think it just depends on across that spectrum as we get physician alignment, where the patients are and meet the patients where they are and where they want to be. I do think it will open up a lot of opportunities, but again, that is low probability. And anything transformational, obviously, needless to say, has a very, very high bar for us. But I think in the context of just being totally exhaustive in our list of growth opportunities, I think given our size and balance sheet and performance over the last few years, that’s always a possibility.

We’ll just see what happens.

OPERATOR

Thank you. Our next question comes from the line of Jailendra Singh of Truist. Your line is now open.

Jailendra Singh (Analyst)

Thank you and thanks for taking that question. And congrats on the quarter. I want to ask about the decision to exit Montana. Was this primarily about economics or strategic fit and was it related at all to Surgery Partners’ pending sale to Health Plan? Trying to figure out who initiated the exit. And more broadly, does this tell us anything about the minimum scale or returns you require from a market?

Parth Mehrotra (Chief Executive Officer)

Yeah. Thanks for the question, Jailendra. I think you answered partly the question in your question. So I think it’s a multitude of factors. So look, number one, we do periodic evaluations of all our partnerships on an absolute basis. Are we getting the desired scale? Did the original theses play out both in the market, and then there could be a broader thesis with any company that we partner with. And I think, look, we’ve done it in the past. We entered Delaware, we exited it.

We did capitated MA, we kind of paused on it when the industry challenges presented themselves. So I think that’s obviously one. I think second is there are, you know, unique idiosyncratic challenges that many companies face and have faced in the last three or four years, whether it’s ASC businesses, whether it’s hospitals, whether it’s not-for-profit hospitals. I think you’ve just seen with all the regulatory changes, all the changes around attribution related to the one big beautiful act you all have written about, that, I mean, that has impacted many companies differently.

That leads to different priorities. You obviously mentioned they announced a transaction, so I’m not going to comment on that. So strategic priority shifts, and if our partner decides to go in a different direction, if leadership changes, I think we’ve got to evaluate that, obviously. Third is the bar for us as we stand here today relative to what Privia Health Gr was five years ago when we went public in ’21. This was 40 million EBITDA. We’ve quadrupled EBITDA. We now have over 500 million of cash. I just alluded to the debt capacity. So I think the bar for us to dilute ownership in any particular market is just very, very high. We can do a lot of things ourselves that we were not able to do previously. We like to be unencumbered in our ability to acquire assets, fulfill pretty much the same strategic need on our own, whether it’s ASC assets, whether it’s medical groups, to my answer to the previous question.

So I think we looked at all of those and then ultimately, like, as we said, like, this has no material impact. It was pretty small scale, you know, either to ’26 or ’27. So, you know, for all those reasons, you know, we decided it would be best to just exit the partnership given the change in their priorities and their strategic transaction.

OPERATOR

Thank you. Our next question comes from the line of AJ Rice of UBS. Your line is now open.

AJ Rice (Analyst)

Hi, everybody. You mentioned Medicare Advantage. I wonder if you could maybe just update us on is your contracting with health plans for ’27 largely in place at this point, and is there any change in the way they’re working with you that makes you want to lean into that business a little more? And then also, is there any early read on what you’re hearing regarding open enrollment for MA heading into next year?

Parth Mehrotra (Chief Executive Officer)

Yeah, thanks for the question, AJ. So like I mentioned again on slide 8, we’ve got now 550,000 MA lives. I think a model like ours is really well positioned as the industry here settles from the last two or three years of a lot of disruption for the payers. Whether it was V28 star scores, benefit design changes, I think the payers have adjusted, and a lot of you have written about that over the last few quarters as that has happened and shifted. You know, we continue to believe that a shared-risk model is the best long-term sustainable model where payers, an entity like Privia Health Gr, our providers in our medical groups can partner, share the risk, and perform well in MA contracts in a very sustainable manner that is durable.

Because I do think you’ll continue to have cases where regulation will change, program structures will change, competitive dynamics will change. Everybody’s trying to optimize their profit pool. The payers are obviously focused on their EPS. We are focused on delivering the value to them and earning our fair share of the profit. And so I think a business like ours that is in the community, first point of contact with customers and patients, and the ability to impact outcomes in a very lower-cost setting I think is very unique, and I think our scale is now pretty deep and broad.

So I think we continue to be very forward-leaning as the MA environment settles. I think the nuance is it just varies by state, as you know, which payer has what density with us in which state, whether the payer has decided to exit or not that state, whether they decided to change the benefit design in that state or not. So we look at the whole portfolio, we are working with all the national payers, and I think we’ll just continue to advance that business, and if there’s opportunity for us to dial up our share of the risk, we’ll do that as long as we can do that profitably.

So I think the strategy doesn’t change, but I think we’re going to be very forward-leaning because obviously the long-term trends in MA are pretty good. The population is going to age, and I think we are really well situated to capitalize on that.

OPERATOR

Thank you. Our next question comes from the line of Richard Close of Canaccord Genuity. Your line is now open.

Richard Close (Analyst)

Yeah, thanks for the questions. Congratulations. Appreciate the M&A opportunity commentary. But on the organic growth front, adding providers and update and guidance there, can you talk about the pipeline going forward? Are you seeing any meaningful change that could potentially accelerate growth? Just curious how the pipeline in the market is evolving.

Parth Mehrotra (Chief Executive Officer)

Yeah, thanks for the question, Richard. I mean, look, you’ve covered us since pre-IPO and I think you have seen the strength in this business that our organic sales engine is a key differentiator here, our ability, and that’s reflected in the results in the last five to seven years where, despite all the headwinds in the industry, we’ve continued to add providers and compound this business organically. Five, six years ago we were adding two, three, 400 providers.

You can see this year we’re on track, given our guidance, it’s well over 600. And I think, again, this is not a straight line. It can vary over the years. But that trend line I think just speaks for itself. I do think a lot of the regulatory changes, reimbursement changes, you know, attributed lives being shifted from different programs, different buckets of healthcare spend, between the individual exchange lives, Medicaid lives, et cetera — I think it’s going to cause a lot of disruption. It’s going to vary by entity, by state. But whether providers stay in their existing places or not, I think there’s going to be some disruption, and we are ready to capture any and all of that.

So whether it’s providers starting to get more independent and coming out of health system employment, whether as they exit residency and they choose into private practice, you know, whether independent medical groups want to join a bigger entity like Privia Health Gr. And then obviously, you know, we have entities in the space, in the value-based care space which, you know, obviously as they go through their transitions, some will perform, some will not perform.

I think our ability to consolidate a lot of this space — I think it’s pretty exciting. And you’ve seen that we’ve done a few acquisitions here in the last two or three years. You know, IMs in Arizona, the Evolent acquisition, the KANO acquisitions. I mean all of these arguably were not available two or three years ago or five years ago. And you know, these book of businesses become available and our balance sheet strength allows us to capitalize on that. So I think there’ll be opportunities for us to both grow organically and then inorganically.

And again, I think it’s not a straight line, but given our five pillars of growth, I think we’re pretty excited about how we can compound the business.

OPERATOR

Thank you. Our next question comes from the line of Ryan Langston of TD Cowen. Your line is now open.

Ryan Langston (Analyst)

Great, thanks. Good morning. You know, over the past several years you’ve been able to really keep G&A growth below Care Margin growth, I guess. Is there any reason to think that won’t continue into next year absent some necessary step investment? And any reason for us to think that we shouldn’t be looking at maybe that 20% plus EBITDA growth through next year? Maybe any key puts and takes for next year would be helpful too. Thanks.

Parth Mehrotra (Chief Executive Officer)

Yeah, I appreciate the question. Look, I think I appreciate the comments because we’ve done a pretty fantastic job of scaling G&A and also on the operating cost structure. If you look at platform contribution, overall EBITDA margin as a percentage of Care Margin has accreted really well, as you noted. You know, when you go public you absorb a lot of public company costs. And I think as our sales engine has performed really well, the sales and marketing line obviously increases on an absolute dollar basis, but then overall can scale as a percentage.

So you’ve seen we’ve gone adjusted EBITDA to Care Margin at the time of the year prior to the IPO at about 16%. With our guidance this year we’re approaching 29%. We’ve said our long-term target was 30% to 35%, and even last couple of earnings calls this question came up in the context of AI and how that can impact, I think, G&A leverage. SG&A leverage is another component where I think if you’re sitting at 29%, 30% is pretty much very near term and then I think we can be at least at the high end of that 30% to 35% range.

There is no reason to believe we won’t continue to scale. I obviously think, given the inflections that we’ve had over the last few years, again this will not be a straight line, but there is no reason to believe that we’ll go backwards for any reason. So I think we’re going to continue to look to scale that. I also think, and this is on a non-GAAP basis, but even on a GAAP basis I think things like stock compensation, et cetera, should scale over time.

I think all of those metrics will stabilize and then we can drive GAAP EPS higher over time as well. So I think you’ll see us continue to perform on all those aspects and we look forward to delivering in future quarters.

OPERATOR

Thank you. Our next question comes from the line of Jessica Tassen of Piper Sandler. Your line is now open.

Jessica Tassen (Analyst)

Hi, guys. Thanks very much for the question and congratulations on the deal and the new markets. I wanted to clarify just on Whit’s question on the PFS, and then I have one just on ACH. So maybe can you clarify whether the benefit of the ACPT guardrail provisions that were implemented retroactively in the PFS final rule are or are not contemplated in the 2025 accruals recognized through 3Q26? And then maybe on ACH, just how should we think about the productivity of that ACO given the geographic diversity of the providers?

Thanks and congrats again.

Parth Mehrotra (Chief Executive Officer)

Yeah, I think the short answer is we’ve incorporated all of that into our guidance. If there was anything material that we should adjust for, we would have or called it out, but I just don’t think that’s the case. And then I think on the second part of the question, look, I think underlying the 36,000 lives is about 600 providers. Like we said, they’re a little bit spread out in existing and new states, but I think they’ve had long-term relationships in the REACH program previously. And so the partnership has been there with these provider groups for a long period of time. And so I think we can build on that and get density around those, which is always our playbook, both organically and/or inorganically.

So I think we’re pretty excited that we can tuck this one in, and the team’s really excited to be part of a much more stable, bigger organization. So they’re really excited to join Privia Health Gr and we’re hoping that we can deliver for the providers and continue to add value.

OPERATOR

Thank you. Our next question comes from the line of Andrew Mock of Barclays. Your line is now open.

Andrew Mock (Analyst)

Hi, good morning. We’ve had a couple of quarters now where the revenue beat has outpaced the Care Margin and EBITDA beat. Is there anything in the P&L underlying mix or new market expansion that’s driving that dynamic more than usual? And then secondly, I think the cash flow guidance was revised slightly lower from 70% to 80% to 70% of EBITDA. Can you help us understand what’s driving that revision?

Parth Mehrotra (Chief Executive Officer)

I’ll start and then David will add. So look, I think part of the GAAP revenue is that we acquired the tax ID in Florida, so we own that medical group now. And so I think we are recognizing practice collections flow through into GAAP revenue as a result of that in our model, which we are required to do so from a GAAP perspective. So I think that’s driving some of the dynamic that you mentioned. But otherwise, there’s nothing idiosyncratic that changes practice collections flow through to the Care Margin line because our management fee is pretty stable on the fee-for-service basis.

Our take rate on the value-based book is also pretty similar. So I don’t think there’s anything idiosyncratic there. And then from a cash flow perspective and the conversion — I’ll start, David will continue on the specifics — look, I think the last three years, if you look at slide 12, we were well over 100% EBITDA to free cash conversion: 112%, 121%, 130%. Even though every year we guided 70% to 80%, we were able to manage working capital pretty well. I think some of the nuance this year is timing of some of that reversal, timing of some of the payments around MSSP.

You know we are a full tax cash payer. And then going forward, like we’ve said, effective tax rate is about 27%. So 70% to 75% will be kind of the range, and we feel pretty good about that.

David Mountcastle (Chief Financial Officer)

Yeah, just to reiterate Parth’s first part: Privia Medical Group of Florida, when we purchased it, moved from an administrative services only to a full GAAP revenue one. So you’re going to see an increase in GAAP revenue from that transaction. And then yes, from a cash perspective, as he said, we’re targeting right now 70% to 75%. As a full-time taxpayer, and as you’ve seen in the past couple of years, there are some timing things from time to time that give us a little bit higher number.

We might see a little bit lower number than that. But on an average basis, on a go-forward basis, we’re targeting the 70% to 75%.

OPERATOR

Thank you. Our next question comes from the line of Sean Dodge of BMO Capital Markets. Your line is now open.

Thomas Kelleran (Analyst)

Hey, good morning, this is Thomas Kelleran for Sean. Thanks for taking the question. On the commercial value-based care, payers are still under disproportionate pressure in the commercial books. Has this created more opportunities to partner with them and to leverage your scale to expand services to additional cohorts of patients and/or maybe to redesign contracts with more compelling economics or bonus payouts to further incentivize care quality and cost control?

Parth Mehrotra (Chief Executive Officer)

Yeah, absolutely. I mean, I really appreciate this question. I think one of the salient features of our business is the commercial book and our ability to impact cost of care in that book. I think what does go unnoticed many times is the fact that despite we have a large fee-for-service commercial business, which is very low-cost providers — again, in the community, providers first point of contact with the patients for all kinds of ailments on the commercial side starting from children, young adults, all the way to pre-Medicare — we have 966,000 lives now in some commercial value-based arrangements.

That is, over the years our teams have done a fantastic job — the payer contracting team, the value-based operations team — in working not only with the payers in crafting very unique value-based contracts in the commercial book where we are getting paid now for improving quality metrics by cohort of patients — different for pediatricians, different for OBs, different for adults, different for pre-Medicare adults — lowering the overall cost structure there.

And I think as that book faces pressure, as employers face pressure, a business like ours that is building dense medical groups can really help alleviate some of the cost pressures. And we’ll continue to work with the payers. We’ll continue to, if we have a lot of density in the market, directly with some employers where we can take our density of providers and impact the cost of care on the commercial side through these unique value-based arrangements.

It’s not a book where a business takes blind risk — obviously it’s an open access product, you know, for a large extent downstream — but I think our business is very, very differentiated if you compare us to many other value-based-only players that are focused on just MA for our ability to impact cost of care across the patient panel. So I think we’ll continue to do that. And that’s a great value proposition we have with the payers in every state.

OPERATOR

Thank you. Our next question comes from the line of Constantine David of Citizens. Your line is now open.

Constantine David (Analyst at Citizens)

Thank you. Parth, can you talk a little bit about your updated thoughts around your capital allocation options or priorities in a general sense, and how those might be evolving here as we head into 2027? And then more specifically, I guess, how are you evaluating the attractiveness of your own equity versus deploying capital more aggressively towards external assets?

David Mountcastle (Chief Financial Officer)

Yeah, I really appreciate the question, Constantine. I think, look, I think over the years we’ve grown our cash balance — now it’s over 520 million. Like I said, if you take a very conservative debt capacity, 2 to 2.5 times leverage, it’s another 300 to 400 million. So we’ve got 800 to 900 million capacity to do deals. Even if you say 150 million of cash is stuck away for a rainy day, we’re at a point where we think we’ve got enough firepower. From that perspective, we treat this capital — it’s our obligation. This is shareholders’ capital. Our board evaluates capital allocation strategy very periodically. Every quarter we have discussions. I think, given where we sit today, and you talked about relative multiple on our own stock, if you just pro forma all the cash for this year, if you look at consensus estimates for next year on EBITDA and our ability to again convert 70%, 75% of that into free cash, that grows by another 100, 130 million.

And the implied multiple now for our own stock is low teens. If you pro forma all that cash, which is pretty much earned in 26, that will come in 27. We still think the best accretive use is to acquire assets and compound the business like we’ve done with a few deals. But I think we are at a point where, in the absence of M&A, I think the bar is lower for us to actually return capital. Obviously, we haven’t announced anything formal. The board will evaluate that and approve it over time. But I just think, given the dynamic you laid out and where we trade, given the cash balance, given the firepower, I think it’s our responsibility to be looking at all aspects to deliver shareholder value.

And this remains a key lever. And we have a lot of flexibility to impact shareholder returns here. So I think we’ll continue to evaluate that. But given all those dynamics, I think our board will make a decision. And obviously if there’s something to announce, we’ll do it in future quarters.

OPERATOR

Thank you. Our next question comes from the line of Ryan Daniels of William Blair. Your line is now open.

Matthew Mardula (Analyst)

Yeah, hello, this is Matthew Mardula on for Ryan. Thank you so much for taking all the questions. So with the American Choice Healthcare acquisition expanding Privia Health Gr into three new states, how are you approaching the onboarding and integration process across those markets? Is there anything unique or different about entering these states compared to your kind of historical onboarding experiences? And then once established, how are you thinking about the opportunity to further expand Privia’s presence in those new markets?

Anything to call out or different than your kind of previous acquisitions or partnerships?

Parth Mehrotra (Chief Executive Officer)

Yeah, thanks for the question. I think, you know, what’s changed is we’ve now done — this is our second acquisition of an ACO-only business. We did the Evolent transaction last year. I think we’ve built — the team’s done a great job integrating that acquisition. You know, that team that came over is fantastic and they had a playbook. I think hopefully we’ve improved that playbook in how we integrate these practices. I think you have to realize a lot of these practices had longstanding relationships with these businesses even before we bought them. So it’s not like these are brand-new practices. The team that we acquired with these businesses had been working with these practices. And so I think we’re going to continue to refine and improve that playbook.

I do think these transactions — being part of a much more stable, bigger entity like Privia Health Gr, where we have all the focus, all the experience with MSSP, everything starting from contracting, managing operating teams, the technology stack that we are developing, how we get data, how we organize the practices into pods and impact results and total cost of care and quality — I think all those things hopefully we can improve over time and we run our playbook in integrating these practices.

And then there’s obviously opportunity to cross-sell in the states that we have a medical group TIN, that some of these practices can join the full tax ID and the model. And so, you know, we’re going to keep running and refining and improving that playbook. But I think this is our second acquisition and we’re just going to keep building on what we’ve learned and the muscle memory that we had from previous deals.

OPERATOR

Thank you. Our next question comes from the line of Matt Shea of Needham. Your line is now open.

Matt Shea (Analyst at Needham)

Good morning. Thanks for taking the questions. Parth, you mentioned new adjacencies to go after and if I go back to the Q1 call, you highlighted the trend of multi-specialty groups and procedures moving to ambulatory surgery centers. So I guess, does exiting a partnership with Surgery Partners change how you think about surgical or ASC adjacencies? Should we just view this as a one-off situation or any change in your view on ownership of surgical or ASC assets?

Parth Mehrotra (Chief Executive Officer)

Yeah, there’s no change. In fact, I think we’re going to be more forward-leaning. Look, I think Jailendra asked the question. I gave my answer on the rationale for that one. There’s some idiosyncratic reasons — they just announced a transaction. So I think our ability to now partner with other entities, acquire other assets on our own, I think, given our balance sheet strength that we just talked about, is pretty good. I do think we’re going to be very forward-leaning on all those aspects.

You know, we operate a pretty big lab in the Mid-Atlantic. That’s a nice example of an ancillary service where we can lower the cost and provide value to the payers and to the provider groups that we have in our medical group. I think ASCs and other such opportunities around our specialist group are pretty important, and I think we’ll just continue to look for opportunities to either organically or inorganically partner with such assets. And I just think we’re a much bigger, different business where our ability to do a lot of stuff on our own has increased dramatically.

And so we can find other partners, smaller partners that have assets. And I think that the space is still pretty fragmented. So I won’t read too much into the Surgery Partners partnership exit. That was pretty much around Montana and their medical group in Montana and our ability and view on that state and how big we could scale the medical group to. I mean, it’s a very unique state. As I mentioned in previous calls, we wouldn’t have entered a state like that on our own without an angle where the provider density isn’t that high and the payer and health system dynamics are such that if we enter a state, our objective is to be one of the biggest in that state.

Otherwise it’s just not meaningful. So I think that was more related to that particular medical group versus a broader view on ASCs or surgery centers and so forth with them.

OPERATOR

Thank you. Our next question comes from the line of David Larson of BTIG. Your line is now open.

Jenny Shen (Analyst)

Hi, this is Jenny Shen on for Dave. Thanks for taking my question and congrats on a good quarter. I just wanted to ask more about cost trends, what you guys are seeing. We’ve heard comments that costs are elevated but stable. Have you seen any material change relative to a year ago and what are your cost expectations for the year ahead? Do you expect them to remain high, improve or worsen? Thank you.

Parth Mehrotra (Chief Executive Officer)

Yeah, thanks for the question, Jenny. Look, I think the answer is pretty nuanced if you look at it from the lens of a community-based medical group business like ours or an inpatient or a hospital-centric view given utilization there. So I think you got to distinguish between the two. We’ve said that in the past many times. I think the utilization and the cost trends are very different in both those buckets. So that’s kind of point one. Our business is obviously focused on the first, not the latter.

But the latter impacts us in our value-based book where downstream costs are factored in. And I think the diversification of our business speaks for itself. So I think, generally speaking, we think our ability to control costs and utilization in the ambulatory space is actually good. Utilization — people seeing their primary care providers, pediatricians, OB/GYNs, so on and so forth, family medicine doctors — on a more periodic basis is actually really good. You know we have concerted efforts to get our patients in for their annual well visits, things like that. That utilization has been pretty stable and I think they’re positive.

You can see that in our results and practice collections and that’s actually pretty good for us. I think on the inpatient side I think there are a lot of puts and takes. I think post-COVID coming in there were, obviously, cost trends were elevated. I think you’ve seen a lot of changes in attribution between the exchange population, Medicaid population — that is impacting health systems very differently. The uninsured have gone up. I think a lot of you have written about that. It again varies by state, by health system. So it’s a nuanced answer as to where you see those trends.

Our value-based book continues to perform well across those. I mean that’s reflected in our guidance across both commercial value-based, MSSP, MA. But I think the ability of a business like ours to navigate these cost trends I think just speaks for itself and our track record speaks for itself. But, you know, I think things are probably more stable than not given some of the changes that have happened. But I think we’ll just still go through some of the adjustments on the attribution from a health system perspective into next year, as you know, the lives normalize given where they land between uninsured and exchange and Medicaid. But we’ll just see how that plays out.

OPERATOR

Thank you. Our next question comes from the line of Ryan Halstead of RBC Capital Markets. Your line is now open.

Ryan Halstead (Analyst)

Morning. Thanks for taking the question. My question is about Medicare value-based care — obviously announcing a deal, growing within that program. Just curious if you have any updated thoughts on Medicare value-based care, including the evolving models like the LEAD model, you know, maybe in light of the outcome of the elections and kind of the shifting political landscape. Appreciate it.

Parth Mehrotra (Chief Executive Officer)

Yeah, I appreciate the question. So look, I mean like I said, if you look at slide eight, we’ve got two bubbles for Medicare lives. We do Medicare Advantage with all the national payers, different states and some of the Blues plans we obviously do. You know we have three, close to 340,000 lives now in MSSP and, and REACH going into LEAD in some cases with CMS. We think the long term trends in Medicare are very attractive. So I mean I’ve said that in the previous answer to a previous question.

Populations will age. The need to manage costs and improve quality and outcomes with those patients is not going to go away. I think it’s only going to increase. I think a business like ours, again with community based providers in the lowest cost setting very close to these patients is, is very well set up to do these. I think we’ve seen programs evolve over time. We really like the MSSP program. It’s an act of Congress. So I think across administrations we’ve been in the MSSP program now for over a decade.

You’ve seen us perform really well. Increase attribution, increase savings rate, deliver the value. Every year we publish our results on all the cost and quality metrics. When the results come in, we’ll do that again when we receive results over hopefully later this month. So I think we’re really bullish on that. I think the LEAD program combines some of the elements of the prior REACH program and the MSSP program. I think CMS is trying to do a really good job in moving some of these programs and evolving them. I do think there could be convergence over time because again it’s the same 65 year old life cared for by the same physician with CMS. So I think there could be more conversion and I think we look forward to some of that and I think they continue to improve those programs.

And I think on the MA book again the question was asked previously, I think once some of the dust settles from V28 star scores, some of the benefit design changes with the payers, I think the payers are going to look for partners like us and others to continue to take care of these patients and we, we look forward to increasing that book of business and leaning forward. So I think we’re pretty bullish on MA. I think it just is a very nuanced discussion on the contract, which payer, which market, how much density we have.

But the long term trends are there and I think we’re very well positioned.

OPERATOR

Thank you. We have no more questions. Gentlemen, please continue.

Robert Borchert (SVP of Investor and Corporate Communications)

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

OPERATOR

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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