prva-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_______________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40365

_________________________

Privia Health Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)

_________________________


Delaware		81-3599420
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

950 N. Glebe Rd.,
Suite 700
Arlington,	Virginia	22203
(Address of Principal Executive Offices)		(Zip Code)

(571) 366-8850

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRVA	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 28, 2023, the registrant had outstanding 117,363,208 shares of common stock.

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TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
Signatures		33

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include factors related to, among other things:

•the heavily regulated industry in which we operate, and if we fail to comply with applicable healthcare laws and government regulations, we could incur financial penalties and become excluded from participating in government health care programs;

•our dependence on relationships with Medical Groups (defined herein), some of which we do not own;

•our growth strategy, which may not prove viable and we may not realize expected results;

•difficulties implementing our proprietary end-to-end, cloud-based technology solution (the “Privia Technology Solution”) for Privia Physicians (defined herein) and new Medical Groups;

•the high level of competition in our industry and our failure to compete and innovate;

•challenges in successfully establishing a presence in new geographic markets;

•our reliance on our electronic medical record (“EMR”) vendor, athenahealth, Inc., which the Privia Technology Solution is integrated with and built upon;

•changes in the payer mix of patients and potential decreases in our reimbursement rates as a result of consolidation among commercial payers;

•our use, disclosure, and other processing of personal information is subject to various federal and state privacy and security regulations and our use, disclosure, and other processing of protected health information is subject to the Health Insurance Portability and Accountability Act of 1996;

•the continued availability of qualified workforce, including staff at our Medical Groups, and the continued upward pressure on compensation for such workforce; and

•other risk factors described in our annual report on Form 10-K for the year ended December 31, 2022 and our other filings with the Securities and Exchange Commission (“SEC”).

You should read this quarterly report on Form 10-Q and the documents that we reference in this quarterly report on Form 10-Q and have filed as exhibits to this quarterly report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this quarterly report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this quarterly report on Form 10-Q, whether as a result of any new information, future events or otherwise.

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Part I - Financial Information

ITEM 1. FINANCIAL STATEMENTS

Privia Health Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	June 30, 2023		December 31, 2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	317,945	$	347,992
Accounts receivable	319,839		189,604
Prepaid expenses and other current assets	16,216		14,366
Total current assets	654,000		551,962
Non-current assets:
Property and equipment, net	2,876		3,386
Right-of-use asset	7,555		8,089

Intangible assets, net	96,238		57,387
Goodwill	135,050		126,938
Deferred tax asset	37,109		40,368
Other non-current assets	4,746		4,683
Total non-current assets	283,574		240,851
Total assets	$	937,574	$	792,813

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	48,870	$	52,837
Provider liability	306,368		208,424


Operating lease liabilities, current	3,206		3,013
Total current liabilities	358,444		264,274
Non-current liabilities:



Operating lease liabilities, non-current	6,508		8,490
Other non-current liabilities	1,313		1,000
Total non-current liabilities	7,821		9,490
Total liabilities	366,265		273,764
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value, 1,000,000,000 and 1,000,000,000 shares authorized; 117,106,892 and 114,690,808 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	1,171		1,148
Additional paid-in capital	726,156		714,639
Accumulated deficit	(202,095)		(216,693)
Total Privia Health Group, Inc. stockholders’ equity	525,232		499,094
Non-controlling interest	46,077		19,955
Total stockholders’ equity	571,309		519,049
Total liabilities and stockholders’ equity	$	937,574	$	792,813

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Privia Health Group, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share data)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022

Revenue	$	413,351	$	335,536	$	799,627	$	649,337

Operating expenses:
Provider expense	321,718		259,311		623,973		501,498
Cost of platform	50,200		42,384		94,930		83,656
Sales and marketing	5,956		4,819		11,242		9,480
General and administrative	26,808		33,107		52,759		69,217
Depreciation and amortization	1,690		1,165		3,030		2,283
Total operating expenses	406,372		340,786		785,934		666,134
Operating income (loss)	6,979		(5,250)		13,693		(16,797)
Interest (income) expense, net	(817)		663		(2,630)		895
Income (loss) before provision for income taxes	7,796		(5,913)		16,323		(17,692)
Provision for income taxes	1,436		5,468		3,561		11,776
Net income (loss)	6,360		(11,381)		12,762		(29,468)
Less: loss attributable to non-controlling interests	(914)		(906)		(1,836)		(1,483)
Net income (loss) attributable to Privia Health Group, Inc.	$	7,274	$	(10,475)	$	14,598	$	(27,985)
Net income (loss) per share attributable to Privia Health Group, Inc. stockholders – basic	$	0.06	$	(0.10)	$	0.13	$	(0.26)
Net income (loss) per share attributable to Privia Health Group, Inc. stockholders – diluted	$	0.06	$	(0.10)	$	0.12	$	(0.26)
Weighted average common shares outstanding – basic	116,161,251		108,685,835		115,588,313		108,374,181
Weighted average common shares outstanding – diluted	124,570,875		108,685,835		124,467,343		108,374,181

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Privia Health Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands except share amounts)


	Common Stock Shares	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity attributable to Privia Health Group, Inc.		Non-controlling Interest		Total Stockholders’ Equity















Balance at December 31, 2021	107,837,741	$	1,078	$	633,902	$	(208,108)	$	426,872	$	23,309	$	450,181
Issuance of common stock upon exercise of stock options	435,030	5		794		—		799		—		799
Stock-based compensation expense	—	—		24,881		—		24,881		—		24,881
Contributed non-controlling interest	—	—		—		—		—		125		125
Net loss	—	—		—		(17,510)		(17,510)		(577)		(18,087)
Balance at March 31, 2022	108,272,771	1,083		659,577		(225,618)		435,042		22,857		457,899
Issuance of common stock upon exercise of stock options and vesting of restricted stock units	1,309,963	13		2,105		—		2,118		—		2,118
Stock-based compensation expense	—	—		18,470		—		18,470		—		18,470

Net loss	—	—		—		(10,475)		(10,475)		(906)		(11,381)
Balance at June 30, 2022	109,582,734	$	1,096	$	680,152	$	(236,093)	$	445,155	$	21,951	$	467,106

Balance at Balance at December 31, 2022	114,690,808	$	1,148	$	714,639	$	(216,693)	$	499,094	$	19,955	$	519,049
Issuance of common stock upon exercise of stock options and vesting of restricted stock units	779,153	11		1,466		—		1,477		—		1,477
Stock-based compensation expense	—	—		5,381		—		5,381		—		5,381
Contributed non-controlling interest	—	—		—		—		—		24,212		24,212
Net income (loss)	—	—		—		7,324		7,324		(922)		6,402
Balance at March 31, 2023	115,469,961	1,159		721,486		(209,369)		513,276		43,245		556,521
Issuance of common stock upon exercise of stock options and vesting of restricted stock units	1,636,931	12		4,294		—		4,306		—		4,306
Stock-based compensation expense	—	—		9,247		—		9,247		—		9,247
Repurchase of non-controlling interest	—	—		(8,871)		—		(8,871)		3,177		(5,694)
Contributed non-controlling interest	—	—		—		—		—		569		569
Net income (loss)	—	—		—		7,274		7,274		(914)		6,360
Balance at June 30, 2023	117,106,892	$	1,171	$	726,156	$	(202,095)	$	525,232	$	46,077	$	571,309

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Privia Health Group, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	For the Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net income (loss)	$	12,762	$	(29,468)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation	581		615
Amortization of intangibles	2,449		1,668
Amortization of debt issuance costs	—		687



Stock-based compensation	14,628		43,351

Deferred tax expense	3,259		11,542
Changes in asset and liabilities:
Accounts receivable	(130,235)		(96,487)
Prepaid expenses and other current assets	(1,850)		(6,491)
Other non-current assets and right-of-use asset	473		2,225
Accounts payable and accrued expenses	(3,967)		(5,651)

Provider liability	97,944		81,169



Operating lease liabilities	(1,789)		(1,263)
Other long-term liabilities	(32)		—
Net cash (used in) provided by operating activities	(5,777)		1,897
Cash from investing activities
Purchases of property and equipment	(72)		(73)

Business Acquisitions, net of cash acquired	(24,856)		—
Net cash used in investing activities	(24,928)		(73)
Cash flows from financing activities


Repayment of note payable	—		(33,250)
Proceeds from exercised stock options	5,783		2,917
Repurchase of non-controlling interest	(5,694)		—
Proceeds from non-controlling interest	569		125



Net cash provided by (used in) financing activities	658		(30,208)
Net decrease in cash and cash equivalents	(30,047)		(28,384)
Cash and cash equivalents at beginning of period	347,992		320,577
Cash and cash equivalents at end of period	$	317,945	$	292,193

Supplemental disclosure of cash flow information:
Interest paid	$	57	$	647
Income taxes paid	$	599	$	245

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Privia Health Group, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Organization and Summary of Significant Accounting Policies

Organization

Privia Health Group, Inc. (“Privia Health”, “Privia”, or the “Company”) is a technology-driven, national physician-enablement company that collaborates with medical groups, health plans, and health systems to optimize physician practices, improve patient experiences, and reward doctors for delivering high-value care in both in-person and virtual care settings (the “Privia Platform”).

The Company uses the same operational and financial model in each market it operates in. As of June 30, 2023, Privia operates in thirteen markets: 1) the Mid-Atlantic Region (states of Virginia, Maryland and the District of Columbia); 2) Georgia; 3) the Gulf Coast Region (Houston, Texas); 4) North Texas (Dallas/Fort Worth, Texas); 5) West Texas (Abilene, Texas); 6) Central Florida; 7) Tennessee; 8) California; 9) Montana; 10) Ohio; 11) North Carolina; 12) Delaware; and 13) Connecticut.

Medical groups are formed in each market with the primary purpose to operate as a physician group practice with healthcare services being furnished through physician members (“Privia Physicians”) and non-physician clinicians (together, “Privia Providers”) supervised by Privia Physicians.

The Company also forms local management companies to provide administrative and management services (“MSOs”) to the medical groups through a Management Services Agreement (“MSA”) in each market. The Company owns 100% of all MSOs, except four where the Company is at least the majority owner.

Basis of Presentation

The condensed consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its subsidiaries. Amounts shown on the condensed consolidated statements of operations within the operating expense categories of provider expense, cost of platform, selling and marketing, and general and administrative are recorded exclusive of depreciation and amortization.

All significant intercompany transactions are eliminated in consolidation.

The results of operations for the six months ended June 30, 2023, are not indicative of the results to be expected for the full fiscal year ending December 31, 2023. The condensed consolidated balance sheet at December 31, 2022, was derived from audited annual financial statements but does not contain all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of only normal and recurring adjustments) considered necessary for a fair statement have been included.

Variable Interest Entities

Management evaluates the Company’s ownership, contractual, and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available historical information, among other factors. 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 has relationships with medical groups in which the Company has no ownership interests, which are either (a) owned 100% by Privia Physicians (“Non-Owned Medical Groups”) or (b) majority owned, indirectly through a professional entity by a licensed physician holding a Privia leadership position (“Friendly Medical Groups”). Each of our Medical Groups (e.g., Owned Medical Groups, Non-Owned Medical Groups and Friendly Medical Groups) contracts with the Privia Physician’s historic practice entity, which no longer furnishes healthcare services (the “Affiliated Practice”) whereby the Affiliated Practice provides certain subcontracted services to the Medical Groups to allow the Medical Group to operate at the practice location.

The Company evaluated its relationship with (a) Non-Owned Medical Groups (not including Friendly 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. The Physician Member Services Agreement (“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 Friendly Medical Groups. Management has determined, based on the

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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 on the Nominee Physician (Friendly PC), 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 Friendly PCs.

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. An Affiliated Practice 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 three and six months ended June 30, 2023 and 2022. 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 as those outlined above.

The Company, however, does meet the criteria for consolidation of the Friendly Medical Groups based on the discussion above.

In February 2023, the Company announced a partnership with Community Medical Group, the largest Clinically Integrated Network (“CIN”) in Connecticut with approximately 1,100 multi-specialty providers, to launch Privia Quality Network Connecticut (“PQN-CT”). The Company performed an analysis as noted above and determined that PQN- CT does not represent a VIE as it does not meet the criteria in ASC 810, but the entity is consolidated because Privia owns a majority of the voting interest in the entity.

Privia Medical Group – West Texas, PLLC, (“PMG West Texas”) is a physician-owned Medical Group, with PMG West Texas Holdings, PLLC (“Friendly WTX 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 PMG West Texas. The Company has a contractual relationship with Friendly WTX PC through a Restriction Agreement. The VIE analysis was performed, and the Company determined that characteristic (b) exists as a result of meeting (ii) and (iv) and as such, PMG West Texas and Friendly WTX PC do represent VIEs and are consolidated as they do meet the criteria in ASC 810.

Privia Medical Group Tennessee, PLLC (“PMG-TN”) is a physician owned Medical Group, with PMG-TN Physicians, PLLC, a Tennessee professional limited liability company entirely owned by a licensed physician with a leadership role in the Company (“Friendly TN PC”), owning majority membership interests therein and having governance and control rights via the governing documents of PMG-TN. Again, the same analysis was performed, and the Company determined that characteristic (b) exists as a result of meeting (ii) and (iv) and as such, PMG-TN and Friendly TN PC do represent VIEs as they do meet the criteria in ASC 810.

The aggregated carrying value of the Company’s VIE’s for both the current assets and liabilities included in the consolidated balance sheets after elimination of intercompany transactions were $2.0 million as of June 30, 2023 and $1.4 million as of December 31, 2022.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure. On an on-going basis the Company evaluates 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.

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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.

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 the Company’s 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, the Company 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 February 2023, the Company completed an acquisition to expand into a new market. The consideration paid for the acquisition was derived through arm’s length negotiations. The Company’s acquisition 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 acquisition 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.”

Non-Controlling Interest

The non-controlling interest represents the equity interest of the non-controlling equity holders in results of operations of Privia Management Services Organization, LLC, Privia Management Company Montana, LLC, BASS Privia Management Company of California, LLC, Privia Management Company West Texas, LLC, Privia Management Company North Carolina, LLC, Privia Management Company of Ohio, LLC, Privia Services Company Connecticut, LLC, Privia Quality Network Connecticut, LLC, Privia Quality Network Delaware, LLC and our Owned Medical Groups. The condensed consolidated financial statements include all assets, liabilities, revenues, and expenses of less-than-100%-owned affiliates where the Company has a controlling financial interest. The Company has separately reflected net income attributable to the non-controlling interests in net income in the condensed consolidated statements of operations.

Significant Accounting Policies

The Company described its significant accounting policies in Note 1 of the notes to consolidated financial statements for the year ended December 31, 2022 in the Annual Form 10-K. During the three and six months ended June 30, 2023, there were no significant changes to those accounting policies and estimates, other than those noted below.

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 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 “Stockholders’ Equity.”

The Company issued certain performance stock units ("PSUs") during the second quarter of 2023. The awards will vest based on the satisfaction of certain service conditions, performance-based conditions, and market conditions. The Company has identified certain performance metrics associated with these awards and certain targets will be fully established at a future date. The Company has determined that the service inception date precedes the grant date for these awards as (a) the awards were authorized prior to establishing an accounting grant date, (b) the recipients began providing services prior to the grant date, and (c) there are performance

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conditions that, if not met by the accounting grant date, will result in the forfeiture of the awards. As the service inception date precedes the accounting grant date, the Company recognizes stock-based compensation expense over the requisite service period based on the estimated fair value at each reporting date.

Recently Adopted Accounting Pronouncements

None.

Recently Issued Accounting Pronouncements Pending Adoption

None.

2. Revenue Recognition

The following table presents our revenues disaggregated by source:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023	2022
FFS-patient care	$	230,987	$	211,286

SEC Form 10-Q filed by Privia Health Group Inc.