The Oncology Institute Inc. Q1 2023 Earnings Call

Good afternoon, welcome to the Oncology Institute first quarter 'twenty 'twenty earnings Conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A at this time I'd like to turn the conference over to them.

He will heizer General counsel at T. O N. Thank you you may begin.

The press release announcing the oncology institutes results for the first quarter 2023 are available at the investors section of the company's website. The oncology Institute Dot Com a replay of this call will also be available.

The press release announcing the oncology institutes results for the first quarter of 2023 are available at the investors section of the company's website. The oncology Institute Dot Com a replay of this call will also be available at the company's website. After the conclusion of this call.

Before we get started I would like to remind you of the Companys Safe Harbor language management may make forward looking statements, including guidance and the underlying assumptions forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

For a further discussion of risks related to our business see our filings with the SEC.

This call will also discuss non-GAAP financial measures.

Adjusted EBITDA.

Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website.

Joining me on the call today is our CEO , Brad Highway and our CFO Mihir Shah following our prepared remarks, we'll open the call for your questions with that I'll turn the call over to Brad.

Thanks, Mark and thank you to everyone joining us today.

We started off the year strong continuing our positive momentum from the fourth quarter. It was a record setting quarter for fee for service revenue.

Dispensary revenue oral drugs dispensed and organic growth as we made meaningful progress towards refining and optimizing our model and expansion markets, specifically organic growth in Florida.

The growth in our dispensary business in particular, it was driven by operational effectiveness in optimizing our existing dispensaries and scale in Florida.

As Youll hear from here when he goes through our financial results, we generated top line growth of 38%.

Importantly, our organic growth rate was 25% and our same store sales growth was 21%.

We are very proud of this growth as it demonstrates extremely strong demand for our model from both patients and payers.

Our value based wise continued to grow and as the cornerstone of our model I'm happy to share that we signed two new value based contracts since the beginning of the year, one in southern California, and another in our Texas market.

The recent contract in Texas is particularly notable as it marks our first value based contract with a primary care partner in that market.

And it also marks our first total cost of care contract, where we take accountability for bulk quality outcomes as well as part a b and D cost.

Our business development pipeline remains strong and deep and I look forward to updating you as the year progresses.

On a related note. We are excited to report that we've received data from the first performance period for one of our value based partners in Florida.

The data showed greater than 50% referral capture and greater than 30% cost savings.

This is a significant milestone for T O Y and a strong proof point of our model is differentiated approach and meaningful cost savings.

Concurrently we experienced significant downward pressure on our IV drives margins in the first quarter as manufacturers hedged against the upcoming inflation reduction Act.

And as reimbursement and costs realigned with certain generic drugs, becoming established in the market.

Our team has been swift to respond identifying opportunities to save.

Including membership into an oncology specific G P L.

Which began in Q2.

As a result, we expect to generate additional savings on several key infusion drugs in Q2 and beyond from this membership.

I'm proud of our team's ability to adapt and innovate and I want to thank them for their dedication and effectiveness.

As I've mentioned previously.

<unk> 2022 policy is preventing us from dispensing oral drugs, who are medical members.

We have now entered into an LOI to acquire a retail pharmacy in California, which once acquired in credential will enable us to dispense oral drugs to those patients once again.

As you are all aware much of the innovation in oncology Therapeutics has resulted in new oral therapies.

Additional highlights from the quarter include.

Oral drugs dispensed increased 34% compared to Q1 2022.

Yes.

This is yet another example of toi, bringing cutting edge treatments into the local community.

One 7% increase compared to Q4 2022.

Gross profit for Q1, 2023 was $14 million, an increase of 14% compared to Q1 2022.

Net loss for Q1, 2023 was $30 million a decrease of $49 million compared to Q1 2022 preliminary due to change in fair value of earn out liabilities and the increase in operating days.

Offset by goodwill impairment charge.

Adjusted EBIT cap was negative seven 9 million.

But I'd just say adjusted EBIT calculation does not add back for wider startup cost nor the consulting and legal fees associated with the acquisition cost for the details on how we define adjusted EBITDA can be found in our 10-K.

Note that in Q2 <unk> to Q4, we have modified our adjusted EBITDA calculation to now include cash compensation paid to our board of directors.

As of quarter end, our cash and cash equivalents balance was 15 million and we had $99 million in investments for a total of 114 million of cash cash equivalents and investments. We expect this capital to be sufficient to support operations.

To enhance our growth through 2024.

Now talking about guidance, our full year guidance remains unchanged and we continue to expect to end the year with 1.75 billion to $2 1 million license application.

The new range is 219 million to 320 million.

That's 15% to 27% growth over 2022 revenue.

Our gross profit guidance ranges from $16 million to $17 million and our adjusted EBITDA guidance ranges from negative 75 million to negative 28 million I will now turn it back over to Pat Watson somebody anymore.

Thanks for me here.

While our first quarter results were pressured by lower than expected IV drug margins I'm proud of how our team responded to this challenge.

Overall, we expect seasonally lower adjusted EBITDA in Q1 with current your initiatives beginning to ramp payroll taxes, resetting and new drug manufacturer price increases, we do expect adjusted EBITDA margins to trend favorably as the year progresses.

As the U S market leader in value based oncology care, we continue to expand our patient base grow the number of value based partnerships and deliver high quality outcomes to cancer patients.

As I mentioned in last quarter's call our top three priorities in 2023 are first refining and optimizing our model and expansion markets, including optimizing referral capture and transitioning gained share contracts population risk agreements.

Second <unk>.

Growing our legacy markets by expanding our service offerings in existing clinics and expanding to new counties.

And third reducing cash burn by improving efficiency with new technology solutions, optimizing direct margin and taking a more sustainable approach to new market entry.

Look forward to updating you on our progress across these three items on future calls.

With that we're now ready to take your questions operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

For me some tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

One moment, please while we poll for questions.

Thank you My first question is from Brian <unk> with Jefferies. Please proceed with your question.

Hey, good afternoon guys.

Hey, Brian .

So I guess Brad.

Maybe for my first question is I think about the total cost of care contract, maybe if you can.

Share with us what youre seeing in the market in terms of appetite or interest level from other folks in similar types of arrangements.

Yeah sure so the.

And I'm glad you asked about it but an exciting milestone for the company because it enables us to manage a larger portion of the total spend related to oncology patients. So expands our tam or quote unquote share of wallet with our customers sitting on.

We think we can do a great job of improving outcomes and costs beyond just the drug cost and physician costs associated with oncology, but also hospitalization costs related to oncology patients.

We have seen an increase.

Interest from our primary care partners and putting us at risk for total cost of care not just the oncology drugs in oncology physician nursing services.

I think that in part is because it's just a nice alignment.

Because we manage holistically, our patients and to our partners want to put us at risk where all cost.

It's also I think representative of some other specialties, who.

Who for example, nephrology, where these total cost of care arrangements are more common the primary care groups are doing total cost of care arrangements with other specialties and Theyre, saying Hey, These are working for other specialties, let's try it out in oncology. So we haven't seen a lot of interest in that this year.

Got it Okay, and then Brad on the oncology GPO discussion is there any way you can quantify the cost savings that you're expecting and maybe the timeframe to realize them and maybe what is in the guidance for that initiative.

Yes, sure we have not.

We're not ready to release publicly what the expected cost savings are yet.

It was not enough to cause us to change our guidance for the year.

But given that we just started participation.

Last month, we haven't wanted to we wanted to say a few months play out before we put a stake in the ground on quantifying it but suffice it to say, we don't think it's enough to cause us to change our full year guidance.

Got it Okay. No that's awesome and then maybe last question for me.

As I look at them.

The one oncology deal and obviously getting closer with.

Yes, sure I mean first off I think it demonstrates.

Substantial demand for oncologists and oncology practices.

This represents an interest by.

And behind the scenes, we're aware of a number of participants who are.

We believe we're looking at that deal.

Presents a sort of a broad interest in owning and managing oncology practices.

Because of how much of the spend we control.

So broadly speaking I think demonstrate.

Yeah.

I think in some ways it does demonstrate that there.

Bill a lot of money to be made in fee for service oncology.

And.

That's I think demonstrated by Greg drug Descript distributors.

Interest and controlling the oncologist.

We tried to focus on value based oncology.

And we're trying to demonstrate that value based oncology can also be profitable and we're trying to convince our customers to reward us for the savings we create when we both improve outcomes and lower costs.

Got you Okay awesome. Thank you guys.

Youre welcome.

Thank you as a reminder, press star one to ask a question at this time.

Our next question is from Sandy.

With Guggenheim Partners. Please proceed with your question.

Hi, This is mitchell on for Sandy.

Hey, Mitchell one.

Hey, How's it going.

One question on guidance.

Oh.

We've seen over the past several years that you've grown revenue sequentially throughout the year and here. If we look at the <unk> print and we annualize that we get to right around the midpoint of the full year guide. So just trying to understand what's embedded in that guide and any color there would be helpful.

25% organic growth is really spectacular.

And so we started the year very strong from a revenue perspective.

We hear anything you want to anything you want to add to that.

No.

I think you covered it right and also reminding.

The group that we our guidance does not include any acquisition toward the year so far.

Right.

Q1 to Q4, we believe we shouldn't be able to.

Comfortable with our guidance for the year.

Awesome. Thank you that's helpful. And then just just one more just kind of on the broader environment has anything changed in the Aqua hire environment in terms of multiples and just kind of broadly our people more or less willing to sell their practices and just any color on the pipeline there would be helpful.

Yes sure.

I'm always cautious to draw macro insights.

Small number of Aqua hires and acquisitions that we are pursuing at any one time.

So while I'm cautious.

We'd be happy to do it we have seen just as the overall market has contracted a little bit I think there is some lag to sellers' expectations realigning with.

You know current market multiples.

But on balance they have come down a little bit. So I think sellers are more realistic and starting to understand it.

The valuation multiples that existed in 2021 don't exist today, and so slowly with a little bit of lag that we have seen those expectations come down.

Got it. Thanks, that's all I had appreciate it.

You're welcome.

Yeah.

There are no further questions at this time I would now.

Like to turn the floor back over to Brad Hi, Lee for closing comments.

Great well. Thank you all for joining our call today, and we look forward to following up with you in the coming weeks, we're very excited about DLA <unk> path ahead, and we look forward to updating you on our progress on our next earnings call. Thank you and have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

[music].

[music].

Right.

[music].

Okay.

Right.

[music].