Oncology Institute Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

There are 6 speakers on the call.

Operator

Good afternoon. Welcome to the Oncology Institute First Quarter 2023 Earnings Conference Call. Today's call is being At this time, I'd like to turn the conference over to recorded to Heepel Heizer, General Counsel at TOI. Thank you. You may begin.

Speaker 1

Recorded. The press release announcing the Oncology Institute's results for the Q1 of 2023 are available at the Investors recorded. The press release announcing the Oncology Institute's results for the Q1 2023 recorded. Before we get started, I would like to remind you of the company's Safe Harbor language. Recorded.

Speaker 1

Management may make forward looking statements, including guidance and underlying assumptions. Forward looking statements are based on expectations that involve risks recorded 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. Recorded. This call will also discuss non GAAP financial measures such as adjusted EBITDA.

Speaker 1

Reconciliation of these non GAAP measures to the most recorded. Joining me on the call today is our CEO, Brad Heighley 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. Recorded.

Speaker 2

Thanks, Mark, and thank you to everyone joining us today. We started off the year strong, continuing our positive momentum from the 4th quarter. It was a record setting quarter for fee for service revenue, recorded. The growth in our dispensary business, in particular, was driven by operational effectiveness in optimizing our existing dispensaries and scale in Florida. As you'll hear from Mihir when he goes through our financial results, we generated top line growth of 38%.

Speaker 2

Recorded. Importantly, our organic growth rate was 25% and our same store sales growth was 21%. Recorded. We are very proud of this growth as it demonstrates extremely strong demand for our model from both patients and payers. Recorded.

Speaker 2

Our value based lives continue to grow. And as the cornerstone of our model, I'm happy to share that we signed 2 recorded. New value based contracts since the beginning of the year, one in Southern California and another in our Texas market. Recorded. 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 both quality outcomes as well as Part A, B and D costs.

Speaker 2

Recorded. Our business development pipeline remains strong and deep, and I look forward to updating you as the year progresses. Recorded. On a related note, we are excited to report that we've received data from the first performance period recorded for one of our value based partners in Florida. The data showed greater than 50% referral capture recorded and greater than 30% cost savings.

Speaker 2

This is a significant milestone for TOI and a strong proof point of our model's differentiated approach and meaningful cost savings. Concurrently, we experienced Significant downward pressure on our IV drought margins in the Q1 as manufacturers hedged against the upcoming recorded 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 GPO, which began in Q2. As a result, we expect to generate additional savings on several 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 their dedication and effectiveness.

Speaker 2

As I've mentioned previously, Medi Cal's 2022 policy is preventing us from dispensing oral drugs to our Medi Cal members. We have now entered into an LOI recorded to acquire a retail pharmacy in California, which once acquired and credentialed will enable us to dispense oral drugs to those patients once again. Recorded. As you are all aware, much of the innovation in oncology therapeutics has resulted in new oral therapies. It is important for TOI to have access to dispense both oral and IV medications.

Speaker 2

Therefore, our acquisition of a retail pharmacy will be an important milestone to achieve this objective. Additional highlights from the quarter include: recorded. Oral drugs dispensed increased 34% compared to Q1 2022. Recorded. Total patient visits increased 17% compared to Q1 2022.

Speaker 2

And the TOI patient was the 1st worldwide to be treated with a promising alternative to chemotherapy for metastatic ovarian cancer through a partnership with Tempest Laboratories. Recorded. This is yet another example of TOI bringing cutting edge treatments into the local community. Now, I'll turn the call over to Mihir to provide additional details on our Q1 financial results.

Speaker 3

Thanks, Brad. Starting with the top line. Recorded. Consolidated revenue for Q1 2023 was $76,000,000 an increase of 38.1 percent compared to in Q1 2022 had a 6.7% increase compared to Q4 2022. Recorded.

Speaker 3

Gross profit for Q1 2023 was $14,000,000 an increase of 14% compared to Q1 2022. Net loss for Q1 2023 was $30,000,000 a decrease of $49,000,000 compared to Q1 2022, primarily due to change in fair value of earn out liabilities and increase in operating revenue, offset by goodwill impairment charge. Adjusted EBITDA was negative 7,900,000 recorded. Adjusted EBITDA calculation does not add back provider start up costs nor the by the company's financial results. Further details on how we define adjusted EBITDA can be found in our 10 ks.

Speaker 3

Recorded. Of note, starting 2022 Q4, we have modified our adjusted EBITDA calculation recorded to now include cash compensation paid to our Board of Directors. As of quarter end, our cash and cash equivalent balance was $15,000,000 and we had $99,000,000 in investments for a total of $114,000,000 of cash, by cash equivalents and investment. We expect this capital to be sufficient to support operations and enhance our growth through 2024. Recorded.

Speaker 3

Now talking about guidance. Our full year 2023 guidance remains unchanged, and we continue to expect to end the year with $1,750,000 to $2,000,000 lies under capitation. Our revenue range is $290,000,000 to $320,000,000 This represents 15% to 27% growth over 2022 revenue. Recorded. Our gross profit guidance ranges from $60,000,000 to $70,000,000 and our adjusted EBITDA guidance ranges from negative $25,000,000 to negative $28,000,000 I will now turn it back over to Brad for some summary remarks.

Speaker 2

Recorded. Thanks, Mihir. While our Q1 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 recorded with current year 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.

Speaker 2

As the U. S. Market leader in value based oncology care, we continue to expand our by the number of value based partnerships and deliver high quality outcomes to cancer patients. Recorded. As I mentioned in last quarter's call, our top three priorities in 2023 are: 1st, refining and optimizing our model in expansion markets, including optimizing referral capture and transitioning Gainshare contracts to population risk agreements.

Speaker 2

2nd, growing our legacy markets by expanding our service offerings in existing clinics and expanding to new counties And 3rd, reducing cash burn by improving efficiency with new technology solutions, optimizing drug margins and taking a more sustainable approach to new market entry. Recorded. I 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?

Operator

Recorded. Thank you. We will now be conducting a question and answer session. Is being Thank you. Our first question is from Brian Tanquil with Jefferies.

Operator

Please proceed with your question.

Speaker 4

Hey, good afternoon, guys. Hey, Brad. So I guess, Brad, maybe for my first question, as I think about these total cost of care contracts, Maybe if you can share with us what you're seeing in the market, in terms of appetite or interest level from other folks

Speaker 2

recorded. Yes, sure. So this is and I'm glad you asked about it, recorded. It's 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 share of wallet with our customers.

Speaker 2

And we think we can do a great job improving outcomes and costs Beyond just the drug costs and physician costs associated with oncology, but also hospitalization costs related to oncology patients. Recorded. We have seen an increase in interest from our primary care partners in putting us at risk recorded for total cost of care, not just the oncology drugs and oncology physician nursing services. I think that in part is because it's just a nice alignment, because we manage holistically our patients and so our partners want to put us at risk for all costs. It's also, I think, representative of some other specialties who, for example, nephrology, where these Total cost of care arrangements are more common.

Speaker 2

The primary care groups are doing total cost of care arrangements with other specialties and they're saying, hey, these are working for other specialties, Let's try it out in oncology. So we have seen a lot of interest in that this year.

Speaker 4

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?

Speaker 2

Yes, sure. We have not We're not ready to release publicly what we the expected cost savings are. It was not enough to cause us to change our But given that we just started participation this last month, We haven't wanted to we want to see 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.

Speaker 4

Got you. Okay. No, that's awesome. And then maybe last question for me. As I look at The one oncology deal and obviously getting closer with ABC here.

Speaker 4

Any thoughts on what that could potentially do to the industry or to your business more specifically? Recorded.

Speaker 2

Yes, sure. I mean, first off, I think it demonstrates substantial demand for oncologists and oncology practices and represents an interest by and behind the scenes, we're aware of a number of participants who were We believe we're looking at that deal, represents a sort of a broad interest in owning and managing oncology recorded. So broadly speaking, I think it demonstrates Yes, strong demand for companies like ours. I think in some ways, it does demonstrate that there is recorded by drug distributors' interest in controlling the oncologists. Recorded.

Speaker 2

We try to focus on value based oncology, and we're trying to demonstrate that value based oncology can also being 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.

Operator

Recorded. Our next question is from Sandy Dapper with Guggenheim Partners. Please proceed with your question.

Speaker 5

Hi. This is Mitchell on for Sandy. Hey, Mitchell. Hey, how's it going? Good.

Speaker 5

One question on guidance. Recorded. We've seen over the past several years that you've grown revenue sequentially throughout the year. And here if we look at the 1Q recorded and we annualize it, but 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.

Speaker 2

Recorded. Yes, sure. I'll start and Nahir jump in anywhere you'd like. We were very pleased with top line growth this quarter, 25 percent organic growth is really spectacular. And so we started the year very strong from a revenue perspective.

Speaker 2

Mihir, anything you want to add to that?

Speaker 3

Recorded. I think you covered it right. And also reminding the group that our guidance does not recorded. And we are comfortable with our guidance where we recorded.

Speaker 5

Awesome. Thank you. That's helpful. And then just one more, just kind of on the broader environment. Has anything changed in the acqui hire environment in terms of multiples and just kind of broadly are people more or less willing to sell their practices and just recorded.

Speaker 5

Any color on the pipeline there would be helpful.

Speaker 2

Yes, sure. I'm always cautious to draw macro insights from Small number of acquihires and acquisitions that we are pursuing at any one time. So while I'm cautious, I would 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 current market multiples. But on balance, they have come down a little bit.

Speaker 2

So I think sellers are more realistic and starting to understand that some of the Valuation multiples that existed in 2021 don't exist today. And so slowly with a little bit of lag, we have seen those expectations come down.

Speaker 5

Got it. Thanks. That's all I had. Appreciate it.

Speaker 3

Great. You're welcome.

Operator

Recorded. Thank you. There are no further questions at this time. I would like to turn the floor back over to Brad Hively for closing comments.

Speaker 2

Great. Well, thank you all for joining our call today. We look forward to following up with you in the coming weeks. We're very excited about TOI's path ahead and we look forward to updating you on our progress on our next earnings call. Thank you and have a good day.

Operator

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

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Earnings Conference Call
Oncology Institute Q1 2023
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