The Oncology Institute, Inc. (TOI) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Oncology Institute's First Quarter 2022 Earnings Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Mihir Shah, Chief Financial Officer at TOI. Thank you. You may begin.

Good afternoon, everyone, and thanks for joining us to discuss TOI's First Quarter 2022 Results. Before we begin, we would like to remind you that this conference call will include forward-looking statements. These statements include our future expectations regarding financial results and guidance, market opportunities and our growth. These statements are subject to various risks, uncertainties and assumptions that could cause our actual results to differ materially from these statements. These risks, uncertainties and assumptions are detailed in this afternoon's press release as well as our filings with the SEC, including our registration statement on Form S-1 that was filed with the SEC and the Form 10-Q, all of which can be found on our website at investors.theoncologyinstitute.com. We undertake no obligations to revise or update any forward-looking statements or information, except as required by law. During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, free cash flow and adjusted diluted EPS. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented in accordance with GAAP. Please note that our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of GAAP to non-GAAP measures as well as the description, limitations and rationale of using each measures can be found in this afternoon's press release and in our SEC filings. Joining me on the call today is our CEO, Brad Hively. Following our prepared remarks, we will open the call for your questions. With that, I will turn the call over to Brad.

Thanks, Mihir, and welcome to the team. Mihir joined TOI on April 1 and brings more than 18 years of health care experience from both the payer and the provider side. Now to support our growth and expansion, we continue to enhance our leadership team in the first quarter. In March, we announced 2 promotions, Dr. Daniel Virnich, to the President role and Dr. Matt Miller to the Chief Operating Officer role. We also hired our Senior Vice President of Compliance, Khurrum Shah. During the past quarter, TOI has made significant progress in addressing the rapidly rising cost of oncology care by executing on our growth strategy. To that end, we recently announced results from our participation in CMS's Oncology Care Model Program, or OCM. Since the start of that program in 2016, TOI has driven savings for Medicare of $9.5 million, exceeding our target savings by $5.3 million. In the most recent OCM performance period, TOI saw savings of close to $4,000 per patient episode. In addition to meaningful cost savings, TOI demonstrated above-average quality performance based on its aggregate score. I'm very proud of our results in this program as it speaks directly to TOI's track record of achieving better outcomes for patients at lower costs. TOI continues to support the advancement of oncology payment design and care delivery, and we believe we're leading the way for the adoption of value-based models for oncology care nationally. Our success in building a new model for oncology care is also gaining traction in our expansion markets. We recently announced an exciting new partnership with MaxHealth in Tampa Bay, Florida. Starting March 1, we entered into a value-based contract with MaxHealth to provide medical oncology care to patients in Pinellas and Hillsborough counties. This contract will be our third gain share relationship in Florida. And in this contract, TOI and MaxHealth will share in the savings generated for patients we treat. MaxHealth is a leader in primary care delivery with a strong reputation for providing outstanding care coordination and services for the patients in the counties they serve. We believe our oncology model aligns exceptionally well with their approach to patient care, and we're excited to grow this relationship into new markets over time. Another exciting development we wanted to highlight was our expansion into the Fresno market in Central California. TOI recently acquired Women's Cancer Care in Fresno, a highly regarded breast and gynecological cancer practice founded by Dr. Christopher Perkins more than 20 years ago. Fresno marks our 12th market and offers continued opportunity to expand our care delivery model into new communities. Some other highlights on our progress this past quarter include: we opened our sixth Florida clinic in Lakeland, Florida. We opened a de novo clinic in Culver City, California, our 22nd clinic in the Los Angeles market and our first in West Los Angeles, allowing us to expand our model further into this important region. We also consolidated and renovated our Riverside location, adding more exam rooms and infusion space. After acquiring the radiation oncology practice of Dr. Dave in the fourth quarter, we've been working to expand that location, allowing us to serve more patients in the Long Beach area. We also added a new Radiation Oncology Medical Director, demonstrating our investment in this new service line. And finally, we continue to grow our clinical team, adding 5 new clinicians in the first quarter of 2022. Overall, we're pleased with the progress we've made over this past quarter, and we continue to be optimistic about the expansion of our unique model of oncology care. We look forward to updating you on our progress on our next earnings call. Now I'll turn the call back over to Mihir to provide additional detail on our first quarter financial results.

Thanks, Brad. Starting with the top line, we achieved $55 million of total revenue in the first quarter, a 13.5% increase year-over-year. We continue to integrate the 4 practice acquisitions and Acqui-hires that we closed in the fourth quarter, which contributed approximately $3 million in the period. As we discussed in our year-end conference call, we made a strategic decision to terminate a large payer contract in late 2020, and this impacted our year-over-year revenue growth in the first quarter. Absent this termination, our revenue growth in the first quarter of 2022 would have been 19.6%. For the first quarter, our gross profit was $12 million, and our gross margin was 22.3%, a 1.3% increase over the prior year period. On a GAAP basis, our net income was $19 million for the quarter. For the quarter, our adjusted EBITDA was negative $5 million. When we talk about our adjusted EBITDA, we are not adjusting our clinic or provider startup or acquisition costs as part of this metric. Further details on how we define adjusted EBITDA can be found in our 10-Q. At quarter end, our cash balance was $96 million. We expect this capital to be sufficient to support operations and enhance our growth. We have no debt outstanding. I will turn it back over to Brad now. Thank you.

Okay. Now turning to guidance. Our results for the first quarter of 2022 came in as expected, and our outlook for 2022 remains unchanged. For the full year 2022, we are guiding to a revenue range of $270 million to $310 million, representing 33% to 53% growth over 2021 revenue. Our gross profit guidance remains in the range of $50 million to $60 million and adjusted EBITDA in the range of negative $20 million to negative $25 million. With respect to SG&A, we are on track with our spend so far in 2022. We continue to make targeted investments in our corporate infrastructure, in particular, those related to public company costs and to support our growth. We want to reemphasize that we are not adding back D&O costs to adjusted EBITDA, nor are we adding back any startup costs related to new sites or new providers. In summary, the progress we've made in the first quarter are important steps to delivering on our strategy in 2022, a critical year for TOI to demonstrate its model of oncology care in new markets and new service lines, as we continue to expand our footprint and reach more lives. We believe the continued shift to value-based care will drive momentum in our business in the near and long-term, and we are well positioned to capitalize on this transition. As we look to the rest of 2022, we are excited about the opportunities ahead to further grow our business, expand our markets and deliver excellent care to more patients and communities. Lastly, we are pleased to announce that our Board of Directors has authorized a share repurchase program for up to $20 million of the company's common stock through December 31, 2022. The timing and actual number of shares to be repurchased will depend on market conditions and other factors. Shares may be repurchased from time to time on the open market through privately negotiated transactions or otherwise. Purchases may restarted or stopped at any time without prior notice depending on market conditions and other factors. The company intends to fund the share repurchase program through its available cash and liquidity. And with that, I'll turn it back over to the operator to open it up for questions.

[Operator Instructions] The first question comes from Brian Tanquilut from Jefferies.

Brad, I guess my first question, just on the MaxHealth partnership announced earlier this month. Maybe if you can share with us just any color on the structure of that deal and how you're thinking about the opportunity there and maybe your ability to replicate that? Is that the model that we should be thinking about as you expand further into new geographies?

Sure. Brian, good to hear from you. Yes, we're really excited about this partnership. MaxHealth is a great organization, a rapidly growing organization. I think, we think it's going to be a great partner for us. The way to think about like the construct of this value-based contract, it's a gain share agreement where MaxHealth will create sort of 2 populations of patients, one of which would be the control group, which are patients that are not treated by TOI in that region and then the intervention group are patients that are treated by TOI. And then over the performance period, MaxHealth tracks the quality and cost and outcomes associated with the patients that we treat. And if we are able to generate savings compared to the control group, while also achieving the quality metrics that we're accountable for, then we can share in those savings that we have created. We think this is a model that we will intend to replicate -- have replicated with others that we intend to replicate and sign with additional primary care groups in Florida going forward.

Got it. And then shifting gears. As I think about Women's Cancer Care, anything you can share with us in terms of what your strategy there? Any strategic angles that you would call out? Or is this more of a scale kind of scale play at this point? Just your thoughts on women's oncology.

Yes, absolutely. So we're really excited about this practice. It fits our business development thesis really well in that we have existing partners that we work with in our existing markets. These are payer partners or risk-bearing providers that have membership in Fresno and expressed a desire for us to help them manage that membership. And so we were very pleased to find Dr. Perkins' Practice as our entry point into the Fresno market. We intend to build additional clinics and de novos in the Fresno market to better serve the payers and risk-bearing providers that are there in Fresno.

Got it. And then last question for me. As I think about the progression of earnings from Q1 to Q2 or maybe even for the rest of the year, I mean, how are you thinking about the sequential movement in EBITDA from the quarter?

Yes. So I think one of the things I was most pleased about in the first quarter was the progress we made on gross margins. We printed the -- a nice uptick in gross margins if you look over the last 6 quarters or so. We're doing really well with improvements in gross margin. And of course, that drops to the bottom line and EBITDA as well. We're right about in line on SG&A from what we were expecting. So that's tracking according to plan, and the gross margins are coming a little bit ahead of what we had expected. So that should continue to translate. A lot of the gross margin benefits, in addition to being smarter about our drug purchasing, just the benefits of scale of buying more drugs generates additional scale purchasing discounts. And so we expect to see those scale discounts continue to improve as we grow our purchasing power. So we expect to see a nice positive trend there.

The next question comes from Gary Taylor from Cowen.

Just a couple of questions. One, any update on the Medical issue with the pharmacy and dispensary? I know you talked about that a little bit in the fourth quarter, and your dispensary revenue was just barely down a little sequentially, but I thought you were perhaps anticipating some strategies to respond to that. I just wondered what the update was.

Yes, sure. Gary, thanks for the question. So yes, the Medical Rx transition did negatively impact our growth in our dispensary in the first quarter. We have a couple of different strategies to mitigate that. Like we announced last quarter, we are pursuing the launch of our own pharmacy. So we'll launch our own pharmacy, which will enable us to, again, begin to fill those scripts for the medical patients that we previously were able to fill in that, at currently at the moment, we're not able to fill. We have a couple of other strategies that we're pursuing as well. And we're feeling good about the likelihood of those strategies, enabling us to begin filling those scripts again. So -- and that should happen later this year. So this is what we believe will be a temporary restriction on our ability to fill those scripts. And later this year, we will regain that ability to fill those scripts.

Got you. And then just one other thing. I mean any update on Texas? I mean, I think you did identified that as another state to find some new opportunities in new markets. Any updates there and what your thoughts are in terms of capital allocation towards Texas?

Yes. We're very excited about launching our TOI in Texas. We intend to do that in the current quarter, so in the second quarter. So we are very close to signing our first partnership and launching our first clinic in Texas.

Got it. All right. We'll look for that news release.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Brad Hively for closing remarks. Please proceed, sir.

Great. Okay. Well, thank you, everybody for joining our call today. We really appreciate your interest in the Oncology Institute, and we look forward to following up with you -- several of you in the coming days. We're really excited about TOI's path ahead, and we look forward to updating you all on our progress on our next earnings call. Have a good evening. Bye.

This concludes today's conference. You may now disconnect your lines at this time. Thank you very much for your participation.