The Oncology Institute Inc (TOI) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...

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Wed, May 15, 2024, 1:14 AM 7 min read

Revenue Growth: Q1 2024 revenue increased by 24% year-over-year.
Oral Drug Revenue: Grew 64% in Q1 2024 compared to Q1 2023.
Capitation Revenue: Estimated full year revenue from new contracts is $16 million.
Prescription Sales and Revenues: Over 4,500 sales generating over $39 million in Q1.
Oral Drug Gross Profit: On track at $31 million for the full year.
Consolidated Revenue: $94.7 million in Q1 2024, up 24.2% from Q1 2023.
Gross Profit: $11.97 million in Q1 2024, down 16.8% from Q4 2023.
SG&A Expenses: Flat year-over-year; 31.6% of revenue in Q1 2024.
Operating Loss: $18 million in Q1 2024, a decrease from Q1 2023.
Net Loss: Improved by $10.1 million from Q1 2023 to $19.9 million in Q1 2024.
Adjusted EBITDA: Negative $10.9 million in Q1 2024.
Cash and Equivalents: $36.1 million; total liquidity of $65.8 million with short-term investments.

Warning! GuruFocus has detected 4 Warning Signs with TOI.

Release Date: May 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Revenue grew 24% compared to Q1 2023, with a significant 64% increase in oral drug revenue.
Signed seven new capitation and value-based contracts across three states, the highest number in a quarter, potentially adding $16 million in full-year capitation revenue.
Record prescription sales and revenues through medically integrated dispensaries and pharmacy, with over 4,500 sales generating over $39 million in revenue in Q1.
Successful expansion with the opening of two new clinics in South Florida and entry into the Oregon market planned for Q4.
Strong leadership additions, including a new Chief Development Officer with a robust track record in value-based care.

Negative Points

Experienced margin compression on both Part B and D drugs due to changes in direct and indirect remuneration fees.
Operating losses were above expectation for Q1 due to drug margin compression.
Gross profit decreased by 16.8% compared to Q4 2023, attributed to lower IV and oral drug reimbursement.
Net loss for Q1 2024 was $19.9 million, although it was an improvement from Q1 2023.
Cash and cash equivalents decreased by $17 million from Q4 2023 due to operating losses and challenges in collections.

Q & A Highlights

Q: Hey, good afternoon, guys, and nice work on the quarter. I wanted to start with the DIR impacts in both IV and on the dispensary side. Just wondering have you a little more color in terms of how heavily that was weighted and in each of those areas did once I'd see a little bit more than the mixed and then maybe sort of using that as a jumping off point for how you're thinking about progression of margins throughout the year? A: Yes, hi, Jack, and thanks for the great question. I think there's a couple of factors that impacted drove margins in Q1. Our fee for service business that we expect to see improved throughout the course of the year. The first factor which we deal with every year, seasonality, as you commented about on our earnings call. So we've already started to see that improve in April and expect that trend to continue to improve over the course of the year, driven by both changes in the level of sophistication or bringing to procurement arm and just that seasonality impact on the DIR. fee issue, which is the other major factor that we faced in Q1, which compressed margins on our fee-for-service drugs. Again, I think there's industry-wide momentum on driving change in that throughout the rest of the year. But the time course of that is really hard to predict at this point on. So again, we're trying to control the factors. We can expect the remaining three quarters of the year to drive improvement in those margins. But it's hard to say and why pace that ERP issue will resolve itself.

Q: I wanted to ask on the change impact, if that's the right way to think about that sort of the just over $16 million of AR drag at least on the first quarter. Should we just see a reversal of that? Is that a decent way to size up sort of how to think about snapback in 2Q now that you've resolved that issue? A: Yes. So we about $15 million of that we believe will be timing, couple of million will be related to the increased revenue that we have seen. So it's just adding slightly more to the working capital for for the pharmacy revenue that we added in Q1.

Q: I appreciate all the commentary on the the new cap contracts, and it sounds really good. Sounds like there's one incremental one to when we last spoke on the 4Q call, maybe just I heard the $16 million of annualized revenue. It sounds like a great number. I just want to make sure I got all the commentary on the pacing of how those should launch on those seven contracts. And then maybe if you could touch a little bit more on on how the pipeline is looking, is it still strong? Should we expect to have sort of a steady flow of announcements or was it a little bit front-loaded as far as the 1Q deals closing for 2024? A: Another great question, Jack. And so as the contracts were all signed and executed the seven in Q1, the pacing of start on those contracts the majority of them are Q. three timing for go live, um and um, you know, that's the way to think about that in terms of impact to revenue this year versus full year? Um, I would say on the pipeline question, our pipeline at this point is, I mean as robust as we've ever seen it. So we've got a lot of good stuff in the near term pipeline, which we expect to continue to announce over the rest of the year 2024 on I think there's a lot of different reasons for this. I think one is just increasing sophistication of our growth team with through implementing our model in new markets, expanding our range of clients that we can work with beyond just delegated medical groups to plans and even now employer groups. And then lastly, I think a lot of the top-line pressure related to the 28 has resulted in groups that are taking risk on finding other ways to drive their MLR through finding better ways to manage their specialty costs. So again, phenomenal Q1 in terms of number of contracts signed and I can't promise the exact number for second quarter, but we are seeing a pretty tremendous pipeline ahead of us.

Q: That's great color, Dan. And then last one for me here I think all things considered, the cash burn look really strong. The performance there, considering change normalizing for change, does it feel like we're sort of in the right ballpark area on that or sort of what's the outlook at this point as we progress through the rest of 24? A: So Q1 had cash burn from ER growth related to change an increase in our pharmacy revenue and also some compression in margin in Q1 that we saw right up. We will see both of them reverse a our reverse much faster in Q2 and continuing Q3 margin compression should also improve in Q2 and Q3. So I would say this would have this Q1 would be potentially be the extreme scenario of our cash burn Got it.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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