The Oncology Institute (TOI) reported a significant revenue increase of 21.8% in the third quarter of 2024 compared to the same period last year. The revenue growth was primarily driven by an exceptional 80% increase in oral drug revenue from the company's California pharmacy. TOI also announced the achievement of a quarterly cash surplus for the first time this year, with cash and cash equivalents, including marketable securities, rising by $1 million from the second quarter of 2024.
Key Takeaways
- Revenue growth of 21.8% year-over-year in Q3, driven by strong oral drug sales.
- First quarterly cash surplus of the year, with a $1 million increase in cash and cash equivalents.
- Three new capitation contracts signed, contributing to an annualized revenue of over $50 million.
- Certification achieved for Radiopharmaceutical Therapy in California, expected to contribute significantly to 2025 EBITDA.
- SG&A expenses reduced by 6% from the previous year, reflecting cost optimization efforts.
- NASDAQ compliance process underway, with plans to meet listing standards and consider a reverse stock split if necessary.
Company Outlook
- TOI expects significant improvement in net loss in Q4 and beyond, with robust top-line growth and SG&A cost management.
- The company remains focused on operational excellence and strategic execution to strengthen financial performance.
- TOI completed a review of strategic alternatives and decided to continue focusing on internal growth due to insufficient external interest.
Bearish Highlights
- The company reported a net loss of $16.1 million for Q3, although this was an improvement over the previous year.
- Adjusted EBITDA for the quarter was negative $8.2 million, a decline from the previous year's negative $5.3 million.
Bullish Highlights
- TOI is one of the few community-based practices on the West Coast to offer Radiopharmaceutical Therapy.
- The company has successfully renegotiated contracts and pursued cost optimization, particularly in the supply chain for IV drugs.
Misses
- Despite revenue growth, the company experienced a decline in adjusted EBITDA compared to Q3 2023.
Q&A Highlights
- The Q&A session focused on TOI's strategic growth initiatives, cost management efforts, and the potential impact of new capitation contracts and Radiopharmaceutical Therapy on future profitability.
In conclusion, The Oncology Institute is navigating a period of robust growth and strategic cost management. The company's efforts in expanding its services and optimizing operations are expected to contribute positively to its financial performance in the upcoming quarters. TOI's focus on enhancing its value-based care model and therapeutic offerings, alongside prudent financial strategies, positions it well for future profitability and compliance with NASDAQ's listing standards.
InvestingPro Insights
The Oncology Institute's (TOI) recent financial performance aligns with several key metrics and insights from InvestingPro. Despite the company's reported revenue growth of 21.8% in Q3, InvestingPro data shows a robust revenue growth of 23.31% over the last twelve months as of Q2 2024, indicating a consistent upward trend in the company's top line.
However, TOI faces significant challenges. An InvestingPro Tip highlights that the company is "quickly burning through cash," which is reflected in the reported net loss of $16.1 million for Q3. This aligns with another InvestingPro Tip stating that TOI is "not profitable over the last twelve months." The company's efforts to achieve a quarterly cash surplus are crucial in light of these observations.
The market's reaction to TOI's financial situation is evident in the stock's performance. InvestingPro data shows that TOI's stock price has fallen significantly over the last year, with a 1-year price total return of -89.05% as of the latest data. This decline is consistent with the InvestingPro Tip indicating that the "stock has taken a big hit over the last six months."
Despite these challenges, TOI's Price to Book ratio of 0.68 suggests that the company may be undervalued relative to its book value. This could be seen as an opportunity for investors who believe in the company's long-term potential, especially considering TOI's focus on expanding its services and optimizing operations.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for TOI, providing a deeper understanding of the company's financial health and market position.
Full transcript - Oncology Institute Inc (TOI) Q3 2024:
Operator: Good afternoon and welcome to The Oncology Institute's Third Quarter 2024 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 Mark Hueppelsheuser, General Counsel at TOI. Thank you. You may begin.
Mark Hueppelsheuser: The press release announcing the Oncology Institute results for the third quarter of 2024 are available at the Investors section of the company's website, the oncologyinstitute.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 company's safe harbor language included within the company's press release for the third quarter of 2024. Management may make forward-looking statements include guidance and 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 such as 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, Dan Virnich, and our newly appointed CFO, Rob Carter. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Dan.
Daniel Virnich: Thank you, Mark. Good afternoon, everyone and thank you for joining our third quarter call. To start, as you know, we recently welcomed Rob Carter as our new Chief Financial Officer, and I couldn't be more excited about the expertise and vision he brings to the CFO role at TOI. With over a decade of finance leadership experience in the health care sector, Rob is a seasoned executive dedicated to driving financial excellence and strategic growth. He previously served as our SVP of Finance, where he oversaw Corporate Finance, Financial Planning and Analysis, Treasury and Investor Relations. Rob has played a crucial role in shaping the company's financial strategy, and I look forward to continuing to work closely with him in his new role. I'd also like to thank TOI's more than 130 oncologists and advanced practice providers as well as all of the teammates across our 72 clinics and corporate locations for enabling us to achieve another quarter of outstanding growth. During the quarter, we signed an additional three capitated contracts across two states, including both Medical (TASE:PMCN) and Radiation Oncology Services. We added a second capitation contract in Florida, which is a direct to a health plan partner as well as our first capitation contract in Oregon. Year-to-date, we have now signed 13 new capitation contracts across the organization. We also achieved certification to begin Radiopharmaceutical Therapy in our California radiation oncology practice. This will be an important driver of growth and margin for our Radon business going forward and we are one of the few community based practices on the West Coast to offer this service, which traditionally occurs in the hospital setting. Overall, revenue grew 21.8% in the third quarter compared to the prior year period, driven by an exceptional oral drug revenue growth of approximately 80%. We are continuing to set new monthly file records and now project revenue of more than $75 million from our California pharmacy. Finally, our cash and cash equivalents, inclusive of marketable securities increased $1 million compared to Q2 2024, marking our first quarterly cash surplus this year. We have taken proactive steps to further mitigate the impact of the reimbursement challenges on Part D drugs that we experienced in the first half of 2024. These steps include negotiate improved contracts including revisiting agreements for volume based accounts that could protect our margins despite lower reimbursement rates. We are also diligently pursuing cost optimization opportunities across our supply chain and for our IV drugs, we're working with our suppliers to renegotiate purchase terms. Notably, this quarter, we generated a 6% reduction in SG&A expenses compared to the prior year. This decrease is a direct result of our ongoing efforts to streamline operations, improve efficiency and optimize our cost structure. Through some of the initiatives we discussed, we have been able to lower operating costs without compromising the quality of care or service we deliver. Our ability to grow the top line, while reducing SG&A the expenses is a testament to our teams focus on operational excellence and strategic execution. We are confident that these cost management efforts combined with our robust top line growth will continue to strengthen our financial performance and position in the quarters ahead. As I briefly noted earlier, I'm excited about the achievement of our full licensure to administer radiopharmaceuticals in our Southern California radiation oncology clinics. We are targeting a December go live for this important new therapeutic service at TOI and expect adjusted EBITDA contribution of over 1 million from these services alone in 2025. With the recent execution of our capitation contracts, we expect significant improvement in our net loss in Q4 and beyond. The annualized revenue of the new capitation deals signed to date this year is over $50 million. We're well positioned to handle substantial growth in the markets we serve without needing to add more providers or increased overhead costs. On our last earnings call, we highlighted our ongoing review of strategic, financial and operational alternatives. At this time, we've completed this process. We received interest in the company during the process, but not at the level that the Board feels reflect the value of the company. As a result, the Board has concluded that the best course of action currently is continuing to achieve performance and growth across our business in light of our recent positive business development activity and our optimism for 2025. Lastly, as you may be aware, NASDAQ requires listed companies to maintain a minimum bid price of $1 per share. Earlier this year, we received a notice from NASDAQ indicating that our share price had fallen below the $1 threshold for 30 consecutive business days, which triggered the standard compliance process. At that time, we were granted an initial compliance period of 180 days to regain compliance by December 17, 2024. We are expecting to meet the continued listing standards for NASDAQ capital market companies and are planning to apply for a second extension by the current deadline. If we cannot regain compliance by December 17, 2024. In the meantime, I want to emphasize that we are highly focused on meeting the minimum bid requirement during our initial and subsequent compliance period, including the possibility that the company may need to affect a reverse stock split. That said, we are confident in our strategy to drive both operational and financial improvement. Now I'll turn the call over to our CFO, Rob Carter to provide additional details on our third quarter financial results, along with additional operational and strategic updates. Rob?
Rob Carter: Thanks, Dan, and good afternoon, everyone. As TOI's new Chief Financial Officer, I'm excited to be a part of this exceptional team as we continue to seek to drive growth and deliver long-term value to our shareholders. Since being appointed CFO, I've had the opportunity to dive even deeper into the company's financials, operations and strategies. I'm truly excited about the direction we are heading. Let's begin by reviewing our financial performance for the quarter. Consolidated revenue for the third quarter 2024 was $99.9 million, an increase of 21.8% compared to Q3 2023 and a 1.3% increase compared to Q2 2024. The increase is driven primarily by our dispensary revenue due to our California based pharmacy, which continues to exceed fill expectations. Gross profit in Q3 2024 was $14.4 million, an increase of 10.3% compared to Q2 2024. This increase is attributed to improved IV margins, which we expect to continue improving as the year progresses in line with normal seasonality. We were able to hold SG&A flat despite the strong growth in our top line. SG&A, including depreciation and amortization, was $28.2 million in Q3 2024, an improvement of 560 basis points compared to Q3 2023. As a percentage of revenue, SG&A including depreciation and amortization was 28.2% in the quarter, improving 820 basis points from Q3 2023 and 160 basis points from Q2 of 2024. Loss from operations for Q3 2024 was $13.9 million, flat compared to Q3 2023. Net loss for Q3 2024 was $16.1 million, an improvement of $1.3 million compared to Q3 2023. Adjusted EBITDA for Q3 2024 was negative $8.2 million compared to negative $5.3 million in Q3 2023. Moving to the balance sheet. As of the end of Q3 2024, our cash and cash equivalents balance was $47.4 million, this represents an increase of $1 million in cash and cash equivalents, inclusive of marketable securities compared to Q2 2024, which is the result of efforts to maximize efficiencies in working capital, particularly in inventory management. Additionally, as a result of a favorable legal settlement in Q4, we expect a cash inflow of $4.1 million, which will strengthen our balance sheet and add to our liquidity position. Beyond the financial results, I want to touch on some key areas where we are seeing progress and where we are focusing our efforts moving forward. First, working capital optimization. We have implemented targeted initiatives to optimize our working capital going forward. We are improving our receivables management and are in the process of renegotiating payment terms with key suppliers. The goal is to reduce our day sales outstanding or DSOs, while also extending our day’s payable outstanding, or DPO, through ongoing negotiations with our vendors. These efforts are for long- and short-term improvement in cash flow from operations and improving liquidity. We've made strategic procurement, a top priority to manage the drug cost burden without compromising the quality of care or access to essential medications for our patients. By utilizing advanced analytics, we've been able to gain better visibility into our drug usage patterns and procurement costs. This approach has enabled us to identify opportunities for savings and make for more informed decisions around formulary management. Our gross margin improved 8.8% from the previous quarter, with much of this improvement driven by our strategic management of drug costs, which represent a significant portion of our operating expenses. And third, Investor Relations. We know that investors evaluate a clear view of both our financial and operational strategies and we are committed to providing you with that clarity. As we strive to improve patient outcomes and drive sustainable growth, we will continue to prioritize open communication with our stakeholders. In health care, we face unique challenges and it's important to address these openly. We plan to address this in the future with additional KPIs, metrics and measurable to enable greater understanding of our complex business and our impact in the national oncology space. Looking ahead, our focus on liquidity and financial flexibility positions us well to navigate any market uncertainties and to continue delivering high-quality care to our patients. We remain committed to managing our balance sheet prudently while also ensuring we have the resources necessary for future growth. With that, I'll turn it back to Dan for closing comments. Dan?
Daniel Virnich: Thanks, Rob. To summarize, Q3 represented a strong quarter of growth for TOI as measured by further capitation wins across markets and building the momentum in our Part D business. As we continue to grow, our commitment to become profitable remains unwavering. As Rob and I mentioned earlier, we are focused on optimizing our operations and managing costs effectively. Our disciplined approach to cost management, combined with our revenue growth is paving the way so that we believe we can move toward achieving sustainable profitability in the year ahead. With that, we're now ready to take your questions. Operator?
Operator:
Daniel Virnich: Thank you so much. I'd like to thank all conference participants who joined today and your interest in The Oncology Institute, as well as there are over 700 teammates and clinicians for another quarter of outstanding growth as we further improved our value based model in new markets as measured by new capitation contracts signed and added some exciting new therapeutic options for patients through our radiopharmaceutical program launch. We look forward to updating you on further progress of the company in upcoming quarterly calls. Back to you, operator.
Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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