Good afternoon ladies and gentlemen and welcome to The Oncology Institute's Second Quarter 2023 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. Please go ahead sir.

The press release announcing the Oncology Institute's results for the second quarter of 2023 are available at the Investors section of the company's website theoncologyinstitute.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. Management may make forward-looking statements including 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 CFO, Mihir Shah. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Dan.

Thank you, Mark. Good afternoon everyone and thank you for joining our second quarter call. I'm honored to have the opportunity to serve as the next CEO of The Oncology Institute. As noted in our June announcement, I took over as CEO on July 1st; and Brad Hively transitioned to the role of Vice Chairman where he remains on our Board and continues to provide strategic support for the organization. Since this is my first earnings call as CEO of The Oncology Institute, I want to start by expressing my gratitude to our exceptional group of physicians and care teams. Their dedication to clinical care has made a profound impact on the lives of the patients we serve each day. It is because of their commitment that we achieved outstanding results in Q2 of 2023. Starting with the topline. I am thrilled to share that in the second quarter we achieved 32% revenue growth versus Q2 of 2022. Importantly, our organic growth rate was 24% and our same-store sales growth was 18%. This strong revenue growth demonstrates the continued demand for our innovative care model among both our patients and our payer partners. Now, moving to gross profit. On the first quarter call, we mentioned the pressures we were experiencing on our IV drug margins. I'm happy to report that through a heightened focus on our drug procurement efforts, we saw a return to expected levels in Q2, bolstering our gross margin by 40 basis points over Q1 of 2023. These strong results paved the way for our path to profitability as we head into the second half of 2023. As we previously mentioned, we anticipate reaching profitability in 2024. Now, I would like to highlight a few operational achievements from the second quarter. First, we are delighted to announce…

Thanks Dan, and good afternoon. As Dan said, we are excited about our second quarter results as we are on track to deliver the upper end of revenue and adjusted EBITDA guidance. Before we get into the financials, I want to remind you of the share purchase program announced on June 15. Pursuant to the announcement, TOI repurchased 1.59 million shares of its common stock in open market purchases. After our acquisition of Southland Radiation Oncology clinics, our clinic count is 67 with the provider counts at 99. Consolidated revenue for Q2 2023 was $80 million, an increase of 32% compared to Q2 2022 and a 5% increase compared to Q1 2022. Gross profit in Q2 2023 was $15 million, an increase of 36% compared to Q2 2022. SG&A in Q2 2023 was $30 million, an increase of 3% compared to Q2 2022. On a percentage of revenue basis Q2 2023 was 38%, down 900 basis points from Q2 2022. We took several strategic steps to reduce our overhead burden in Q2 and expect the full impact to be realized in the second half of this year. Loss from operations in Q2 2023 was $15 million, a decrease of $3.3 million compared to Q2 2022. Net loss for Q2 2023 was $17 million, a decrease of $11.4 million compared to Q2 2022, primarily due to a change in fair value of earn-out liabilities and increase in operating revenue offset by goodwill impairment charge. Adjusted EBITDA for Q2 2023 was negative $7 million. Our adjusted EBITDA calculation does not add back the wider start-up cost nor the consulting and the legal fees associated with acquisition costs. Further details on how we define adjusted EBITDA can be found in our 10-Q. Of note, starting Q4 2022, we have modified our existed EBITDA calculation to now include cash compensation paid to our Board of Directors. As of quarter end, our cash and cash equivalent balance was $29 million and we had $69 million in investment for the total of $98 million in cash and cash equivalents and investments. This represents $11 million of cash burn in second quarter. Importantly, only $3.3 million of this cash burn was related to operations while $5.2 million of the cash burn was related to acquisition and share buyback in June. Our cash burn in Q2 was helped by a very strong collection activities. Our full year 2023 guidance remains unchanged. Our revenue guidance range is $290 million to $320 million. This represents 15% to 27% growth over 2022 revenue. Our gross profit guidance range from $60 million to $70 million and our adjusted EBITDA guidance range from negative $25 million to negative $28 million. We continue to expect to end the year with 1.75 million to 2 million in lives under capitation. I will now turn it back over to Dan for some summary remarks.

Thanks Mihir. While we encountered some pressure from lower than expected IV drug margins in Q1, I am proud of how our team responded to the challenge in Q2 to drive our financial performance. I'm excited about the momentum that our key strategic initiatives gained in the past quarter and expected to continue accelerating in the upcoming quarters. As a result, we anticipate a favorable trend in adjusted EBITDA as the year progresses. Our efforts in reducing cash burn will lead us to a margin positive position by the end of 2024. We do not anticipate any additional funding needs to execute our current growth plans. Being the leading provider of value-based oncology care in the US, we remain dedicated to expanding our patient base forging new value-based partnerships and ensuring high-quality outcomes for oncology patients. I'm excited about the possibilities that lie ahead for us, and we'll keep you updated on our advancements during future calls. With that, we're now ready to take your questions. Operator?

Thank you very much, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Brian Tanquilut of Jefferies. Please go ahead.

Hi, good evening. You've got Taji on for Brian. Thank you for taking my question. So first I want to touch on guidance, if I annualize the first half of 2023 in terms of revenue, it looks like you're tracking ahead of your expectations in terms of revenue guidance or at least I mean I think your -- I'm getting around like $312-ish million in terms of annualized revenues. And it just generally sounds like from your commentary, there's a lot of positive momentum in the business with your drug procurement efforts and the pending approval from the Pharmacy Board. Just curious, if there's anything else or any other factors that are driving the outlook or at least the guidance reaffirmation for the remainder of the year? Anything else we should be thinking about, as it relates to the business? And then, as I shift that to EBITDA, right? If I do the same thing, I'm tracking around negative 28% still within your guidance range. As we kind of think through all of the factors that you've outlined, I guess anything else that would kind of uplift that run rate I guess from first half to second half?

Yes, definitely. Thanks so much for the question. As we enter the back half of 2023, we see several tailwinds related to all of our key growth levers that impact revenue. So, continuing to see strong fee-for-service growth, continuing to have several opportunities in the pipeline for our value-based partnerships in both established and new markets. We have tailwinds in our orals business related to our dispensary and pharmacy locations opening as well as the House Rx partnership and continuing to see great opportunities in our clinical trials program with several of the new partnerships with entities like Massive Bio which we called out. So I would expect the back half of the year to continue to accelerate.

Great. That's really helpful. Dr. Virnich. And then, kind of going back to this conversation around the results of your drug procurement efforts, I think you had called out 40 basis points of improvement. Just curious, how much more runway is left, I think within that effort? And I guess, if there's more, how much more I think do you think you can squeeze out of gross margin improvement for this year? And how does that inform normalized gross margins even beyond this year?

Yes. We believe that there are several factors that are going to continue to allow us to grab margin on our [indiscernible] business or at procurement and orals as well. And it really centers on a couple of different things. One is driving discipline around procurement decisions through heightened analytics capabilities in-house and working more closely with some of our key distributors. Two is, really some of the enhancements we're making to our utilization process, utilization review process. And then three, as we scale, we get benefits of pricing as overall volume increases. So there's substantial runway there. It's hard to put an exact number on the second half, but it's going to continue to drive forward.

Great. That's really helpful. And then just for my last question, I know you'd kind of touched upon you're seeing the pipeline of physician partnerships looking pretty strong as you lead into the back half? And generally, how we've been hearing that utilization in the oncology space has been pretty strong. I guess, can you maybe characterize the opportunity? Is it looking more so around your capitation book gain sharing? Any other details you can provide around, what that's looking like for the business and for the remainder of the year?

Yes. So it's really in a couple of different buckets. So our traditional capitation arrangements in legacy markets are continuing to show a robust pipeline of growth opportunities, which we expect to realize in Q4 and into next year. In new markets, we really have pivoted from sort of the gainshare model to more of a capitation like model, which is adjudicated through service funds. So that's better for medical groups, better for TOI and frankly better for patients and effectively helps create many of the dynamics that we have in capitation models and legacy markets. And then we are expanding our efforts around our ability to control Part A spend through our high-value cancer care program and even that provide value to some of our health plan and medical group partners.

Thank you, so much.

You’re welcome.

[Operator Instructions] Ladies and gentlemen, with no further questions coming from the line, I would now hand it back to management for closing remarks.

Thanks, so much. In summary, we believe we had a really strong second quarter. We're really excited about the second half of 2023 and see a whole lot of tailwinds to the business, which are going to continue to drive our path to profitability and enhance our growth going forward. I want to thank you all for joining the call today and the thoughtful questions. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for attending and you may now disconnect your lines.