Good afternoon, and welcome to The Oncology Institute's Fourth Quarter 2023 and Full Year 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. Thank you. You may begin.

The press release announcing The Oncology Institute's results for the fourth quarter and full year 2023 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 in the company's press release for the fourth quarter and full year 2023. 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 fourth quarter full year call. To start, I'm pleased with our performance during 2023 including several important milestones which will set us up to drive value to our shareholders in 2024 and beyond. As always, none of this would be possible without the contributions of our many physicians, clinical staff and teammates who deliver outstanding care to the patients that we serve each day we serve each day. Our strong performance led to year-over-year revenue growth of 20% in Q4 2023 versus Q4 2022 and 28% for the full year 2023. We exceeded the high end of our annual revenue guidance range by over $4 Million with both patient services and dispensary segments contributing to our outperformance. Gross profit came in at the low end of our annual guidance range primarily due to the negative impact of unusually high direct and indirect remuneration or DIR fees on our Part D drug margins. Our experience with pharmacy benefit managers or PBMs generated DIR fees in the fourth quarter is being felt across the oncology industry and is related to the point of sale DIR mandates that went into effect on January 1. Importantly, we expect to help offset this margin compression in 2024 as our California pharmacy and medically integrated specialty drug dispensaries across markets have been significantly outperforming expectations on fills and revenue contribution. For 2024, we are forecasting our California pharmacy to generate over $30 million in incremental revenue and we expect full year growth of approximately 50% in our Part D business. The strong revenue performance we have generated so far in Q1 gives us confidence that we will achieve our gross margin target for Part D sales. On that note, I want to provide some…

Thanks, Dan, and good afternoon, everyone. I will start with our quarterly results. Consolidated revenue for Q4 2023 was $85.8 million, an increase of 20% compared to Q4 2022 and a 4.6% increase compared to Q3 2023. Gross profit in Q4 2023 was $14.4 million a decrease of 8% compared to Q4 2022. This decrease is attributed to the increase in DIR fees Dan previously mentioned. We are continuing to see the results of our reduced overhead, which produced an SG&A, including depreciation and amortization of $29.7 million in Q4 2023, a decrease of 3.6% compared to Q4 2022. As a percentage of revenue, SG&A was 35% in the quarter, down 8.5% from Q4 2022. Loss from operations for Q4 2023 was $15 million, a decrease of $9.8 million, compared to Q4 2022. Net loss for Q4 2023 was $18.8 million, an increase of $7.7 million compared to Q4 2022, primarily due to the change in the fair value of conversion options, derivatives and earn out liabilities, offset by an increase in gross profit. Adjusted EBITDA for Q4 2023 was negative $6.3 million. Moving to full year results. I'm pleased to report that we have achieved financial guidance for the year while outperforming on revenue. Revenue per capitated member was $1.40 per member per year at December 31, 2023, an increase of 10.5% compared to 2022. Consolidated revenue for 2023 was $324 million an increase of 28%, compared to 2022. Gross profit in 2023 was $60 million an increase of 14% compared to 2023. SG&A, including depreciation and amortization of $120 million in 2023, a decrease of $4.4 million compared to 2022. As a percentage of revenue, SG&A was 37% in 2023, down 1,200 basis points from 2022. Loss from operations for 2023 was $77 million a decrease of $5 million compared to 2022. Net loss for 2023 was $83.1 million, a decrease of $83.2 million compared to 2022, primarily due to the change in the fair value of conversion options, derivatives and earn out liabilities, offset by an increase in gross profit. Adjusted EBITDA for 2023 was negative $25.8 million. Further details on how we define non-GAAP financial measures can be found in our Form 10-K and press release. As of year-end, our cash and cash equivalent balance was $33 million and we had $49 million in short-term investments for a total of $83 million of cash, cash equivalents and short-term investment. Finally, we have remediated previously disclosed material weakness in internal controls over review of complex accounting transactions and concluded that our internal controls or financial reporting were effective as of December 31, 2023. I will now turn it back to Dan for closing comments.

Thanks Mihir. I want to close our call by providing an update on progress towards our four key strategic priorities at The Oncology Institute. Priority 1, eliminate cash burn. In the fourth quarter, we reported the lowest SG&A as a percent of revenue since going public. Net cash and cash equivalents used in operating activities decreased 49% in the second half of 2023, compared to the first half of 2023, following our restructuring at the end of Q2. Since we are a rapidly growing business and margins remain fluid, we will continue to carefully manage our overhead as we scale to ensure we have enough capital to continue funding our long range growth plan. Priority number 2, grow and drive margin in our legacy markets of California, Nevada and Arizona. Grow high value capitated contracts. Despite some of the pressure on capitated rates in California, we continue to have several near-term growth opportunities for medical and radiation oncology which will expand our already dominant footprint as a value based oncology provider in these markets. Expansion of radiation oncology. Expanding radiation oncology provides enhanced continuity of care for patients requiring radiation is a differentiator to pure play medical oncology practices and drives margin on our fee for service business. We continue to see growing patient volumes at our 6 radiation oncology centers as well as the opportunity to add capitation to this important service line. Expansion of our ability to serve patients through our new specialty pharmacy in California. As noted, our pharmacy has been outperforming expectations on fills and is helping drive convenience, fast fill times and affordability to our very important medical patient population. Priority number 3, proving new markets. As announced on our last earnings call, we started our first fully capitated agreement with a national payer in Florida on January 1. So far, it has been a very successful partnership and we followed this up with our recent announcement of our expanded agreement with MaxHealth, which is another key milestone for TOI. We have several other near-term follow on growth opportunities in the very important Florida market and other new markets where we are seeing substantial opportunity to drive value due to higher utilization and the opportunity to work directly with health plan partners. Priority number 4, leading the value based oncology market. We remain the largest value based oncology physician group in the country by lives served and revenue under value based arrangements. We strongly believe we can continue to advance this lead by being an employer of choice for oncologists and driving innovation in community based cancer care for the patients and payers that we serve. We look forward to updating you on our continued progress toward our key priorities on our next earnings call. With that, we're now ready to take your questions. Operator?

[Operator Instructions] Your first question comes from Jack Slevin with Jefferies.

Congrats on the quarter and all the announcements. Maybe to kick it off, thinking about the six opportunities you discussed, can you give a sense for sort of what these look like? And maybe sort of pushing that against the most recent things that you've announced being the contract in Florida on the MA side, the Carrum Health announcement and then the expansion of the MaxHealth agreement. Using those three areas and the six, what do you think are the biggest opportunities going forward sort of across the board? Is it more MA deals and that's primarily it? Or should we expect to see sort of a wide variety of things?

Yes, so we see a couple of things. One is increased opportunity to grow our business through new value based contracts as top-line pressure from risk bearing primary care groups and health plans seek better partners for community based oncology care. Overall, our strategy is to be obviously the oncology practice of choice for both plans and delegated medical groups. And the way that we do this is by not just running great medical oncology services in community, but also expanding to radiation oncology. So as we noted in our script, we're seeing opportunities to when possible take on as many of those services as we can, preferably under capitation of risk agreements. And that covers the majority of the opportunities we see in the pipeline. We also did announce the partnership with Carrum, which is our first employer based partnership model. And again that opens up a whole new channel of opportunities for us that we see as expansion opportunities over the next couple of years.

And then maybe turning to the guidance and looking at gross profit in particular, I guess the DIR challenges and some of the things in the quarter all make sense. When you think about the low end and the high end of the guidance, is the right way to think about it sort of in the low end is sort of a continuation of the pressure you're seeing and then the unlocking further upside comes mostly from sort of alleviating some of that pressure on the pharmacy margin? Or maybe if you could just walk me through sort of what gets you to the high end versus the low end of the gross profit guide?.

Yes, absolutely. So in general, the low end of our range assumes no improvement in some of the macro issues that are facing oncology right now related to DIR fees and margin compression on drugs throughout the rest of 2024, as well as no additional growth beyond our kind of high certainty opportunities that we're seeing in Q1. And then everything upside to that is driven by both improvement in some of those macro headwinds on the drug side, which there's obviously not a great deal of certainty on timing on right now. Strategic efforts, we are taking internally specific to TOI to drive margin to counteract those macro pressures and then additional acceleration in growth beyond what's baked into the high certainty pipeline for Q1.

And then last one for me. The free cash burn rate sort of coming down to below $5 million by my math looks really nice in the quarter. Understand sort of change creates some noise in the first half. I just want to make sure I got all that right. So is the right way to think about it that you'll sort of see drag on DSOs in Q1 and Q2, but the thought process is all of that should reverse in the back half? And maybe more broadly, how should we think about the progression on free cash going forward?

Yes, absolutely. That's another great question. I'll let our CFO, Mihir Shah address that one. Mihir?

I think as you call out the right math, our Q4 was the lowest cash burn since we went public around $5 million Q1, calling out the DSO issues. And also want to point out there are some Q1 cost related pressures related to the payroll taxes and other pieces, so that's an anomaly that happens in Q1, but outside of that the trajectory of cash burn being low compared to the prior, each prior quarter is what we are targeting as well.

That does conclude our question-and-answer session. I would like to turn the floor back over to Daniel Virnich for closing comments.

Thank you so much. As I mentioned, we'd like to thank all of our providers and employees for a phenomenal 2023 and strong start to 2024, as well as all of our investors and folks that joined the conference call today and the great questions you received. We look forward to updating you in future quarterly earnings calls as we progress through 2024. Thank you so much.

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