Good afternoon, and welcome to The Oncology Institute's Third Quarter 2022 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.

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. A 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, Brad Hively; 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 Brad.

Thanks Mark, and thank you to everyone joining the call today, where we'll discuss our third quarter results. We're pleased with our overall results in Q3 as we continue to execute our growth strategy. We added five new clinics in the quarter, including the acquisition of Dr. Parikh's two Las Vegas clinics, the acquisition of the Fort Lauderdale, Florida practice, Broward Oncology Associates and de novo openings in California and Texas. This growth expands TOI's network of over 100 specialty trained physicians and advanced practice partners to 60 clinics across 5 states. Our unique model for oncology care is gaining traction in our expansion markets, signaling an increased need and desire for a more cost-effective solution like ours. We continue to experience a steady increase in referral volume from our gain share contracts in Florida and interest and expansion from current payer partners in California and in new markets. As mentioned, we recently opened our 14th market with our expansion into South Florida, with the acquisition of Broward Oncology Associates and the announcement of a new de novo clinic in Plantation opening in December. These two practices play a critical role in our strategy in Florida and will serve as the cornerstone of growth in this critical expansion market. In the coming months, we plan to expand in Broward and Dade counties with four additional clinics, all in advanced stages of planning. Our business development team has a robust pipeline of payer partners to accelerate growth in this market. The clinics in South Florida will offer comprehensive medical oncology services designed to expand access to state-of-the-art oncology care for area patients. I'll now provide some additional highlights on our progress this past quarter. First, TOI received a $110 million strategic investment from Deerfield Management on August 9, 2022, in the form of convertible notes. This investment enhances our ability to continue our aggressive growth trajectory. Second, TOI received the Agency for Healthcare Research and Quality certification as an accredited patient safety organization. We're very proud of this certification as one of our key company tenets is creating a culture of safety, where our teammates feel empowered to provide input to continue to elevate patient quality and care. Third, we're making good progress working through remediation of issues related to SOX compliance as we continue to strengthen our public company infrastructure and procedures. And fourth, we welcomed several new leaders to TOI, including Cristina Green as Vice President of Clinical Research; and Philip Reger, in the newly created Chief Information Officer role. Both Cristina and Philip will play critical roles in our growth strategy as they lead our clinical trials business and IT strategy, respectively. Overall, we're pleased with the progress we've made over this past quarter and we continue to be optimistic about the expansion opportunities for our unique model of care. While we're making important strides as we continue to expand, we have experienced slower-than-expected revenue growth primarily related to delays in closing acquisitions. We are being disciplined about our M&A activity and certain deals we had projected to close early in the third quarter did not close. As a result, we are updating our full year 2022 guidance, which Mihir will outline in more detail. To ensure that our cost structure remains aligned with our revenue growth, we are taking a multi-pronged approach to controlling costs, including reduction of vendor and contract spend and a difficult but necessary workforce reduction. These steps will allow TOI to remain a highly competitive industry leader as we will continue to invest in growth. We expect to become even stronger over time and capitalize on new opportunities to innovate for our patients in the overall U.S. healthcare system. Now, I'll turn the call over to Mihir to provide additional detail on our third quarter financial results.

Thanks, Brad. Starting with the income statement. For our top line, we generated $65 million of total revenue in the third quarter, a 24.3% increase year-over-year and a 6.7% increase compared to Q2 2022. As we discussed in our 2021 year-end conference call, we made a strategic decision to terminate a large payer contract in late 2020, and this impacted our growth in the third quarter. Absent this termination, our revenue growth would have been 27.3%. For the third quarter, our gross profit was $13 million, a 13.8% increase over the prior year period. Our gross margin was 20%. On a GAAP basis, our net loss was $3 million for the quarter. For the quarter, our adjusted EBITDA was negative $6.7 million. Our adjusted EBITDA calculation includes provider start-up costs as well as acquisition costs. Further details on how we define adjusted EBITDA can be found in our 10-Q. Now moving to the balance sheet. At quarter-end, our cash and cash equivalent balance was $61 million, and we had $87 million in investments. We expect this capital to be sufficient to support operations and enhance our growth for the next 24 months. Now turning to guidance. We are lowering our full year top line guidance to a range of $245 million to $250 million, primarily due to delays in closing of acquisitions. Our updated guidance represents 21% to 31% growth over 2021 revenue. Additionally, while we have seen our gross margin improve throughout the year, gross profit is coming in lower than original guidance due to a lag in revenue. Therefore, we are lowering our gross profit guidance to a range of $45 million to $50 million and our adjusted EBITDA guidance to the range of negative $25 million to negative $28 million. Despite these near-term headwinds, we have continued to invest in our business supporting our long-term growth trajectory. As a reminder, in January 2022, Medi-Cal implemented a new policy regarding reimbursement of pharmacy services. Although, the policy was not intended to change the way physician-administered chemotherapy drugs billed under the Medi-Cal benefits are reimbursed, in the early part of the year, Medi-Cal Managed Care nevertheless began to transition some of these claims to be payable as a pharmacy benefit. The California Department of Healthcare Services has issued clarifying guidance that all Medi-Cal necessary prescription drugs administered in our outpatient offices continue to be available through Medi-Cal benefit. During the first three quarters of 2022, we saw minimal impact in our IV chemotherapy drug reimbursement. With respect to our dispensary, we have historically dispensed oral oncolytics to certain Medi-Cal patients, and some of the scripts are now being covered under Medi-Cal Rx insurance, which we are not currently able to fill. We estimate this to translate into a reduction of $6 million in revenue in 2022 compared to what we would have otherwise generated. We continue to actively assess opportunities to mitigate the impact on our business going forward, including launching or acquiring a pharmacy. We will update you once more information is available. With respect to SG&A, we are on track with our spend so far in 2022. We continue to make targeted investments in corporate infrastructure, particularly those related to public company cost and supporting our growth trajectory. We want to reemphasize that we are not adding back P&L costs to adjusted EBITDA, nor are we adding back any start-up costs related to new sites or new providers. I will now turn it back over to Brad for some summary remarks.

Thanks, Mihir. In summary, TOI continues to make important strides in our efforts to be the nation's leading value-based oncology group. By expanding into new markets and completing several acquisitions in the quarter, we are continuing to make good progress in bringing our unique model of care to more patients and more communities. Our expanded gain share and value-based agreements show that there is continued demand amongst our partners. And with the recent $110 million investment from Deerfield, we have more resources and tools to execute on our growth strategy. We look forward to making additional progress in Q4 and providing an update on our next earnings call. And with that, I'll turn it back over to the operator to open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Brian Tanquilut from Jefferies.

Hey, good morning, or good afternoon guys. Thanks for all the color that you shared in your prepared remarks. I guess, Brad, I'll start by asking, first, as I look at the capitated revenue number that you reported for the quarter, that's down year-over-year. Is there anything to call out as to why that is?

Yeah. We haven't lost any contracts. Some of our partners have lost some membership, but we haven't lost any contracts.

Okay. Got it. And then, as I think about the myth in a way, right, and you cited delayed acquisition closing, is that just basically pushing that out to next year is the way to think about it? So, as I think about modeling for 2023 and obviously, you're putting some cost cuts in place, how are you thinking about where potential earnings power is versus your pre-Q3 view, if those are the moving parts?

Yeah. That's a good question, Brian. I think we will most of the way catch up to where we wanted to be by the end of the year. So, our exit trajectory will be most of the way caught up but not all the way caught up. Like I mentioned, we're trying to be very disciplined with our M&A strategy. And we could have paid more and acquired more practices, but we've been disciplined and as a result, the amount of acquired revenue has fallen below our expectations. So, we'll mostly catch up, I think on an exit trajectory but not completely.

Got it. As I consider free cash flow, with the decrease in EBITDA and the revised guidance, should we expect your outlook on free cash generation or potential cash burn to also worsen with these adjustments in earnings?

Yeah. So, it's certainly something we focus on like a laser here. Yes. When we lowered the adjusted EBITDA targets, that does mean we are burning a little bit of additional cash versus our previous estimates. It's a relatively small change to free cash flow. When you look at the amount of cash and cash equivalents we have on the balance sheet versus a $3 million to $5 million change in adjusted EBITDA guidance, it's a pretty small impact to cash runway. We're feeling really good about cash runway and the amount of cash and equivalents we have on our balance sheet. So, we feel like we can execute on everything that we need and want to do right now with the cash we have today.

Got it. And then last question for Mihir. As I think about interest expense going forward, just maybe any guidance you can give us or any help you can give us into modeling that? And also, just any comment on hedging strategies that you've put in place?

So, let me answer the first question on the interest. I missed the last part, so I'm going to come back to it in just a second. For interest, it's mostly related to our financing that we completed in August from Deerfield $110 million. So that has interest component to it. There is a nuance to it on how we do the accounting around it based upon the document itself. So, I can follow up with you offline, but overall, the interest for the $110 million at 4% is how you should model overall.

Got it. And then, any hedges that you've put in place just to help you with interest rate risk going forward?

Exactly. As of Q3, we have begun investing the money. If you look at our balance sheet, you'll see our cash and cash equivalents are allocated in three different areas. The funds are currently invested at a rate that is favorable, given the recent positive interest market. Our funds are earning slightly above the prevailing interest rates.

Awesome. Thank you.

Thank you, Brian.

The next question we have is from Sandy Draper from Guggenheim.

Thanks very much. I guess the first question is just a clarification from the prior. Brad or Mihir, so am I reading it correctly, there is no more unclosed acquisition revenue assumed in the guidance. Is that a fair statement?

The high and low estimates would be the difference between whether some of our planned acquisitions close or not.

Thank you for your insights. Regarding the delays, I understand the caution being taken. Are there actions you could consider to expedite the closing process, or is it more about allowing for extra time and flexibility as you gather more information? Are there aspects within your control that could be approached differently, or is it primarily outside your control, necessitating a focus on giving yourselves ample time?

Yeah. It's a good question and one that we've talked about. Two things. So, I do think that we are being more conservative in our timeline estimates of how long it takes to move potential acquisitions from first call to closing. That's a little bit out of our control. We only control half of that process. Obviously, the seller controls the other half. And so, we've started to become just more conservative with how long it takes us on average to move something through the M&A pipeline. The other thing we talk a lot about is putting more opportunities into the top of the funnel because the more we put into the top of the funnel, the more selection that we have. Because as we said, we're trying to be very disciplined and only acquire practices that really fit our model. So, the more we can get through the top of the funnel, obviously, gives us a greater selection. And so that's adding staff to our M&A team, doing a more rigorous outreach effort and also being smarter with the data of identifying opportunities and physician practices that we think would fit our model pretty well.

Okay. Great. One more along the M&A side. Do you think the macro environment is having any impact on the slowdown? And then, longer term over the next couple of years, is there any reason to think that practices or doctor groups will be more willing to sell or because oncology is pretty insulated? Unfortunately, people get cancer and if you get cancer, you need treatment. So they're not going to really be seeing the vastitudes of consumer spending or other stuff. But I'm just trying to get some thoughts on has it had any impact short-term. People are just sort of like, I don't know what's going on, not doing anything. But then longer term, could it be something that causes things to stay slower or maybe accelerate because people want to sell their practices?

Yeah. It's a great question, Sandy. I do hesitate to comment on macro trends given my relatively small end, right? So, we're looking at 15 or 20 practices in our pipeline at any given time. So, I'm careful to extrapolate what we're seeing in 15 physician practices to the overall market. But a couple of thoughts for you. One, particularly with the labor market, it really hits the small practices. The small practices that have a hard time attracting and retaining staff amidst the great recession. And with labor costs going up, a lot of times, those small practices don't have the ability to weather those labor cost increases. So, I think those two pieces of the economic situation have caused some of our practices to be more excited about selling to us. Some of our targets to be more excited about selling to us. The other thing with a recession, if it comes or just in general, now that we're starting to see the employment numbers go the other way, is sort of a rotation. It can be a rotation of commercial insurance into government-sponsored insurance. So, depending on the practice mix of our targets, those practices that tend to focus a little more on the government-sponsored patient populations may be seeing actually some growth with that rotation. Those that focus more on commercial populations may be seeing some declines. And so, depending on the type of practice that we're looking at, the recession and rising unemployment can actually have a positive or negative impact on the target. I feel like there was maybe one more piece of your question that I didn't get to, but let me stop there.

No. No, no, that was great. That was really helpful.

Okay.

No, you covered it all. Maybe just one last question and I'll turn it over. If I just do some simple math on the reduction in EBITDA versus the reduction in revenue, it looks like it's slightly more decremental. And I'm trying to think, does that suggest that potentially the acquisitions you are buying maybe came at a slightly higher margin, or it was just incremental revenue over fixed corporate costs and now that the revenue is not there, there's fixed costs that you're not taking out? Thanks.

Yeah. So, it's a little bit of both. That's actually an interesting question. I don't have the numbers off the tip of my tongue, so I would hesitate to put any finer point on it than that. Mihir, I don't know if you can offer any additional insight on that.

No. I think you summed it right. It's a combination of both. We don't have the details to split between those at this point.

Okay. Thanks.

Thank you. There seem to be no further questions at this time. I would like to turn it back over to Brad Hively for closing comments. Please go ahead, sir.

Okay. Thank you. And thank you everybody for joining our call today. We look forward to following up with you in the coming days and weeks. We're very excited about TOI's path ahead, and we look forward to updating you on our progress on the next earnings call. Have a good evening.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.