Good afternoon, and welcome to The Oncology Institute's Fourth Quarter and Year-End 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.

The press release announcing The Oncology Institute's results for the fourth quarter and year-end 2022 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. 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 for joining us today. I'll start with a review of our 2022 performance and then Mihir will provide more detail around our 2022 financial results. We'll then touch on 2023. 2022 was our first full year as a public company. I'm pleased with the progress we made driving our growth strategy, with contributions from both organic and acquired growth. Despite facing certain headwinds during the year, including Medi-Cal preventing us from dispensing oral prescriptions to a portion of our California patients, a tight labor market, and delays in acquired revenue, we surpassed the top end of our revised 2022 guidance for revenue, gross profit, and adjusted EBITDA, and achieved our revised guidance for covered lives. We also achieved our original guidance for gross profit, adjusted EBITDA, and covered lives. We ended the year strong, achieving record revenue in the fourth quarter, adding two new clinics including the acqui-hire of a clinic in Chino, California, and a de novo opening in South Florida. This growth expands TOI's network of 101 specialty trained physicians and advanced practice providers to 62 clinics across five states. Annually, this growth represents a 17% increase in the number of clinics and providers. As mentioned on our third quarter call, we recently opened our 15th market, with our expansion into South Florida through the acquisition of two practices, Broward Oncology Associates and Hematology/Oncology Associates of Miami. We also announced a new de novo clinic in Plantation Florida which opened in December. Finally, we are pleased to announce the addition of ChenMed to our gain share partners in Florida. Our partnership with these groups helps to advance our goal of bringing value-based oncology care to Florida. I'll now provide some additional highlights from 2022. We completed a $110 million strategic investment from Deerfield Management Company through secured senior convertible notes on August 9, 2022. We ended 2022 with $132 million in cash, cash equivalents, and investments. We increased our market count to 15 at year-end from 10 in the prior year, including new markets in California, Florida, and Texas. We remediated two of the previously disclosed material weaknesses surrounding controls over the review of revenue and segregation of duties within the financial close and reporting process. For the remaining one material weakness, management has developed and continues to execute a remediation plan to address the previously disclosed material weakness around the treatment of complex accounting transactions. We earned the AHRQ, the Agency for Healthcare Research and Quality certification as an accredited patient safety organization. We generated over $1.7 million in savings to patients through our dispensary co-pay assistance program. We added three new gain share contracts in Florida. We grew capitated membership by over 100,000 lives and we completed six practice acquisitions. Now I'll turn the call over to Mihir to provide additional detail on our fourth quarter and full year financial results.

Thanks Brad. Now turning to fourth quarter 2022 results. Consolidated revenue for Q4 2022 was $71 million, an increase of 36.6% compared to Q4 2021, and an increase of 9.9% compared to Q3 2022. Gross profit in Q4 2022 was $16 million, an increase of 87.6% compared to Q4 2021. Net loss for Q4 2022 was $9.5 million, a decrease of $1 million compared to Q4 2021. Adjusted EBITDA was negative $4.9 million. Our adjusted EBITDA calculation includes provider start-up costs as well as consulting and legal fees associated with acquisitions. Further details on how we define adjusted EBITDA can be found in our 10-K. We have modified our adjusted EBITDA calculation to include Board of Directors' cash compensation. Now talking about the full year 2022. Consolidated revenue for the year ended December 31, 2022 was $252 million, an increase of 24.4% compared to the prior year. Gross profit for the year ended December 31, 2022 was $52 million, an increase of 27.5% year-over-year. Net income for the year ended December 31, 2022 was $1.7 million, an increase of $12.6 million compared to the prior year. This was primarily due to an increase in gross profit and the change in the fair value of warrants, earnout, and conversion option derivative liabilities offset by goodwill and intangible asset impairment charges and increased operating expenses. Adjusted EBITDA was negative $24 million. SG&A expenses for the year ended December 31, 2022 were $119 million or 47.3% of revenue, compared with $83 million or 41.1% of revenue in the prior year. During 2022, share-based compensation expense was $28 million and SG&A related to transaction costs was $3 million. The remainder of the SG&A growth was due to headcount and other costs associated with operating as a public company and to support our revenue growth and expansion into new markets. At year-end, our cash and cash equivalent balance was $14 million and we had $118 million in investments. We expect this capital to be sufficient to support our operations and enhance our growth for 2023 and 2024. Now turning to 2023 guidance. For the full year 2023, we are guiding to a revenue range of $290 million to $320 million. This represents 15% to 27% growth over 2022. Our gross profit guidance ranges from $60 million to $70 million. And our adjusted EBITDA guidance ranges from negative $25 million to negative $28 million. We expect to end the year with 1.75 million to 2.4 million lives under capitation. I will now turn it back over to Brad for some summary remarks.

Thank you, Mihir. 2022 was a pivotal year for TOI. During our first year as a publicly traded company, we invested to drive growth in our priority markets, expanded our gain share portfolio, and provided creative and innovative solutions to our partners. We expanded into our 15th market and surpassed 100 physicians in APPs employed by the practice. We ended the year with a strong liquidity position and prioritized clinical outcomes by launching a patient safety organization. We expect 2023 to be another year of progress and growth. To ensure that success, our focus is aligned on three primary areas; first, refining and optimizing our model and expansion markets, including optimizing referral capture and transitioning gain share contracts to population risk agreements; second, growing our legacy markets by expanding service offerings in existing clinics and expanding to new counties; and finally, reducing cash burn by improving efficiency with new technology solutions, optimizing drug margins, and taking a more sustainable approach to new market entry. In summary, we are very optimistic about 2023 and look forward to sharing our progress as we move through the year. And with that, I'll turn it back over to the operator to open it up for questions. Thank you.

Thank you. We will now begin the question-and-answer session. Your first question comes from Brian Tanquilut with Jefferies. Please go ahead.

Hi. Good afternoon, guys. How are you doing?

Good. How are you doing?

Good. Good. I guess, Brad my first question since you alluded to the California issue, just wanted to hear if you could share any color with us on what's going on there and kind of like any cures or anything going on that will address that issue going forward?

Yes. So with respect to the California issue around the Medi-Cal drug prescribing. When California transitioned to a new vendor last year, first last year, it essentially precluded us from prescribing drugs to a certain portion of our Medi-Cal patients because we operated as a medically integrated dispensary and not as a pharmacy. And so as we've discussed on previous calls, if and when we become licensed as a pharmacy, we would then be able to prescribe drugs to those patients. We have been endeavoring to become a pharmacy. It turns out though that our physician ownership in our practice is too high right now. So we need to wait until our physician ownership in our practice goes below a certain threshold. And then, we will apply to become a pharmacy and can reaccess those prescriptions. But until then, we can't access those fills. So that's the latest on that issue.

Got you. I understand. And then I guess as I think about the guidance for EBITDA for this year, relative to say, the budget that you laid out during the leaseback, just curious what has changed? And what are the moving parts? And how does that stack versus your expectations say, maybe at the beginning of Q4 heading into this year?

Yes, I think we have tried to put out guidance that we believe we can achieve. So, we're taking a conservative view to all four categories on guidance. There are certain realities that we haven't grown quite as fast as we projected to grow in some of our expansion markets. And so, we haven't had the revenue growth needed to scale and cover some of those fixed SG&A expenses that we had expected, which is why you heard me talk about one of our priorities is optimizing our expansion markets. We have also seen a little bit of compression on IV drug margins as we started the year. That is to a large extent, out of our control. And so we see a little bit of pressure on the buy-and-bill IV margins. That is partially due to reimbursement changes and partially just due to drug mix and things going on-patent or off-patent. So we've taken a conservative view on guidance. Obviously, we hope to beat it. But that's why you see slightly lower EBITDA than I think we had originally predicted.

And Brad maybe just to clarify or to just check, what's in the guide, any assumptions embedded for unannounced acquisitions in there right now?

Mihir, you want to take that one?

Sure. Hi, Brian. So to your point, the guidance right now does not include any unannounced acquisitions that we might do in 2023. So that would be upside from where we are right now.

Got it. Okay. Awesome. All right. Thank you, guys.

Thank you, Brian.

Next question Sandy Draper with Guggenheim. Please go ahead.

Thanks very much. I guess first as a follow-up to that, so as you close the acquisitions from the fourth quarter that got pushed out. I guess, that's the first question.

So...

Yes go ahead.

Yes. We have not closed any acquisitions in 2023 that we have not announced.

Okay. But the ones that were announced that you talked about in the third and fourth quarter that got delays that caused the lower revenue last year, are those now closed?

I see. No. Both of those we believe are unlikely to close ever.

I was just trying to confirm whether those acquisitions were included. It appears they are not, and it seems they have never occurred.

Yes. We think for different reasons, both of those are likely not to happen. Never say never. That can always come back, but our view right now is that they're probably not likely to happen.

I understand. I appreciate the clarification on the EBITDA and its slight decrease. However, I find it interesting that your gross margin was actually stronger in 2022 compared to my model, and your guidance indicates a slight improvement for 2023. It’s not a significant change, but at the midpoint, it’s around 50 to 70 basis points. What are the factors driving this? Also, I want to confirm whether the incremental costs you mentioned are included in the cost of goods or if they fall under SG&A.

Yes, I can begin. Mihir, please add anything I overlook. The decline in IV drug margins associated with the buy and bill is included in our cost of goods sold, which affects our gross profit guidance. We have identified several key areas for investment that impact our SG&A, particularly in our technology and clinical research departments. Therefore, we are allocating resources to both areas, which is contributing to our SG&A expenses. Additionally, we aim to improve our scaling; some of our SG&A costs are variable and increase with the number of patients we treat. Our goal is to reduce this as a percentage of revenue each year. We believe there are opportunities to enhance the scaling of our SG&A, although we are also incurring some fixed SG&A costs related to technology and clinical research as part of our long-term investment strategy.

Great. That's helpful. And then that sort of leads me into my final question. And maybe still too early. I know you hired a new head of your clinical trials division or clinical research. Any updates? I guess it's been maybe six months or maybe it's only three; I can't remember, but maybe too early, but any updates on sort of changes that are being made and how that's going? Thanks.

We've dedicated significant time to clinical research, believing it is a key differentiator for our business model. Despite being more advanced than many community oncology practices, we recognize there is still considerable untapped potential. We've observed that some community practices are ahead of us, which drives us to set high targets for our clinical research department. To enhance understanding for patients, we've rebranded our division from ICRI to TOI Clinical Research. Additionally, we have revamped our processes for patient identification to engage them earlier regarding potential clinical trial eligibility. We anticipate substantial growth throughout 2023, having started the year on a strong note, and these are some of the initiatives we are implementing in TOI Clinical Research.

Great. Thanks.

Your next question comes from Gary Taylor with Cowen & Company. Please go ahead.

Hi, guys. A couple of questions. One just on the 2023 revenue guidance. How much of that pickup year-over-year $40 million to $70 million pickup is already sort of in the bag if you will because of the acquisitions that have closed, and you just get the pickup to the true or the annual run rate in 2023?

We ended 2022 with a run rate of about $284 million in our fourth quarter revenue. This figure represents a substantial part of our target already achieved just from our exit run rate. The fourth quarter tends to be slightly stronger due to seasonality, so it's not a strict annualization, but it does provide a good indication.

Okay. I wasn't sure if all the deals were included for the entire fourth quarter. But that's helpful. Regarding your new gain share contracts, were the three in Florida all with ChenMed, or are there different payers involved?

Just one of those was with ChenMed, yeah.

Is that a pilot program in just one county? Clearly, there are many counties and states involved. What is the potential for that relationship to expand?

Yeah. I mean, we have a lot of optimism for that relationship. We've started partnering with them in Central Florida. And we hope to expand that to many other locations, but the initial focus is Central Florida. And then, we'll follow that on with other places, for example, South Florida and elsewhere where we have market overlap with ChenMed.

And then the $59 million of non-current investments, I presume, just because you've got plenty of liquidity and maybe more than you'll put to use right away made more sense to do something that would earn a little more. Can you tell us what that's in?

Do you want to trade or...

Yes. Yes. I can take that. So it's mostly in the T-bills, but the way that GAAP accounting allows us to recognize it, it needs to be in non-current. But most of it is available for our operations and acquisition use.

Okay. Thank you.

Thank you.

Thank you. I would like to turn the floor over to Brad Hively for closing remarks.

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

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.