In the latest earnings call for The Oncology Institute (TOI), executives provided insights into the company's performance, challenges, and future prospects. The call, led by General Counsel Mark Hueppelsheuser, featured CEO Dan Virnich and CFO Mihir Shah discussing key trends, financial results, and strategic decisions.
Strong Growth Amid Challenges
The Oncology Institute reported a 23% increase in revenue for the second quarter of 2024, driven by an exceptional 76% increase in oral drug revenue. This growth is attributed to the high demand for the company's services, as payers struggle to maintain their margins in the face of Medicare's V28 and increasing utilization trends. TOI signed a record number of new capitation contracts in Q1, and this momentum continued into Q2, with the signing of three more contracts covering medical and radiation oncology services in two states.
Profitability Challenges and Strategic Review
Despite this strong revenue growth, the company faced profitability challenges due to reimbursement pressures on IV and oral drug margin, causing a 750 basis point compression. TOI attributed this to the Pharmacy Benefit Manager's (PBM) response to the Inflation Reduction Act, which they view as historically low reimbursement net of DIR fees. In light of these challenges, the company announced a strategic review of financial, operational, and strategic alternatives to enhance shareholder value, with the goal of ensuring maximum value is delivered.
Financial Results and Operational Efficiencies
The financial results for Q2 2024 showed a consolidated revenue of $98.6 million, an increase of 22.9% compared to Q2 2023. The gross profit increased by 8.8% compared to Q1 2024, driven by improved IV margin. Despite the strong growth, SG&A remained flat, and the company managed to reduce total SG&A as a percentage of revenue by 15.1%. These operational efficiencies, coupled with the capacity of the existing footprint and infrastructure, allow TOI to absorb significant growth without adding additional providers and overhead costs.
Looking Ahead
Looking ahead, TOI is optimistic about the remainder of the year, with the completion of 2023 DIR runout, improved IV margins in Q3, and the go-live of capitation contracts signed in the first half of the year in Q3 and Q4. The company believes it is now through the period of fee assessments from 2023 and expects significant improvement in its net loss and adjusted EBITDA in the second half of the year.
Conclusion
The Oncology Institute's second quarter earnings call highlighted the company's strong growth, profitability challenges, and strategic review. Despite the challenges, TOI remains confident in its direction and is taking steps to enhance shareholder value through a comprehensive review of strategic alternatives. The company's focus on operational efficiencies and expansion into value-based care delivery and pharmacy businesses positions it well for future growth. As TOI navigates these challenges and opportunities, investors will be watching closely for updates on the strategic review and the company's path to profitability.