Oncology Institute, Inc. Q2 FY2024 earnings call

• Dan thanked TOI’s providers and teammates for another quarter of outstanding growth, noting record new capitation contracts in Q1 and Q2, including three in Q2 covering two states with medical and radiation oncology services, and a milestone in Nevada with a direct to health plan capitation deal. • Revenue growth driven by 76% increase in oral drug revenue, and California pharmacy projection increased to over $70 million in incremental revenue. • Q2 saw lower gross margin due to reimbursement pressures on IV and oral drug margin. • Updated full year guidance: gross profit $62M-$69M, adjusted EBITDA -$21M to -$28M, revenue guidance unchanged. • Cost management: flat corporate SG&A for 2024, reduced SG&A as % of revenue by 15.1%. • Undertaking review of strategic, financial, and operational alternatives with Leerink Partners to enhance shareholder value. • Mihir discussed Q2 financial results, including revenue growth, gross profit increase, SG&A improvement, and cash position with $36.4M in cash and cash equivalents and $9.9M in short-term investments.

Consolidated revenue for Q2 2024 was $98.6 million, an increase of 22.9% compared to Q2 2023 and a 4.1% increase compared to Q1 2024. Revenue grew 23% in the second quarter compared to the prior year period, driven by an exceptional 76% increase in oral drug revenue. Gross profit in Q2 2024 was $13 million, an increase of 8.8% compared to Q1 2024. Q2 Oral margins compressed by 750 basis points compared to Q2 2023 due to 2023 DIR fee run out and historically low reimbursement. SG&A including depreciation and amortization was $29.4 million in Q2 2024, improving 220 basis points compared to Q2 2023, and as a percentage of revenue was 29.8%, improving 480 basis points from Q4 2023 and 760 basis points from Q2 2023.

• Adjusted full year gross profit guidance revised to $62 million to $69 million and adjusted EBITDA to negative $21 million to negative $28 million, while revenue guidance remains unchanged. • Anticipate significant improvement in net loss and adjusted EBITDA in the second half of 2024 as 2023 DIR runout is complete, IV margins improve, and new capitation contracts go live in Q3. • Annualized revenue of new capitation deals signed year-to-date is over $41 million, with adjusted EBITDA contribution expected to be $13 million.

• Reimbursement pressures on IV and oral drug margin, leading to lower-than-expected gross margin in Q2. • 2023 DIR fee runout realized at record levels as a percentage of revenue, with specialty pharmacy industry attributing low reimbursement net of DIR fees to PBM’s inappropriate response to the Inflation Reduction Act.

Q: Wanted to get color on margin pressures, improvement in Q3/Q4, DIR fee impact, IV margins, and new cap contracts.

A: The DIR fee impact in Q2 was ~$2.3 million, 2023 DIR fees won't be an issue in Q3/Q4, and new cap contracts going live in Q3/Q4 will drive margin improvement.

Q: On core margin excluding DIR, progression?

A: There's additional margin improvement from Part D business expansion, rebate tiering, and seasonality effects washing out in the back half of the year.

Q: On cash flows, AR impact and working capital?

A: Change Healthcare impact was almost all reversed in Q2, and AR increase in Q2 was solely from the pharmacy business due to state fiscal year end funds collected in early July.