Part I - Financial Information Item 1. Financial Statements This section presents American Oncology Network, Inc.'s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024, including balance sheets, statements of operations, and cash flows Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $394.8 million from $374.5 million at year-end 2023, while total liabilities rose to $340.7 million from $303.7 million, resulting in a $102.6 million stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,432 | $28,539 | | Total current assets | $271,230 | $277,803 | | Goodwill | $10,900 | $1,230 | | Total assets | $394,811 | $374,453 | | Liabilities & Equity | | | | Accounts payable | $155,494 | $127,645 | | Total current liabilities | $199,857 | $169,045 | | Long-term debt, net | $87,633 | $80,641 | | Total liabilities | $340,722 | $303,740 | | Redeemable noncontrolling interest | $91,731 | $167,025 | | Total deficit | ($102,628) | ($161,298) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the nine months ended September 30, 2024, total revenue increased by 32.8% to $1.27 billion, but net loss attributable to AON Inc. widened to $5.3 million from $1.8 million Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Total revenue | $1,268,600 | $955,003 | | Income (loss) from operations | ($25,646) | ($28,541) | | Net loss before noncontrolling interest | ($29,363) | ($40,797) | | Net loss attributable to AON Inc. | ($5,289) | ($1,792) | | Basic Loss per share | ($0.90) | ($0.61) | | Diluted Loss per share | ($0.94) | ($0.61) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operating activities increased to $16.9 million, while investing activities provided $14.8 million, and financing activities used $7.0 million Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($16,869) | ($6,160) | | Net cash provided by (used) in investing activities | $14,809 | ($24,673) | | Net cash (used in) provided by financing activities | ($7,047) | $55,560 | | Net increase in cash and cash equivalents | ($9,107) | $24,727 | Notes to Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies and financial results, covering business overview, combinations, debt, related parties, equity compensation, and subsequent events Note 1. Business American Oncology Network, Inc. operates as an alliance of physicians providing comprehensive oncology services across 38 practices in 20 states and D.C., with its corporate structure resulting from a September 2023 reverse recapitalization - AON operates as an alliance of physicians providing oncology services across 38 practices in 20 states and D.C., offering services like drug procurement, lab services, and clinical research31 - The Business Combination with DTOC was accounted for as a reverse recapitalization, with AON LLC as the accounting acquirer and DTOC as the acquired company for financial reporting purposes4041 Note 5. Business Combinations During the nine months ended September 30, 2024, AON completed two acquisitions, Central Georgia Cancer Care and Hawaii Cancer Care, resulting in $9.85 million of goodwill and a $1.04 million bargain purchase gain respectively 2024 Acquisitions Summary (in thousands) | Acquisition | Consideration Transferred | Goodwill Recognized | Bargain Purchase Gain | | :--- | :--- | :--- | :--- | | Central Georgia Practice | $13,462 | $9,850 | $0 | | Hawaii Practice | ($4,530) | $0 | ($1,040) | - From their acquisition dates through September 30, 2024, the newly acquired businesses contributed $64.9 million in revenue138 Note 8. Long-term Debt As of September 30, 2024, total debt was $91.4 million, primarily from an $81.25 million PNC Loan Facility whose maturity was extended to June 2026, with the company in compliance with all covenants Long-term Debt Composition (in thousands) | Debt Instrument | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | PNC Facility | $81,250 | $81,250 | | Notes payable | $10,192 | $0 | | Total | $91,442 | $81,250 | - In June 2023, the PNC Loan Facility's maturity date was extended from April 2024 to June 30, 2026158 Note 11. Related Parties The company engages in significant related-party transactions, with $1.08 billion in pharmaceutical inventory purchases from a common-control supplier, representing 91% of cost of revenue for the nine months ended September 30, 2024 - The company purchases the majority of its pharmaceutical inventory from a related party. These purchases accounted for 91% of cost of revenue for the nine months ended September 30, 2024183 - As of September 30, 2024, accounts payable to this related party amounted to $144.0 million, representing 92% of total accounts payable183 Note 12. Equity-Based Compensation Under the 2023 Incentive Equity Plan, the company granted 4,746,521 RSUs and recognized $16.1 million in stock-based compensation expense during the first nine months of 2024, with $6.2 million unrecognized expense remaining RSU Activity (Nine Months Ended Sep 30, 2024) | Activity | Number of RSUs | | :--- | :--- | | Outstanding at Dec 31, 2023 | 0 | | Granted | 4,746,521 | | Vested | (2,382,730) | | Forfeited/Cancelled | (33,714) | | Outstanding at Sep 30, 2024 | 2,330,077 | - As of September 30, 2024, there was approximately $6.2 million of total unrecognized compensation expense related to RSUs188 Note 17. Subsequent Events Subsequent events include AEA Growth affiliates closing a tender offer on October 4, 2024, and a $51 million equity financing on November 12, 2024, with no material financial impact expected from recent hurricanes - On November 12, 2024, the company closed on the sale of 8,500,000 shares of Class A Common Stock to an affiliate of AEA Growth at $6.00 per share, raising gross proceeds of $51 million233 - On October 4, 2024, affiliates of AEA Growth closed a tender offer, purchasing 5.4 million AON LLC Common Units and 2.8 million shares of Class A Common Stock231 - The company experienced temporary clinic closures at approximately ten locations due to Hurricanes Helene and Milton but does not currently believe the events will have a material effect on its financial condition240 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business model, recent corporate actions, and provides a detailed analysis of financial performance for the three and nine months ended September 30, 2024, covering revenue, costs, liquidity, and non-GAAP measures Results of Operations For the nine months ended September 30, 2024, revenue increased 32.8% to $1.27 billion, driven by higher patient encounters and revenue per encounter, while cost of revenue and general and administrative expenses also increased significantly Revenue Comparison (in thousands) | Period | Sep 30, 2024 | Sep 30, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended | $470,279 | $336,305 | $133,974 | 39.8% | | Nine Months Ended | $1,268,600 | $955,003 | $313,597 | 32.8% | - The $313.1 million revenue increase for the nine-month period was driven by an 18.7% increase in patient encounters (contributing $176.4 million) and a 12.2% increase in revenue per encounter (contributing $136.7 million)288 - Cost of revenue for the nine-month period increased by $312.5 million, primarily due to higher drug and medical supply costs associated with increased patient volumes and cost per encounter, as well as $11.1 million in equity-based compensation expense293 Non-GAAP Financial Measures The company uses Adjusted EBITDA, a non-GAAP measure, which increased 25% to $16.3 million for the nine months ended September 30, 2024, from $13.0 million in the prior-year period Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net loss | ($29,363) | ($40,797) | | Adjustments | $45,655 | $53,827 | | Adjusted EBITDA | $16,292 | $13,030 | Liquidity and Capital Resources As of September 30, 2024, the company had $19.4 million in cash, with management believing current resources and a subsequent $51 million equity financing will provide sufficient liquidity for the next 12 months - As of September 30, 2024, the company had $19.4 million in cash and cash equivalents, plus $13.6 million available under its PNC Loan Facility and $1.0 million under its PNC Line of Credit311 - Subsequent to the quarter end, the company raised $51 million in gross proceeds from a Class A Common Stock financing, which will be used for acquisitions, capital expenditures, and general corporate purposes313324 Historical Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operations | ($16,869) | ($6,160) | | Net cash provided by (used in) investing | $14,809 | ($24,673) | | Net cash (used in) provided by financing | ($7,047) | $55,560 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its $81.3 million variable-rate debt, where a 1.0% rate increase would raise annual interest expense by $0.8 million, and also faces inflation risk on labor and supply costs - The company is exposed to interest rate risk on its $81.3 million of variable-rate debt. A 1.0% increase in the Bloomberg Short-Term Bank Yield Index would increase annual interest expense by approximately $0.8 million347348 - Inflationary pressures affect labor, drug, and medical supply costs. The company has experienced staffing shortages and increased wage demands, which it manages through retention efforts and strategic sourcing349 Item 4. Controls and Procedures As of September 30, 2024, management concluded that the company's disclosure controls and procedures were not effective due to previously identified material weaknesses in internal control over financial reporting - Based on an evaluation as of September 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were not effective due to previously identified material weaknesses in internal control over financial reporting352 Part II - Other Information Item 1. Legal Proceedings The company reports no material legal proceedings during the period - None355 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K and the quarterly report for the period ended June 30, 2024 - As of the date of this report, there have been no material changes to the risk factors previously disclosed in the 2023 Annual Report and the Q2 2024 10-Q357 Item 5. Other Information This section details a significant post-period financing event where the company sold 8,500,000 shares of Class A Common Stock for $51 million in gross proceeds to an AEA Growth affiliate on November 12, 2024 - On November 12, 2024, the company closed on the sale of 8,500,000 shares of Class A Common Stock to an affiliate of AEA Growth at $6.00 per share, for gross proceeds of $51 million358
American Oncology Network Inc(AONC) - 2024 Q3 - Quarterly Report