American Oncology Network Inc(AONC) - 2023 Q4 - Annual Results

Executive Summary and Business Overview Fiscal Year 2023 Highlights AON achieved significant FY2023 revenue growth from increased patient encounters, went public, and strategically invested in its operating platform Fiscal Year 2023 Financial Highlights | Metric | Value (2023) | Change vs 2022 | | :----- | :----------- | :------------- | | Revenue | $1,279.2 million | +11.3% | | Patient Encounters | | +7.9% | - The company successfully went public during the year and made significant investments in its industry-leading service platform, including transitioning to a new enterprise revenue cycle platform in Q4 2023[2] - The new revenue cycle platform enabled AON to successfully navigate the recent Change Healthcare disruption that impacted many other healthcare providers[2] Fourth Quarter 2023 Highlights Q4 2023 revenue grew from patient encounters, but net loss widened due to a non-recurring reserve, and Adjusted EBITDA declined from rising drug costs Fourth Quarter 2023 Financial Highlights | Metric | Value (Q4 2023) | Change vs Q4 2022 | | :----- | :-------------- | :---------------- | | Revenue | $324.2 million | +7.9% | | Patient Encounters | | +9.5% | | Net Loss before NCI | $(22.4) million | vs $1.4 million Net Income | | Adjusted EBITDA | $5.0 million | -$3.0 million (-37.5%) | - Revenue per patient decreased by 1.8% in Q4 2023, primarily due to a $20.7 million non-recurring incremental accounts receivable reserve related to the transition from the old to the new billing system[3] - The decline in Q4 Adjusted EBITDA was primarily attributable to increased drug costs[4] CEO Commentary CEO Todd Schonherz highlighted 2023's growth, including revenue and patient encounter increases, public listing, and strategic platform investments, emphasizing AON's national oncology platform status - The CEO highlighted significant growth across all aspects of the company's business, including 11.3% revenue growth and 7.9% patient encounter growth[2] - Strategic investment in the new enterprise revenue cycle platform in Q4 2023 not only prepared AON for the future but also enabled it to successfully navigate the Change Healthcare disruption[2] - AON believes it will be the preferred destination for community oncology practices seeking to grow their businesses as the only truly national oncology platform[2] Detailed Financial Performance Three-Month Periods Ended December 31 (Fourth Quarter) AON's Q4 2023 revenue grew 7.9% from patient encounters, but a $20.7 million non-recurring reserve led to a $22.4 million net loss and decreased revenue per patient Q4 Revenue Performance | Metric | Q4 2023 (in thousands) | Q4 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------- | :--------------------- | :--------------------- | :-------------------- | :------- | | Total Revenue | $324,182 | $300,398 | $23,784 | 7.9% | | Patient Service Revenue, net | $320,038 | $297,425 | $22,613 | 7.6% | | Other Revenue | $4,144 | $2,973 | $1,171 | 39.4% | - Q4 2023 revenue growth was primarily attributable to a 9.5% increase in patient encounters, contributing $28.4 million in revenue growth, partially offset by a $5.8 million decrease in revenue per patient, stemming from a 1.8% reduction in revenue per patient[3] - The decrease in revenue per patient was due to a $20.7 million non-recurring incremental accounts receivable reserve related to the transition from the old to the new billing system in Q4 2023[3] Q4 Profitability Analysis Q4 Profitability Metrics | Metric | Q4 2023 (in thousands) | Q4 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :--------------------- | :--------------------- | :-------------------- | :------- | | Net Income (Loss) before NCI | $(22,353) | $1,363 | $(23,716) | * | | Adjusted EBITDA | $5,013 | $8,038 | $(3,025) | (37.6%) | | Loss per share of Class A Common Stock (Basic) | $(0.76) | $0.00 | | | - The primary reason for the net loss in Q4 2023 was a $20.7 million incremental accounts receivable reserve related to accounts receivable from the old billing system[4] - The decline in Adjusted EBITDA was primarily due to increased drug costs[4] Fiscal Years Ended December 31 (Full Year) AON's FY2023 revenue grew 11.3% to $1.2792 billion from patient encounters, but a $63.2 million net loss resulted from increased transaction expenses, non-recurring reserves, and non-cash adjustments Full Year Revenue Performance | Metric | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------- | :--------------------- | :--------------------- | :-------------------- | :------- | | Total Revenue | $1,279,185 | $1,149,670 | $129,515 | 11.3% | | Patient Service Revenue, net | $1,265,719 | $1,137,932 | $127,787 | 11.2% | | Other Revenue | $13,466 | $11,738 | $1,728 | 14.7% | - Overall revenue growth was primarily attributable to a 7.9% increase in patient encounters, contributing $148.5 million in revenue growth, partially offset by a decrease in revenue per patient, which stemmed from a $20.7 million incremental accounts receivable reserve[5] Full Year Profitability Analysis Full Year Profitability Metrics | Metric | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :--------------------- | :--------------------- | :-------------------- | :------- | | Net Income (Loss) before NCI | $(63,150) | $2,589 | $(65,739) | * | | Income (Loss) from Operations | $(49,154) | $5,566 | $(54,720) | * | | Adjusted EBITDA | $18,087 | $18,133 | $(46) | (0.3%) | | Loss per share of Class A Common Stock (Basic) | $(1.36) | $0.00 | | | - The year-over-year decrease in net income was primarily attributable to a $27.9 million increase in transaction expenses related to the company's business combination, a $20.7 million non-recurring incremental accounts receivable reserve related to old billing system receivables, a $9.3 million increase in non-cash valuation adjustments related to equity instruments classified as liabilities, and a $4.9 million increase in non-cash stock-based compensation expense[6][7] Liquidity, Cash Flow, and Debt AON's total liquidity was $105.3 million as of December 31, 2023; FY2023 net cash used in operations was $18.1 million, including $31.2 million in transaction expenses Liquidity and Debt (as of December 31, 2023) | Metric | Value (in millions) | | :-------------------------------- | :------------------ | | Total Liquidity | $105.3 | | Cash and Cash Equivalents | $28.5 | | Short-term Marketable Securities | $35.4 | | Incremental Borrowing Capacity (PNC Loan) | $40.4 | | Incremental Borrowing Capacity (PNC Line of Credit) | $1.0 | | Outstanding under PNC Loan Facility | $81.3 | | PNC Line of Credit | Undrawn | - Net cash used in operating activities for fiscal year 2023 was $18.1 million, which included $31.2 million in transaction expenses related to the business combination[7] Non-GAAP Financial Measures Definition and Rationale of Adjusted EBITDA Adjusted EBITDA, a non-GAAP measure, offers a clearer view of AONC's operating performance by excluding capital, financing, non-cash, and non-recurring expenses, supplementing GAAP results - Adjusted EBITDA is defined as net income before interest income, interest expense, income taxes, depreciation, and amortization, further adjusted for certain other non-cash expenses that may be recorded annually (such as stock-based compensation expense and non-cash valuation adjustments) and non-recurring expenses (such as revenue cycle transformation costs and business combination-related transaction costs)[9] - Management uses this metric to evaluate operating results, assess factors and trends affecting the business, and plan and budget for future periods, believing it provides a more comprehensive understanding of AONC's operating results when used in conjunction with GAAP results[8][10] - Non-GAAP financial measures should be considered supplementary to, not a substitute for or superior to, GAAP results, with disclosures and reconciliations provided for investors' independent analysis[10] Reconciliation of Net Income (Loss) to Adjusted EBITDA (Full Year) Full-year reconciliation shows Adjusted EBITDA stability despite a net income to net loss shift, highlighting non-cash and non-recurring item impacts Full Year Adjusted EBITDA Reconciliation (Selected Items) | Item | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (in thousands) | | :----------------------------- | :--------------------- | :--------------------- | :-------------------- | | Net Income (Loss) | $(63,150) | $2,589 | $(65,739) | | Revenue cycle transformation (a) | $21,589 (approx) | $1,726 | $19,863 (approx) | | Non-cash valuation adjustments (b) | $9,249 | $0 | $9,249 | | Transaction expenses (c) | $27,959 | $3,277 | $24,682 | | Adjusted EBITDA | $18,087 | $18,133 | $(46) | - Revenue cycle transformation costs for fiscal year 2023 included approximately $20.7 million in incremental implied price concessions related to exiting the old billing system and approximately $0.9 million in duplicate billing system costs during the old system's decommissioning period[24] - Non-cash valuation adjustments primarily represent valuation adjustments related to equity instruments classified as liabilities[24] - Transaction expenses are costs associated with the business combination[24] Reconciliation of Net Income (Loss) to Adjusted EBITDA (Fourth Quarter) Q4 reconciliation shows operational transformation costs, including non-recurring reserves, significantly impacted the shift from net income to a net loss; Adjusted EBITDA declined from increased drug costs Q4 Adjusted EBITDA Reconciliation (Selected Items) | Item | Q4 2023 (in thousands) | Q4 2022 (in thousands) | Change (in thousands) | | :----------------------------- | :--------------------- | :--------------------- | :-------------------- | | Net Income (Loss) | $(22,354) | $1,364 | $(23,718) | | Operational transformation | $21,589 | $317 | $21,272 | | Transaction expenses | $1,351 | $3,126 | $(1,775) | | Adjusted EBITDA | $5,013 | $8,038 | $(3,025) | - Operational transformation costs in Q4 2023 were $21.6 million, significantly higher than Q4 2022, reflecting the impact of the billing system transition[25] Company Information Conference Call Details American Oncology Network, Inc. held a conference call on March 28, 2024, to discuss Q4 2023 financial results, with live access, replay, and webcast details - The conference call was held on Thursday, March 28, 2024, at 8:30 AM Eastern Time[13] - A replay of the call is available via telephone and a live webcast on the investor relations website, investors.aconology.com[13] About American Oncology Network, Inc. Founded in 2018, AONC is a physician-led, community-based oncology management platform supporting physicians and enhancing patient care; its network spans 86 locations in 19 states and D.C. with over 200 providers as of December 31, 2023 - Since its inception in 2018, AONC has offered an innovative physician-led, community-based oncology management model[14] - The company's purpose is to preserve and enhance community oncology by helping physicians navigate complex healthcare environments, providing them with an efficient platform to operate and grow independently, and most importantly, improving the quality of patient care delivered[14] AONC Network Statistics (as of December 31, 2023) | Metric | Value | | :---------------- | :---- | | Providers | >200 | | Locations | 86 | | States + D.C. | 19 | Forward-Looking Statements Forward-Looking Statements Disclaimer This section contains standard forward-looking statements and disclaimers under the Private Securities Litigation Reform Act of 1995, cautioning readers about inherent risks and uncertainties, with no update obligation unless legally required - This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding American Oncology Network, Inc.'s financial condition, results of operations, profitability prospects, and outlook[15] - Forward-looking statements are based on current expectations and projections about future events and various assumptions, involving risks, uncertainties (many of which are beyond AON's control), or other assumptions that could cause actual results or performance to differ materially from those expressed or implied by these statements[15][16] - AON cannot guarantee that it will actually achieve the plans, intentions, or expectations disclosed in its forward-looking statements, and readers should not place undue reliance on AON's forward-looking statements, with AON undertaking no obligation to publicly update or revise any forward-looking statements unless required by law[15][17]