The Oncology Institute(TOI) - 2022 Q4 - Annual Report

Part I Item 1. Business The Oncology Institute (TOI) operates 76 community-based clinics across 15 markets, providing value-based oncology care primarily to adult and senior populations under capitated agreements - TOI operates 76 clinic locations across 15 markets and five states, with 62 clinics staffed by 101 providers employed by its affiliated TOI PCs, serving over 64,000 patients in 2022 and managing approximately 1.7 million patients under value-based agreements[17][249] - Over 50% of TOI's 2022 revenue was generated from value-based contracts, predominantly capitated agreements, aligning provider incentives with quality and efficiency of care through fixed per member per month (PMPM) payments[22][51] - The company's revenue grew at approximately a 30% CAGR from 2016 to 2022, driven by robust growth in capitated lives under value-based contracts and strategic expansion[40][41] - TOI differentiates itself from traditional fee-for-service (FFS) oncology care providers by focusing on a value-based model that aims to reduce wasteful care, improve patient outcomes, and lower costs, supported by evidence-based clinical protocols[20][21][34] - The company is subject to extensive government regulations, including licensing, corporate practice of medicine laws, federal and state anti-kickback, false claims, and self-referral laws, as well as HIPAA and evolving healthcare reform measures, posing significant compliance risks[59][60][61] Item 1A. Risk Factors TOI faces numerous risks including challenges in growth strategy execution, managing rapid change, achieving profitability, operational dependencies, regulatory compliance, and financial stability - TOI has a history of net losses, including a $10,927 thousand net loss in 2021, and anticipates increasing expenses due to growth and public company operations, making future profitability uncertain[98][99] - Approximately 24% of TOI's 2022 revenue was derived from fixed fees under capitation agreements, exposing the company to the risk that the cost of providing services may exceed compensation if medical costs and expenses surpass estimates[112][113] - TOI's operations are geographically concentrated, with approximately 85% of its 2022 revenues generated in California, making it vulnerable to unfavorable changes in local benefit costs, reimbursement rates, competition, and economic conditions[106] - The company identified a material weakness in its internal control over financial reporting related to complex accounting transactions, which, if not corrected, could adversely affect operations and financial statements[91][224] - TOI's Facility Agreement includes restrictive covenants, such as maintaining a minimum of $40,000 thousand in unrestricted cash and specific quarterly revenue targets ($50,000 thousand in 2023, $75,000 thousand in 2024, $100,000 thousand in 2025), which could limit its financial flexibility[228][486] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[238] Item 2. Properties TOI's principal executive offices are in Cerritos, California, under a lease expiring in 2026, and the company leases 62 clinics across five states, with plans for further expansion - TOI's principal executive offices are in Cerritos, California, with a lease expiring in 2026[239] - As of December 31, 2022, the company leases 62 clinics in California, Arizona, Nevada, Florida, and Texas[240] Item 3. Legal Proceedings TOI is involved in various ordinary course legal proceedings, none of which are currently expected to have a material adverse effect on the company's financial condition or operations - TOI is involved in various legal proceedings and claims in the ordinary course of business[241] - No current legal proceedings are expected to have a material adverse effect on the company's business, operating results, cash flows, or financial condition[241] Item 4. Mine Safety Disclosures This item is not applicable to The Oncology Institute, Inc - Not applicable[242] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TOI's common stock and warrants are listed on Nasdaq, with approximately 89 record holders as of March 2023, and the company has not paid cash dividends, intending to retain earnings for growth - Common stock trades on Nasdaq under 'TOI', and publicly traded warrants under 'TOIIW'[245] - As of March 8, 2023, there were approximately 89 holders of record for the common stock[245] - The company has never declared or paid any cash dividends on its common stock and plans to retain all available funds and future earnings for business development and growth[246][521] Item 6. [ Reserved ] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations TOI reported a 24.4% increase in 2022 total operating revenue to $252,483 thousand, driven by practice acquisitions and new capitation contracts, despite a significant operating loss and a net cash decrease due to investments Key Financial Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Operating Revenue | $252,483 | $203,003 | $49,480 | 24.4% | | Patient Services Revenue | $166,785 | $124,074 | $42,711 | 34.4% | | Dispensary Revenue | $79,343 | $72,550 | $6,793 | 9.4% | | Total Operating Expenses | $334,434 | $248,861 | $85,573 | 34.4% | | Loss from Operations | $(81,951) | $(45,858) | $(36,093) | 78.7% | | Net Income (Loss) | $152 | $(10,927) | $11,079 | -101.4% | | Adjusted EBITDA | $(23,542) | $(5,377) | $(18,165) | 337.8% | - TOI completed a $110 million strategic investment from Deerfield Management Company, L.P. through secured senior convertible notes on August 9, 2022, and ended the fiscal year with $132 million in cash, cash equivalents, and investments[253][291] - The company increased its market count to 15 from 10 and grew Capitated Membership by over 100 thousand lives in 2022, alongside completing 6 practice acquisitions[253][260] - TOI remediated two material weaknesses related to revenue review and segregation of duties within the financial close and reporting process but continues to address a remaining material weakness concerning complex accounting transactions[253][630] Material Cash Requirements (2023-Thereafter) | Requirement | Total (in thousands) | | :------------------------------------ | :------------------- | | Convertible note (principal & interest) | $159,938 | | Operating leases | $31,726 | | Deferred acquisition & contingent consideration | $3,109 | | Other (finance leases, D&O premiums) | $3,318 | | Total Material Cash Requirements | $198,091 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk TOI's primary market risks include inflation and interest rate changes, with a $9,944 thousand goodwill impairment charge recognized in 2022 due to underperformance and rising rates - TOI's market risk exposure primarily stems from potential changes in inflation and interest rates, though its investment policy focuses on liquidity and capital preservation for its cash and marketable securities[325][326] - Inflation could adversely affect TOI by increasing costs for drugs, clinical trials, administration, and labor, potentially outpacing expectations and necessitating additional capital[327] - The company recognized a goodwill impairment charge of $9,944 thousand for the year ended December 31, 2022, due to the carrying value of goodwill related to patient services exceeding its fair value, influenced by factors such as underperformance and rising interest rates[329][330] Item 8. Financial Statements and Supplementary Data This section presents TOI's audited consolidated financial statements for 2022 and 2021, including balance sheets, statements of operations, and cash flows, detailing significant accounting policies and key financial changes Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------------ | :------------------ | | Total Assets | $261,665 | $203,439 | | Cash and cash equivalents | $14,010 | $115,174 | | Marketable securities | $59,796 | $0 | | Accounts receivable | $39,816 | $20,007 | | Goodwill | $21,418 | $26,626 | | Total Liabilities | $138,490 | $99,280 | | Long-term debt, net | $80,621 | $0 | | Total Stockholders' Equity | $123,175 | $104,159 | Consolidated Statements of Operations Highlights (in thousands) | Metric | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :------------------------------------ | :---------------------- | :---------------------- | | Total operating revenue | $252,483 | $203,003 | | Total operating expenses | $334,434 | $248,861 | | Loss from operations | $(81,951) | $(45,858) | | Total other non-operating income | $(81,860) | $(34,260) | | Net income (loss) | $152 | $(10,927) | | Net income (loss) per share, basic | $0.00 | $(0.16) | | Net loss per share, diluted | $(0.21) | $(0.16) | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :------------------------------------ | :---------------------- | :---------------------- | | Net cash used in operating activities | $(61,756) | $(32,680) | | Net cash used in investing activities | $(131,614) | $(12,154) | | Net cash provided by financing activities | $92,206 | $154,010 | | Net (decrease) increase in cash | $(101,164) | $109,176 | | Cash at end of period | $14,010 | $115,174 | - TOI adopted ASC 842 (Leases) on January 1, 2022, resulting in an initial balance sheet adjustment of $17,832 thousand to operating ROU assets and corresponding lease liabilities, with an immaterial impact on the Consolidated Statements of Operations[433][434] - The company issued a $110,000 thousand Senior Secured Convertible Note on August 9, 2022, maturing in 2027, which significantly increased interest expense and long-term debt, and includes embedded conversion options and warrants accounted for as derivative liabilities[484][485][488][497][503] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures There were no changes in or disagreements with accountants on accounting and financial disclosures - Not applicable[624] Item 9A. Controls and Procedures As of December 31, 2022, TOI's disclosure controls and internal controls over financial reporting were ineffective due to a material weakness in complex accounting transactions, though two prior material weaknesses were remediated - As of December 31, 2022, TOI's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting related to complex accounting transactions[625][628] - The company remediated two previously reported material weaknesses in 2022, specifically those related to segregation of duties in the financial closing and reporting process and internal control over reviews of the revenue process[630][631][632] - As an emerging growth company, TOI is not required to include an attestation report on internal control over financial reporting from its independent registered public accounting firm[633] Item 9B. Other Information This item contains no additional information - None[636] Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections This item is not applicable to The Oncology Institute, Inc - Not applicable[637] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Annual Meeting of Stockholders proxy statement - Information incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[639] Item 11. Executive Compensation Details on executive compensation are incorporated by reference from the company's 2023 Annual Meeting of Stockholders proxy statement - Information incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[640] Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2023 Annual Meeting of Stockholders proxy statement - Information incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[641] Item 13. Certain Relationships and Related Transactions, and Director Independence Details on certain relationships, related transactions, and director independence are incorporated by reference from the company's 2023 Annual Meeting of Stockholders proxy statement - Information incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[642] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 Annual Meeting of Stockholders proxy statement - Information incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement[643] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report, confirming their inclusion under Item 8 and that no other schedules are required - Lists various exhibits filed as part of the report, including the Merger Agreement, Amended and Restated Certificate of Incorporation, Bylaws, Warrant Agreement, and Facility Agreement[646][647] - Financial statement schedules are filed under Item 8, and no other financial statement schedules are required[646] Item 16. Form 10-K Summary This item indicates that no Form 10-K summary is provided - No Form 10-K Summary is provided[648] Signatures The Annual Report on Form 10-K is duly signed by TOI's CFO, Mihir Shah, and CEO, Brad Hively, along with other directors, affirming compliance with the Securities Exchange Act of 1934 - The Annual Report is signed by Mihir Shah (Chief Financial Officer) and Brad Hively (Chief Executive Officer and Director) on March 16, 2023[652][655] - Other directors also signed the report, constituting and appointing Brad Hively and Mihir Shah as attorneys-in-fact for filing amendments[653][655][656]