Oncology Institute Delivers a Mixed Q3
The cancer care specialist reported mixed third-quarter results as revenues grew but losses persisted.
The Oncology Institute (TOI -9.03%), a provider of cutting-edge cancer care services to patients across five states, released its third-quarter earnings on Nov. 13. The results were mixed, showing a 21.8% increase in revenue to $99.9 million, but falling short of analysts’ $107.5 million consensus estimate. In terms of profitability, its net loss slightly contracted from $17.4 million in Q3 2023 to $16.1 million. Dispensary segment sales grew sharply, but overall results were held back by declining patient service revenues and lower margins.
| Metric | Q3 2024 Result | Q3 2024 Analysts’ Estimate | Q3 2023 Result | % Change YOY |
|---|---|---|---|---|
| Total revenue | $99.9 million | $107.5 million | $82.0 million | 21.8% |
| Net income | ($16.1 million) | – | ($17.4 million) | N/A |
| Dispensary revenue | $48.2 million | – | $26.8 million | 79.9% |
| Patient services revenue | $49.8 million | – | $53.6 million | (7.2%) |
Source: Analyst estimates for the quarter provided by FactSet.
Business Overview and Recent Focus
The Oncology Institute focuses on providing cancer services through a value-based care model that places emphasis on improving patient outcomes while efficiently managing costs. As the healthcare sector moves towards such models, the company’s strategy aligns with industry trends, positioning it to capitalize on the shift. Over the past year, The Oncology Institute focused on expanding its geographic footprint and optimizing service delivery through its dispensary and clinical trial segments.
This strategic emphasis on value-based models led it to establish capitation contracts, which are agreements where payment is per person, per month, regardless of patient care frequency. This assures a steady revenue stream and incentivizes cost efficiency, a key differentiator from traditional fee-for-service models. Technology and systematic care pathways are pivotal to The Oncology Institute’s operational approach, reinforcing high-quality care and standardized operational practices across its network.
Q3 Highlights and Developments
The third quarter saw The Oncology Institute striving for financial stability amidst uneven performance across its segments. Total revenue increased impressively by 21.8% year over year due to strong growth in the dispensary segment. This was driven mainly by an increasing number of prescriptions filled in California. Conversely, patient services revenue decreased to $49.8 million from $53.6 million in the prior-year period.
Profitability remained an issue. Gross profit fell from $16.0 million to $14.4 million as gross margins shrank to 14.4% from 19.5%. These declines were attributed to cost management issues and drug-related fee increases. Adjusted EBITDA, a measure of core earnings that excludes certain items, deteriorated further to negative $8.2 million — a $2.9 million worse loss than in the prior-year period.
However, some operational efficiencies were achieved. The company cut its selling, general, and administrative expenses by 6%, reducing their share of total revenue to 26.7% from 34.4%. The Oncology Institute also entered into three new capitation contracts, most notably in Oregon, and increased its market reach into Florida’s Medicare Advantage market to approximately 27,000 people.
Strategically, the company’s expansion into new clinics, particularly those certified for cutting-edge treatments like radiopharmaceutical therapy, underscores its commitment to value-driven healthcare. These expansions are aimed at enhancing patient access to specialized cancer care and addressing the growing healthcare demands in these markets.
Outlook and Future Considerations
Looking ahead, the management’s optimism centers on the expansion of revenue through new capitation contracts, which are expected to yield significant financial benefits.
Management did not offer revisions to the 2024 guidance it gave three months earlier, which was for revenue in the range of $400 million to $415 million, and adjusted EBITDA losses of between $21 million and $28 million. Investors should keep a close eye on the effects of the company’s new capitation contracts and its ongoing efficiency initiatives.
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