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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number 001-39248
The Oncology Institute, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 84-3562323 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
18000 Studebaker Rd, Suite 800 Cerritos, California | | | 90703 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant's telephone number, including area code: (562) 735-3226
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.0001 par value per share | TOI | The Nasdaq Stock Market LLC |
Redeemable warrants, each whole warrant exercisable for one share of Common stock, each at an exercise price of $11.50 per share | TOIIW | The Nasdaq Stock Market LLC |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ý |
Non-accelerated filer | ☐ | Smaller reporting company | ý |
| | Emerging growth company | ý |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
As of November 3, 2023, the registrant had 73,748,979 shares of common stock outstanding.
Table of Contents
PART I
Item 1. Financial Statements and Supplementary Data
| | | | | | | | | | | | | | | | | | | | |
THE ONCOLOGY INSTITUTE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (US Dollars in thousands, except share data) | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 | | | | | | | | | |
| (Unaudited) | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | $ | 27,535 | | | $ | 14,010 | | | | | | | | | | |
Marketable securities | 59,877 | | | 59,796 | | | | | | | | | | |
Accounts receivable, net | 48,442 | | | 39,816 | | | | | | | | | | |
Other receivables | 464 | | | 617 | | | | | | | | | | |
Inventories, net | 12,174 | | | 9,261 | | | | | | | | | | |
Prepaid expenses | 4,190 | | | 6,918 | | | | | | | | | | |
Total current assets | 152,682 | | | 130,418 | | | | | | | | | | |
Non-current investments | — | | | 58,354 | | | | | | | | | | |
Property and equipment, net | 10,787 | | | 8,547 | | | | | | | | | | |
Operating right of use assets | 28,533 | | | 24,494 | | | | | | | | | | |
Intangible assets, net | 18,561 | | | 17,957 | | | | | | | | | | |
Goodwill | 7,230 | | | 21,418 | | | | | | | | | | |
Other assets | 560 | | | 477 | | | | | | | | | | |
Total assets | $ | 218,353 | | | $ | 261,665 | | | | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Accounts payable | $ | 13,333 | | | $ | 9,372 | | | | | | | | | | |
Current portion of operating lease liabilities | 6,079 | | | 5,498 | | | | | | | | | | |
| | | | | | | | | | | | |
Income taxes payable | 255 | | | 255 | | | | | | | | | | |
Accrued expenses and other current liabilities | 12,723 | | | 14,595 | | | | | | | | | | |
Total current liabilities | 32,390 | | | 29,720 | | | | | | | | | | |
Operating lease liabilities | 26,014 | | | 22,060 | | | | | | | | | | |
Derivative warrant liabilities | 292 | | | 350 | | | | | | | | | | |
Derivative earnout liabilities | 11 | | | 803 | | | | | | | | | | |
Conversion option derivative liabilities | 1,926 | | | 3,960 | | | | | | | | | | |
Long-term debt, net of unamortized debt issuance costs | 85,254 | | | 80,621 | | | | | | | | | | |
Other non-current liabilities | 459 | | | 868 | | | | | | | | | | |
Deferred income taxes liability | 158 | | | 108 | | | | | | | | | | |
Total liabilities | 146,504 | | | 138,490 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
THE ONCOLOGY INSTITUTE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (US Dollars in thousands, except share data) | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 | | | | | | | | | |
| (Unaudited) | | | | | | | | | | | |
Commitments and contingencies (Note 15) | — | | | — | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | |
Common Stock, $0.0001 par value, authorized 500,000,000 shares; 75,461,901 shares issued and 73,728,127 shares outstanding at September 30, 2023 and 73,265,621 shares issued and outstanding at December 31, 2022 | 8 | | | 7 | | | | | | | | | | |
Series A Convertible Preferred Stock, $0.0001 par value, authorized 10,000,000 shares; 165,045 shares issued and outstanding at September 30, 2023 and December 31, 2022 | — | | | — | | | | | | | | | | |
Additional paid-in capital | 200,256 | | | 186,250 | | | | | | | | | | |
Treasury Stock at cost, 1,733,774 and 0 shares at September 30, 2023 and December 31, 2022 | (1,019) | | | — | | | | | | | | | | |
Accumulated deficit | (127,396) | | | (63,082) | | | | | | | | | | |
Total stockholders’ equity | 71,849 | | | 123,175 | | | | | | | | | | |
Total liabilities and stockholders’ equity | $ | 218,353 | | | $ | 261,665 | | | | | | | | | | |
Note: The Company’s condensed consolidated balance sheets include the assets and liabilities of its consolidated variable interest entities (“VIEs”). The condensed consolidated balance sheets include total assets that can be used only to settle obligations of the Company’s consolidated VIEs totaling $74,140 and $70,994 as of September 30, 2023 and December 31, 2022, respectively, and total liabilities of the Company’s consolidated VIEs for which creditors do not have recourse to the general credit of the Company totaling $205,425 and $154,572 as of September 30, 2023 and December 31, 2022, respectively. See Note 17 for further details.
See accompanying notes to the condensed consolidated financial statements.
THE ONCOLOGY INSTITUTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(US Dollars in thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue | | | | | | | |
Patient services | $ | 53,634 | | | $ | 44,627 | | | $ | 157,333 | | | $ | 118,793 | |
Dispensary | 26,792 | | | 18,839 | | | 76,228 | | | 57,736 | |
Clinical trials & other | 1,609 | | | 1,511 | | | 4,890 | | | 4,530 | |
Total operating revenue | 82,035 | | | 64,977 | | | 238,451 | | | 181,059 | |
Operating expenses | | | | | | | |
Direct costs – patient services | 44,961 | | | 36,126 | | | 132,653 | | | 96,379 | |
Direct costs – dispensary | 21,072 | | | 15,738 | | | 60,328 | | | 47,816 | |
Direct costs – clinical trials & other | 24 | | | 113 | | | 276 | | | 400 | |
Goodwill impairment charges | — | | | — | | | 16,867 | | | — | |
Selling, general and administrative expense | 28,205 | | | 31,963 | | | 85,761 | | | 90,117 | |
Depreciation and amortization | 1,698 | | | 1,134 | | | 4,296 | | | 3,219 | |
Total operating expenses | 95,960 | | | 85,074 | | | 300,181 | | | 237,931 | |
Loss from operations | (13,925) | | | (20,097) | | | (61,730) | | | (56,872) | |
Other non-operating expense (income) | | | | | | | |
Interest expense | 2,695 | | | 1,497 | | | 8,017 | | | 1,632 | |
Interest income | (940) | | | — | | | (3,181) | | | — | |
Change in fair value of derivative warrant liabilities | 203 | | | 159 | | | (58) | | | (445) | |
Change in fair value of earnout liabilities | (23) | | | (3,581) | | | (792) | | | (53,821) | |
Change in fair value of conversion option derivative liabilities | 1,284 | | | (15,510) | | | (2,034) | | | (15,510) | |
Gain on debt extinguishment | — | | | — | | | — | | | (183) | |
Other, net | 140 | | | 36 | | | 354 | | | 172 | |
Total other non-operating loss (income) | 3,359 | | | (17,399) | | | 2,306 | | | (68,155) | |
(Loss) income before provision for income taxes | (17,284) | | | (2,698) | | | (64,036) | | | 11,283 | |
Income tax (expense) benefit | (135) | | | 24 | | | (278) | | | (124) | |
Net (loss) income | $ | (17,419) | | | $ | (2,674) | | | $ | (64,314) | | | $ | 11,159 | |
Net (loss) income per share attributable to common stockholders: | | | | |
Basic | $ | (0.19) | | | $ | (0.03) | | | $ | (0.71) | | | $ | 0.12 | |
Diluted | $ | (0.19) | | | $ | (0.17) | | | $ | (0.71) | | | $ | (0.03) | |
Weighted-average number of shares outstanding: | | | | |
Basic | 73,469,101 | | 72,184,366 | | 73,679,454 | | 72,807,277 |
Diluted | 73,469,101 | | 79,581,304 | | 73,679,454 | | 75,300,018 |
See accompanying notes to the condensed consolidated financial statements.
THE ONCOLOGY INSTITUTE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND CHANGES IN STOCKHOLDERS’ EQUITY
(US Dollars in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Preferred stock | | | | | | | | | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Treasury stock | | Additional paid in capital | | Accumulated Deficit | | Total Stockholders’ Equity | | | | | | | | |
Balance at December 31, 2022 | 73,265,621 | | | $ | 7 | | | 165,045 | | | $ | — | | | $ | — | | | $ | 186,250 | | | $ | (63,082) | | | $ | 123,175 | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (29,998) | | | (29,998) | | | | | | | | | |
Issuance of common stock upon vesting RSUs | 488,988 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | 5,229 | | | — | | | 5,229 | | | | | | | | | |
Balance at March 31, 2023 | 73,754,609 | | | $ | 7 | | | 165,045 | | | $ | — | | | $ | — | | | $ | 191,479 | | | $ | (93,080) | | | $ | 98,406 | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (16,897) | | | (16,897) | | | | | | | | | |
Issuance of common stock upon vesting RSUs | 793,607 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | | | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | 4,107 | | | — | | | 4,107 | | | | | | | | | |
Treasury stock purchase | — | | | — | | | — | | | — | | | (894) | | | — | | | — | | | (894) | | | | | | | | | |
Balance at June 30, 2023 | 74,548,216 | | | $ | 7 | | | 165,045 | | | $ | — | | | $ | (894) | | | $ | 195,586 | | | $ | (109,977) | | | $ | 84,722 | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (17,419) | | | (17,419) | | | | | | | | | |
Issuance of common stock upon vesting RSUs | 899,069 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | 1 | | | | | | | | | |
Issuance of common stock upon exercise of options | 14,616 | | | — | | | — | | | — | | | — | | | 13 | | | — | | | 13 | | | | | | | | | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | 4,657 | | | — | | | 4,657 | | | | | | | | | |
Treasury stock purchase | — | | | — | | | — | | | — | | | (125) | | | — | | | — | | | (125) | | | | | | | | | |
Balance at September 30, 2023 | 75,461,901 | | | $ | 8 | | | 165,045 | | | $ | — | | | $ | (1,019) | | | $ | 200,256 | | | $ | (127,396) | | | $ | 71,849 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Preferred stock | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional paid in capital | | Accumulated Deficit | | Total Stockholders’ Equity |
Balance at December 31, 2021 | 73,249,042 | | | $ | 7 | | | 163,510 | | | $ | — | | | $ | 167,386 | | | $ | (63,234) | | | $ | 104,159 | |
Net income | — | | | — | | | — | | | — | | | — | | | 19,286 | | | 19,286 | |
Issuance of common stock upon vesting of RSUs | 27,188 | | | — | | | — | | | — | | | — | | | — | | | — | |
Share-based compensation expense | — | | | — | | | — | | | — | | | 8,553 | | | — | | | 8,553 | |
Balance at March, 31, 2022 | 73,276,230 | | | $ | 7 | | | 163,510 | | | $ | — | | | $ | 175,939 | | | $ | (43,948) | | | $ | 131,998 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (5,453) | | | (5,453) | |
Issuance of common stock upon vesting of RSUs | 150,958 | | | — | | | | | | | — | | | — | | | — | |
Issuance of common stock upon exercise of options | 366,684 | | | — | | | — | | | — | | | 337 | | | — | | | 337 | |
Exchange of common stock for preferred stock | (313,000) | | | — | | | 3,130 | | | — | | | — | | | — | | | — | |
Repurchase and retirement of common stock | (1,500,000) | | | — | | | — | | | — | | | (9,000) | | | — | | | (9,000) | |
Net settlement of taxes for equity awards | — | | | — | | | — | | | — | | | (413) | | | — | | | (413) | |
Share-based compensation expense | — | | | — | | | — | | | — | | | 6,514 | | | — | | | 6,514 | |
Balance at June 30, 2022 | 71,980,872 | | | $ | 7 | | | 166,640 | | | $ | — | | | $ | 173,377 | | | $ | (49,401) | | | $ | 123,983 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (2,674) | | | (2,674) | |
Issuance of common stock upon vesting of RSUs | 107,614 | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock upon exercise of options | 93,701 | | | — | | | — | | | — | | | 79 | | | — | | | 79 | |
Exchange of preferred stock for common stock | 159,500 | | | — | | | (1,595) | | | — | | | — | | | — | | | — | |
Share-based compensation expense | — | | | — | | | — | | | — | | | 6,546 | | | — | | | 6,546 | |
Balance at September 30, 2022 | 72,341,687 | | | $ | 7 | | | 165,045 | | | $ | — | | | $ | 180,002 | | | $ | (52,075) | | | $ | 127,934 | |
See accompanying notes to the condensed consolidated financial statements.
| | | | | | | | | | | |
THE ONCOLOGY INSTITUTE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (US Dollars in thousands) (Unaudited) |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net (loss) income | $ | (64,314) | | | $ | 11,159 | |
Adjustments to reconcile net (loss) income to cash and cash equivalents used in operating activities: |
Depreciation and amortization | 4,296 | | | 3,219 | |
Amortization of debt issuance costs and debt discount | 4,633 | | | 892 | |
Goodwill impairment charges | 16,867 | | | — | |
Share-based compensation | 13,731 | | | 21,613 | |
Change in fair value of liability classified warrants | (58) | | | (445) | |
Change in fair value of liability classified earnouts | (792) | | | (53,821) | |
Change in fair value of liability classified conversion option derivatives | (2,034) | | | (15,510) | |
Realized loss on sale of investments | 11 | | | — | |
Unrealized (gain) loss on investments | (44) | | | 62 | |
Accretion of discount on investment securities | (712) | | | (29) | |
Deferred taxes | 50 | | | 183 | |
Gain on loan forgiveness | — | | | (183) | |
Credit losses | 31 | | | 402 | |
Loss on disposal of property and equipment | — | | | 22 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (8,657) | | | (15,215) | |
Inventories | (2,913) | | | (2,584) | |
Other receivables | 153 | | | 678 | |
Prepaid expenses | 2,728 | | | 3,545 | |
| | | |
Operating lease right-of-use assets | 4,448 | | | 3,720 | |
Other assets | (83) | | | (141) | |
Accrued expenses and other current liabilities | 579 | | | 2,894 | |
Income taxes payable | — | | | 255 | |
Accounts payable | 3,961 | | | (4,404) | |
Current and long-term operating lease liabilities | (3,909) | | | (2,998) | |
Other non-current liabilities | (394) | | | (1,073) | |
Net cash and cash equivalents used in operating activities | (32,422) | | | (47,759) | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (3,706) | | | (3,534) | |
| | | |
Cash paid for practice acquisitions | (4,300) | | | (8,107) | |
Purchases of marketable securities/investments | (9,683) | | | (87,402) | |
Sales of marketable securities/investments | 68,702 | | | — | |
Net cash and cash equivalents provided by (used in) investing activities | 51,013 | | | (99,043) | |
Cash flows from financing activities: | | | |
| | | |
| | | |
| | | |
| | | |
Proceeds from issuance of long-term debt | — | | | 110,000 | |
Transactions costs related to issuance of long-term debt | — | | | (3,663) | |
| | | |
Payments made for financing of insurance payments | (3,010) | | | (3,739) | |
Payment of deferred consideration liability for acquisition | (959) | | | (509) | |
| | | |
Principal payments on financing leases | (91) | | | (39) | |
| | | |
Common stock repurchase | (1,019) | | | (9,000) | |
Common stock issued for options exercised | 13 | | | 416 | |
Taxes for common stock net settled | — | | | (413) | |
| | | |
Net cash and cash equivalents provided by (used in) financing activities | (5,066) | | | 93,053 | |
Net increase (decrease) in cash and cash equivalents | 13,525 | | | (53,749) | |
Cash and cash equivalents at beginning of period | 14,010 | | | 115,174 | |
Cash and cash equivalents at end of period | $ | 27,535 | | | $ | 61,425 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Interest and principal forgiven from Paycheck Protection Program loans | $ | — | | | $ | 183 | |
| | | | | | | | | | | |
THE ONCOLOGY INSTITUTE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (US Dollars in thousands) (Unaudited) |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash paid for: | | | |
Income taxes | $ | 226 | | | $ | 26 | |
Interest | $ | 3,383 | | | $ | 184 | |
Supplemental disclosure of noncash investing and financing activities: | | | |
| | | |
| | | |
| | | |
| | | |
Discount of senior secured convertible note | $ | — | | | $ | 28,160 | |
Deferred consideration as part of practice acquisition | $ | 1,813 | | | $ | — | |
See accompanying notes to the condensed consolidated financial statements.
THE ONCOLOGY INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(US Dollars in thousands, except share data)
Note 1. Description of the Business
Overview of the Business
The Oncology Institute, Inc. (“TOI”) is the successor entity to DFP Healthcare Acquisitions Corp. ("DFPH"). DFPH is a Delaware corporation originally formed in 2019 as a publicly-traded special purpose acquisition company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination ("Business Combination"). TOI was originally founded in 2007 and is a community oncology practice that operates value-based oncology services platforms. TOI has various wholly-owned subsidiaries, including The Oncology Institute, LLC ("TOI LLC") (which was formerly known as TOI Parent, Inc.), The Oncology Institute of Hope and Innovation Patient Safety Organization, LLC, and TOI Management, LLC (“TOI Management”). Additionally, TOI Management holds master services agreements with affiliated physician-owned professional entities ("TOI PCs") that confer controlling financial interest over the professional entities and their wholly-owned subsidiaries (TOI PCs, together with TOI, the “Company”).
On November 12, 2021 ("Closing Date"), the Business Combination closed following a series of mergers, which resulted in DFPH emerging as the parent of the combined entity Orion Merger Sub II, LLC and the former TOI Parent, Inc. (together, "Legacy TOI"). DFPH was renamed “The Oncology Institute, Inc.” and common stock and "Public Warrants" continued to be listed on Nasdaq under the ticker symbols “TOI” and “TOIIW,” respectively (See Note 16).
Operationally, the Company’s medical centers provide a complete suite of medical oncology services including: physician services, in-house infusion and pharmacy, clinical trials, radiation, educational seminars, support groups, counseling, and 24/7 patient assistance. TOI’s mission is to heal and empower cancer patients through compassion, innovation and state-of-the-art medical care. The Company brings comprehensive, integrated cancer care into the community setting, including clinical trials, palliative care programs, stem cell transplants, and other care delivery models traditionally associated with non-community-based academic and tertiary care settings. In addition, the Company, through its consolidating subsidiary TOI Clinical Research, LLC ("TCR"), performs cancer clinical trials through a network of cancer care specialists. TCR conducts clinical trials for a broad range of pharmaceutical and medical device companies from around the world.
The Company has approximately 112 oncologists and mid-level professionals across 70 clinic locations located within five states: California, Florida, Arizona, Nevada, and Texas. The Oncology Institute CA, a Professional Corporation ("TOI CA"), one of the TOI PCs, has clinic locations in California, Nevada, and Arizona. The Company has contractual relationships with multiple payors, serving Medicare, including Medicare Advantage, Medi-Cal, and commercial patients.
Note 2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles ("GAAP") for complete financial statements. However, the Company believes that the disclosures are adequate to ensure the information is not misleading. In the opinion of management, all adjustments (of normal and recurring nature) considered necessary for fair presentation have been reflected in these interim condensed consolidated financial statements. As such, the information included in the accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes as of, and for the year ended December 31, 2022, issued on March 16, 2023.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of TOI, its subsidiaries, all of which are controlled by TOI through majority voting control, and variable interest entities (“VIE”) for which TOI (through TOI Management) is the primary beneficiary. The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity or voting interest model. All significant intercompany balances and transactions have been eliminated in consolidation.
Variable Interest Entities
The Company consolidates entities for which it has a variable interest and is determined to be the primary beneficiary. Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Company are presented as a component of total equity to distinguish between the interests of the Company and the interests of the noncontrolling owners. Revenues, expenses, and net income from these subsidiaries are included in the consolidated amounts as presented on the Condensed Consolidated Statements of Operations.
The Company holds variable interests in TOI PCs, which it cannot legally own, as a result of entering into master services agreements ("MSAs"). As of September 30, 2023, TOI held variable interests in TOI CA, The Oncology Institute FL, LLC, a Professional Corporation ("TOI FL"), and The Oncology Institute TX, a Professional Corporation ("TOI TX"), all of which are VIEs. The Company is the primary beneficiary of the TOI PCs and thus, consolidates the TOI PCs in its financial statements. As discussed in Note 17, the shareholders of the Company's consolidating VIEs own a minority of the issued and outstanding common shares of the Company.
Business Combinations
The Company accounts for all transactions that represent business combinations using the acquisition method of accounting under Accounting Standards Codification ("ASC") Topic No. 805, Business Combinations (“ASC 805”). The Company first assesses whether an acquisition constitutes a business combination or asset acquisition by applying the screening test and analyzing whether the acquired entity has substantive inputs, processes, and the ability to produce outputs. Upon concluding an acquisition is a business combination, per ASC 805, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date an entity obtains control of the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed, and the noncontrolling interests obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the consideration exchanged in the acquisition over the fair value of the net assets acquired.
The DFPH-Legacy TOI Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, DFPH was treated as the “acquired” company for accounting purposes and the Business Combination was treated as the equivalent of Legacy TOI issuing stock for the net assets of DFPH, accompanied by a recapitalization. The net assets of DFPH are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination were those of TOI LLC.
Segment Reporting
The Company presents the financial statements by segment in accordance with ASC Topic No. 280, Segment Reporting (“ASC 280”) to provide investors with transparency into how the chief operating decision maker (“CODM”) manages the business. The Company determined the CODM is its Chief Executive Officer. The CODM reviews financial information and allocates resources across three operating segments: patient services, dispensary, and clinical trials & other. Each of the operating segments is also a reporting segment as described further in Note 20.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates under different assumptions or conditions. Significant items subject to such estimates and assumptions include judgements related to revenue recognition, estimated accounts receivable and the allowance for credit losses, useful lives and recoverability of long-lived and intangible assets, recoverability of goodwill, fair values of acquired identifiable assets and assumed liabilities in business combinations, fair value of intangible assets and goodwill, fair value of share-based compensation, fair value of liability classified instruments, and judgements related to deferred income taxes.
Net Income (Loss) Per Share
Basic and diluted net income (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company's Series A Convertible Preferred Stock is classified as a
participating security in accordance with ASC 260. Under the two-class method, basic and diluted net income (loss) per share attributable to common stockholders is computed by dividing the basic and diluted net income (loss) attributable to common stockholders by the basic and diluted weighted-average number of shares of common stock outstanding during the period. Diluted net income per share attributable to common stockholders adjusts basic net income per share for the potentially dilutive impact of stock options, restricted stock units, Medical RSUs (defined in Note 14), earnout shares (defined in Note 14), public warrants, private placement warrants, and Senior Secured Convertible Notes (defined in Note 11).
The treasury stock method is used to calculate the potentially dilutive effect of stock options, RSUs, public warrants, and private placement warrants. The if-converted method is used to calculate the potentially dilutive effect of the Senior Secured Notes. In both methods, diluted net income (loss) attributable to common stockholders and diluted weighted-average shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules. The earnout shares are contingently issuable; therefore, the earnout shares are excluded from basic and diluted net income (loss) per share until the market conditions have been met (see more detail on the earnout shares in Note 14). The Medical RSUs (defined in Note 14) are also contingently issuable; therefore, they are excluded from basic net income (loss) per share until the performance and service conditions have been met (see more detail in Note 14). Further, the number of contingently issuable Medical RSUs included in diluted net income (loss) per share is based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period and if the result would be dilutive. For the periods presented, the public and private placement warrants are out of the money; therefore, the public and private placement warrants are antidilutive and excluded from diluted net income per share.
Fair Value Measurements
The Company accounts for fair value measurements under ASC Topic No. 820, Fair Value Measurements (“ASC 820”). The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels (see Note 7 for further discussion):
Level 1inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The Company's fair value measurement methodology for cash and cash equivalents, accounts receivable, other receivables, and accounts payable approximates fair value because of the short maturity and high liquidity of these instruments. Fair value measurement of investment securities available for sale is based upon quoted prices from active markets, if available (Level 1). If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation methodologies. Level 2 investment securities include US Treasuries purchased in the secondary market that use pricing inputs other than quoted prices in active markets and fair value is determined using pricing models or other valuation methodologies such as broker price indications, which are based on quoted prices for identical or similar notes, which are Level 2 input measures. Fair value measurements of derivative warrants are based on the market price of our public warrants, which are quoted prices for similar instruments and considered a Level 2 input. Fair value measurements of earnout liabilities are based on the Monte-Carlo Simulation Model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the earnouts is the expected volatility of the common stock. Fair value measurements of the convertible note warrant and conversion option derivative liabilities are based on the Black-Derman-Troy model implemented in the Binomial Lattice and Black-Scholes Models, which are considered to be Level 3 fair value measurements. The primary unobservable input utilized in determining the fair value of the convertible note warrant and conversion option derivative liabilities is the expected volatility of the common stock.
Cash and Cash Equivalents
The Company considers all highly liquid investments that are both readily convertible into cash and mature within 90 days from the date of purchase to be cash equivalents.
Accounts Receivable and Allowance for Credit Losses
The Company’s accounts receivables are recorded and stated at the amount expected to be collected determined by each payor, net of an allowance for credit losses, under ASC Topic No. 310, Receivables (“ASC 310”). In accordance with ASC Topic No. 326, Financial Instruments — Credit Losses (“ASC 326”), the Company recognizes credit losses based on a forward-looking current expected credit losses (“CECL”) model. The Company segregates accounts receivables into portfolio segments based on shared risk characteristics, such as line of business and customer type, for evaluation of expected credit losses. The Company makes estimates of expected credit losses based upon its assessment of various factors, including the age of accounts receivable balances, default-based statistics, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The allowance for credit losses is developed using a loss rate method and is recognized in the Condensed Consolidated Statement of Operations. The uncollectible accounts receivables are written off on a quarterly basis in the period when collection activities cease due to a final determination that all or a portion of the balance is no longer collectible and if there is no pending litigation activity related to the receivable. No allowance for credit losses was recorded as of September 30, 2023 and December 31, 2022.
Inventories, net
The Company accounts for inventory under Accounting Standard Codification Topic No. 330, Inventory (“ASC 330”). Inventories consist of intravenous chemotherapy drugs and oral prescription drugs. Inventories are stated at the lower of cost, determined using the weighted average cost method of inventory valuation, or net realizable value. Net realizable value is determined using the selling price, less costs to sell.
The Company receives purchase discounts on products purchased. Contractual arrangements with vendors, including manufacturers and wholesalers, normally provide for the Company to receive purchase discounts from established list prices in one, or a combination, of the following forms: (i) a direct discount at the time of purchase or (ii) a discount for the prompt payment of invoices. Additionally, in other circumstances, the Company may receive rebates when products are purchased indirectly from a manufacturer (e.g., through a wholesaler). These rebates are recognized when intravenous chemotherapy drugs and oral prescription drugs are dispensed and are generally calculated by manufacturers within 30 days after the end of each completed quarter. The Company also receives additional rebates under its wholesaler contracts if it exceeds contractually defined annual purchase volumes. Purchase rebates are recorded as reductions to cost of services.
Goodwill
The Company accounts for goodwill under ASC No. 350, Intangibles - Goodwill and Other (“ASC 350”). Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net assets acquired in our business combinations.
Goodwill is not amortized but is required to be evaluated for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company performs its annual testing of impairment for goodwill in the fourth quarter of each year. When impairment indicators are identified, the Company compares the reporting unit’s fair value to its carrying amount, including goodwill. An impairment loss is recognized as the difference, if any, between the reporting unit’s carrying amount and its fair value to the extent the difference does not exceed the total amount of goodwill allocated to the reporting unit.
In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, it is more likely than not that the fair value of the reporting unit is greater than its carrying value, then performing the two-step impairment test is unnecessary. An entity can choose not to perform a qualitative assessment for any of its reporting units and proceed directly to the use of the two-step impairment test.
When assessing goodwill for impairment for the three months ended March 31, 2023, we first performed a qualitative assessment to determine whether it was necessary to perform the two-step quantitative analysis. Based on the qualitative assessment including our share price decrease as well as factors related to macroeconomic conditions, industry and market considerations, cost factors, financial performance and market capitalization, we determined it was likely that our reporting unit fair value was less than its carrying value and the two-step impairment test was performed. Based on the results of our assessment performed there was a goodwill impairment of $16,867 for the three months ended March 31, 2023. There was no impairment of goodwill recorded for the three months ended September 30, 2023. Goodwill impairment recorded for the three and nine months ended September 30, 2023 was $0 and $16,867, respectively.
Debt
The Company accounts for debt net of debt issuance costs and debt discount. Debt issuance costs and debt discount are
capitalized, netted against the related debt for presentation purposes, and amortized to interest expense over the terms of the related debt using the effective interest method.
The Company accounts for bifurcated, debt-classified embedded features separately as derivative liabilities pursuant to ASC Topic No. 815, Derivatives and Hedging ("ASC 815"). Bifurcated, debt-classified embedded features are recorded at fair value on the Company's balance sheet with subsequent changes in fair value recorded in the Condensed Consolidated Statement of Operations each reporting period.
Investments in Marketable Securities
The Company's investments in marketable securities are classified as available-for-sale and are carried at fair value. The Company accounts for its investment securities available for sale using the fair value election pursuant to ASC 825, Financial Instruments ("ASC 825"), where changes in fair value are recorded in unrealized gains (losses), net on the Company's Condensed Consolidated Statements of Operations. The Company determines the appropriate classification of these investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company’s marketable securities are classified as current assets if the maturity date is less than one year from the balance sheet date.
Interest income and accretion on marketable securities are included in interest income in the Condensed Consolidated Statements of Operations. Realized gains and losses on sales of securities, and other-than-temporary declines in the fair value of marketable securities, if any, are included as a component of other income (expense), net in the Condensed Consolidated Statements of Operations. The cost of securities sold is based on the First In, First Out method.
At each reporting period, the Company evaluates available-for-sale marketable securities, to the extent the fair value option is not elected, for any credit-related impairment when the fair value of the investment is less than its amortized cost. If the Company determines that the decline in fair value is below the carrying value and this decline is other-than-temporary, credit-related impairment is recognized in the Consolidated Statement of Operations in accordance with ASC 320, Debt Securities. As of September 30, 2023, there were no available-for-sale instruments for which the fair value option was not elected.
Emerging Growth Company
Pursuant to the Business Combination, the Company qualifies as an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 ("Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and has elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company, nor an emerging growth company which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued Accounting Standard Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”), which amends Subtopic 326-20 (created by ASU 2016-13) to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the FASB issued Accounting Standard Update 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”); in May 2019, the FASB issued Accounting Standards Update 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”); in November 2019, the FASB issued Accounting Standards Update 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2019-10”), and in March 2022, the FASB issued Accounting Standard Update 2022-02, Financial Instruments — Credit Losses: Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), to provide further clarifications on certain aspects of ASU 2016-13 and to extend the nonpublic entity effective date of ASU 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022. An entity may early adopt ASU 2016-13, as amended, for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-13 introduced a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including receivables, contract assets and held-to-maturity debt securities, which requires the Company to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands disclosure requirements.
The Company adopted the ASU 2016-13, as amended, effective January 1, 2023, which resulted in changes to the Company’s accounting policies for accounts receivables. Upon adoption of ASU 2016-13, the Company evaluated accounts receivables on a collective (i.e., portfolio) basis when similar risk characteristics were shared. The adoption of this standard did not have a material impact on our consolidated financial statements and there was no allowance for credit losses recorded as of September 30, 2023.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The new standard is effective for the Company beginning January 1, 2024. The Company is currently evaluating the effect of ASU 2020-06 on the Company’s consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). Under ASU 2021-08, an acquirer must recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contract with Customers (“ASC 606”). The guidance is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. The Company will adopt ASU 2021-08 on January 1, 2024 on a prospective basis. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements and related disclosures.
Note 3. Significant Risks and Uncertainties Including Business and Credit Concentrations
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, and investment securities.
Cash accounts in a financial institution may, at times, exceed the Federal Deposit Insurance Corporation coverage of $250 per account ownership category. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts.
The Company’s accounts receivable has implicit collection risk. The Company grants credit without collateral to their patients, most of whom are local residents and are insured under third-party payor agreements. The Company believes this risk is partially mitigated by the Company’s establishment of long-term agreements and relationships with third-party payors that provide the Company with insight into historic collectability and improve the collections process.
The Company's investment securities portfolio is managed by a third party vendor to provide a relatively stable source of investment income from excess liquidity while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk, and interest rate risk.
Revenue Concentration Risk
The concentration of net revenue on a percentage basis for major payors for the three and nine months ended September 30, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Percentage of Patient Services Net Revenue: | | | | | | | |
Payor A | 11 | % | | 12 | % | | 11 | % | | 14 | % |
Payor B | 14 | % | | 15 | % | | 14 | % | | 16 | % |
The concentration of gross receivables on a percentage basis for major payors at September 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Percentage of Gross Receivables of Patient Revenue: | | | |
Payor B | 10 | % | | 13 | % |
Payor C | 8 | % | | 10 | % |
All of the Company’s revenue is generated from customers located in the United States.
Vendor Concentration Risk
The concentration of cost of sales on a percentage basis for major vendors for the three and nine months ended September 30, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Percentage of Cost of Sales: | | | | | | | |
Vendor A | 100 | % | | 97 | % | | 100 | % | | 69% |
Vendor B | N/A | | N/A | | N/A | | 29% |
The concentration of gross payables on a percentage basis for major payors at September 30, 2023 and December 31, 2022 are as follows: | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Percentage of Gross Payables: | | | |
Vendor A | 48 | % | | 66 | % |
| | | |
Vendor B | 12 | % | | N/A |
Note 4. Accounts Receivable
The Company’s accounts receivable consists primarily of amounts due from third-party payors and patients. See Note 2 for a summary of the Company’s policies relating to accounts receivable and allowance for credit losses.
Accounts Receivable as of September 30, 2023 and December 31, 2022 consist of the following:
| | | | | | | | | | | |
(in thousands) | September 30, 2023 | | December 31, 2022 |
Oral drug accounts receivable | $ | 3,238 | | | $ | 4,165 | |
Capitated accounts receivable | 3,187 | | | 1,623 |
FFS accounts receivable | 32,388 | | | 26,313 |
Clinical trials accounts receivable | 2,488 | | | 2,443 |
Other trade receivables | 7,141 | | | 5,272 |
Total | $ | 48,442 | | | $ | 39,816 | |
The Company adopted ASU 2016-13, as amended, effective January 1, 2023, and determined no allowance for credit losses was required as of September 30, 2023. No allowance for credit losses was recorded as of September 30, 2023.
During the three and nine months ended September 30, 2023, credit losses related to direct write-offs totaled $31 and $42, respectively. Credit losses were a result of accounts receivable on completed contracts that were deemed uncollectible during the period due to delayed collection efforts. During the three and nine months ended September 30, 2023, the Company had recoveries of credit losses of $0 and $11, respectively. During the three and nine months ended September 30, 2022, the Company had net reversals of bad debt recoveries of $28 and $110, respectively and bad debt expense of $115, and $292, respectively.
Note 5. Revenue
The Company recognizes revenue in accordance with ASC 606 on the basis of its satisfaction of outstanding performance obligations. The Company typically fulfills its performance obligations over time, either over the course of a single treatment (fee-for-service or "FFS"), a month (capitation), or a number of months (clinical research). The Company also has revenue that is satisfied at a point in time (dispensary). See Note 2 for summary of the Company’s policies and significant assumptions related to revenue recognition.
Disaggregation of Revenue
The Company categorizes revenue based on various factors such as the nature of contracts, payors, order to billing arrangements, and cash flows received by the Company, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
2023 | | 2022 | | 2023 | | 2022 |
Patient services | | | | | | | |
Capitated revenue | $ | 18,056 | | | $ | 16,355 | | | $ | 51,410 | | | $ | 44,815 | |
FFS revenue | 35,578 | | 28,272 | | 105,923 | | | 73,978 | |
Subtotal | 53,634 | | | 44,627 | | | 157,333 | | | 118,793 | |
Dispensary revenue | 26,792 | | | 18,839 | | | 76,228 | | | 57,736 | |
Clinical research trials and other revenue | 1,609 | | | 1,511 | | | 4,890 | | | 4,530 | |
Total | $ | 82,035 | | | $ | 64,977 | | | $ | 238,451 | | | $ | 181,059 | |
Refer to Note 20 for Segment Reporting for disaggregation of revenue by reporting segment.
Contract Asset and Liabilities
Under ASC 606, contract assets represent rights to payment for performance contingent on something other than the passage of time and accounts receivable are rights to payment for performance without contingencies. The Company does not have any contract assets as of September 30, 2023 and December 31, 2022. Refer to Note 4 for accounts receivable as of September 30, 2023 and December 31, 2022.
Contract liabilities represent cash that has been received for contracts, but for which performance is still unsatisfied. As of September 30, 2023 and December 31, 2022, contract liabilities amounted to $545 and $1,139, respectively. Contract liabilities are included within other current liabilities and presented in Note 9 along with refund liabilities due to materiality.
Remaining Unsatisfied Performance Obligations
The accounting terms for the Company’s patient services and dispensary contracts do not extend past a year in duration. Additionally, the Company applies the ‘as invoiced’ practical expedient to its clinical research contracts.
Note 6. Inventories
The Company purchases intravenous chemotherapy drugs and oral prescription drugs from various suppliers. See Note 2 for a summary of the Company’s policies relating to intravenous chemotherapy and oral prescription drugs inventory.
The Company’s inventories as of September 30, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | |
(in thousands) | September 30, 2023 | | December 31, 2022 |
Oral drug inventory | $ | 2,924 | | | $ | 2,130 | |
IV drug inventory | 9,250 | | | 7,131 | |
Total | $ | 12,174 | | | 9,261 | |
Note 7. Marketable Securities and Fair Value Measurements
Marketable Securities
The Company accounts for its investment securities as available for sale using the fair value election pursuant to ASC 825, where changes in fair value are recorded in Other, net non-operating income (expense) on the Company's Condensed Consolidated Statements of Operations. The Company’s investments in marketable securities at September 30, 2023 and December 31, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Cash equivalents: | | | | | | | |
U.S. Treasury Bills | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Marketable securities: | | | | | | | |
Short-term U.S. Treasuries | $ | 60,211 | | | $ | — | | | $ | (334) | | | $ | 59,877 | |
Long-term U.S. Treasuries | — | | | — | | | — | | | — | |
Total available for sale securities | $ | 60,211 | | | $ | — | | | $ | (334) | | | $ | 59,877 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Cash equivalents: | | | | | | | |
U.S. Treasury Bills | $ | 2,573 | | | $ | — | | | $ | — | | | $ | 2,573 | |
Marketable securities: | | | | | | | |
Short-term U.S. Treasuries | $ | 59,876 | | | $ | 6 | | | $ | (86) | | | $ | 59,796 | |
Long-term U.S. Treasuries | 58,652 | | | — | | | (298) | | | 58,354 | |
Total available for sale securities | $ | 121,101 | | | $ | 6 | | | $ | (384) | | | $ | 120,723 | |
The contractual maturities of the Company's investments in cash equivalents and marketable securities as of September 30, 2023 and December 31, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Due in One Year or Less | | Due After One Year through Five Years | | Due After Five Years | | Total |
Cash equivalents: | | | | | | | |
U.S. Treasury Bills | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Marketable securities: | | | | | | | |
Short-term U.S. Treasuries | $ | 59,877 | | | $ | — | | | $ | — | | | $ | 59,877 | |
Long-term U.S. Treasuries | — | | | — | | | — | | | — | |
Total available for sale securities | $ | 59,877 | | | $ | — | | | $ | — | | | $ | 59,877 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Due in One Year or Less | | Due After One Year through Five Years | | Due After Five Years | | Total |
Cash equivalents: | | | | | | | |
U.S. Treasury Bills | $ | 2,573 | | | $ | — | | | $ | — | | | $ | 2,573 | |
Marketable securities: | | | | | | | |
Short-term U.S. Treasuries | $ | 59,796 | | | $ | — | | | $ | — | | | $ | 59,796 | |
Long-term U.S. Treasuries | 10,523 | | | 47,831 | | | — | | | 58,354 | |
Total available for sale securities | $ | 72,892 | | | $ | 47,831 | | | $ | — | | | $ | 120,723 | |
The Company recorded a net unrealized loss of $157 and a net unrealized loss of $44 for the three and nine months ended September 30, 2023. At September 30, 2023, six securities were in an unrealized loss position. The decline in fair value of our securities since acquisition was attributable to a combination of changes in interest rates and general volatility in the credit market conditions in response to the economic uncertainty caused by the risk of an upcoming recession and monetary policy. The Company does not currently intend to sell any of the securities in an unrealized loss position and further believe, it is more likely than not, that we will not be required to sell these securities before their anticipated recovery.
Accrued interest receivable on cash equivalents and marketable securities was $270 and $274, respectively, at September 30, 2023 and December 31, 2022, and is included within other receivables in the Condensed Consolidated Balance Sheets.
Fair Value Measurements
The following table presents the carrying amounts of the Company’s recurring and non-recurring fair value measurements at September 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | |
| | | | | | | |
Marketable securities | $ | 59,877 | | | $ | — | | | $ | 59,877 | | | $ | — | |
| | | | | | | |
Financial liabilities: | | | | | | | |
Derivative warrant liabilities | $ | 292 | | | $ | — | | | $ | 292 | | | $ | — | |
Earnout liabilities | 11 | | | — | | | — | | | 11 | |
Conversion option derivative liabilities | 1,926 | | | — | | | — | | | 1,926 | |
Contingent consideration liability | 1,813 | | | — | | | 1,813 | | | — | |
Non-recurring fair value measurement: | | | | | | | |
Goodwill | $ | 7,230 | | | $ | — | | | $ | — | | | $ | 7,230 | |
As of September 30, 2023, derivative warrant liabilities of $292 were transferred from a Level 3 to a Level 2 financial instrument as a result of the valuation being based on the market price of our public warrants, which management considers to be a similar and comparable instrument, as compared to the previous valuation which was based on the Binomial Lattice Model.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | |
Cash equivalents | $ | 2,573 | | | $ | — | | | $ | 2,573 | | | $ | — | |
Marketable securities | 59,796 | | | — | | | 59,796 | | | — | |
Non-current investments | 58,354 | | | — | | | 58,354 | | | — | |
Financial liabilities: | | | | | | | |
Derivative warrant liabilities | $ | 350 | | | $ | — | | | $ | — | | | $ | 350 | |
Earnout liabilities | 803 | | | — | | | — | | | 803 | |
Conversion option derivative liabilities | 3,960 | | | — | | | — | | | 3,960 | |
Non-recurring fair value measurement: | | | | | | | |
Goodwill | $ | 21,418 | | | $ | — | | | $ | — | | | $ | 21,418 | |
The carrying amounts of cash, accounts receivable, other receivables, and accounts payable approximate fair value because of the short maturity and high liquidity of these instruments.
The Company measures its investments (including cash equivalents, marketable securities, and non-current investments) at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. Investment securities, including U.S. Treasury Bills purchased in the secondary market and U.S. Treasury bonds, are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies.
The Company measures its private derivative warrants at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy because the valuation is based on an observable input of a similar instrument. The Company measures its earnout, convertible note warrant derivative liability, optional redemption derivative liability, conversion option derivative liability, and contingent consideration liability on a recurring basis and classifies those instruments within Level 3 of the fair value hierarchy because unobservable inputs are used to measure fair value. See Note 2 for a summary of the Company’s policies relating to fair value measurements, and Note 11 for more detail on the convertible note warrant, optional redemption, and conversion option derivative liabilities.
The Company measures goodwill at fair value on a nonrecurring basis and classifies goodwill within Level 3 of the fair value hierarchy. It was concluded in connection with the preparation of these financial statements that, based on the results of our most recent qualitative assessment performed for the three months ended September 30, 2023, there was no impairment of goodwill recorded for the three months ended September 30, 2023.
The following table presents information about the Company’s financial liabilities that are measured at fair value on a recurring basis at September 30, 2023:
| | | | | | | | | | | | | | | | | | | |
(in thousands) | | | Earnout Liability | | Conversion Option Derivative Liability | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance at December 31, 2021 | | | $ | 60,018 | | | $ | — | | | |
Conversion option derivative liability acquired (see Note 11 for detail) | | | — | | | 28,160 | | | |
Decrease in fair value included in other expense | | | (59,215) | | | (24,200) | | | |
Balance at December 31, 2022 | | | $ | 803 | | | $ | 3,960 | | | |
Contingent consideration liability acquired (see Note 16 for detail) | | | $ | — | | | — | | | |
Decrease in fair value included in other expense | | | $ | (792) | | | (2,034) | | | |
Balance at September 30, 2023 | | | $ | 11 | | | $ | 1,926 | | | |
As of September 30, 2023, earnout liabilities were valued using a Monte-Carlo Simulation Model, which is considered to be a Level 3 fair value measurement, derivative warrant liabilities were valued using the public warrant trading price, which is
considered to be a Level 2 fair value measurement, and the contingent consideration liability was valued using a present value factor, which is considered to be a Level 2 fair value measurement. As of December 31, 2022, derivative warrant and earnout liabilities were valued using a Binomial Lattice and Monte-Carlo Simulation Model, respectively, which are considered to be Level 3 fair value measurements.
As of September 30, 2023 and December 31, 2022, the convertible note warrant and conversion option derivative liabilities were valued using the Binomial Lattice and Black-Scholes Models, which are considered to be Level 3 fair value measurements. The primary unobservable input utilized in determining the fair value of our Level 3 liabilities is the expected volatility of the common stock. A summary of the inputs used in the valuations is as follows:
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| | | September 30, 2023 |
| | | First Tranche Earnout | | Second Tranche Earnout | | Convertible Note Warrant Derivative Liability | | Conversion Option Derivative Liability |
Unit price | | | $ | 1.40 | | $ | 1.40 | | $ | 1.40 | | $ | 1.40 |
Term (in years) | | | 1.12 | | 1.12 | | 3.86 | | 3.86 |
Volatility | | | 62.60 | % | | 62.60 | % | | 62.70 | % | | 62.70 | % |
Risk-free rate | | | 5.30 | % | | 5.30 | % | | 4.70 | % | | 4.70 | % |
Dividend yield | | | — | | | — | | | — | | | — | |
Cost of equity | | | 17.70 | % | | 17.70 | % | | — | | | — | |
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| December 31, 2022 |
| Derivative Warrant Liability | | First Tranche Earnout | | Second Tranche Earnout | | Convertible Note Warrant Derivative Liability | | Conversion Option Derivative Liability |
Unit price | $ | 1.65 | | $ | 1.65 | | $ | 1.65 | | $ | 1.65 | | $ | 1.65 |
Term (in years) | 3.87 | | 1.54 | | 1.55 | | 4.61 | | 4.61 |
Volatility | 71.80 | % | | 70.00 | % | | 70.00 | % | | 40.00 | % | | 40.00 | % |
Risk-free rate | 4.08 | % | | 4.45 | % | | 4.45 | % | | 3.99 | % | | 3.99 | % |
Dividend yield | — | | | — | | | — | | | — | | | — | |
Cost of equity | — | | | 13.60 | % | | 13.60 | % | | — | | | — | |
On August 9, 2022, the Company issued a senior secured convertible note that contains embedded warrant, optional redemption, and conversion option features. Due to the economic disincentive to redeem and the make whole amount that would be required to be paid, it is highly unlikely that the optional redemption would occur, reducing the value during the period to a qualitatively immaterial amount. See Note 11 for additional detail. A summary of the inputs used in the initial measurement of the convertible note warrant and conversion option derivative liabilities is as follows:
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| August 9, 2022 |
| (Initial Measurement) |
| Convertible Note Warrant Derivative Liability | | Conversion Option Derivative Liability |
Unit price | $ | 6.63 | | | $ | |