American Oncology Network, Inc. (AONC)·Q3 2023 Earnings Summary

Executive Summary

• Q3 2023 was AONC’s first quarter as a publicly traded company; revenue rose 13.1% year over year to $336.3M, driven by a 6.0% increase in patient encounters, but profitability was pressured by higher drug/supply costs and DIR fees .
• Adjusted EBITDA declined to $7.1M (−21.1% YoY), with adjusted net income of $3.6M; GAAP net loss reflected $24.6M in transaction costs and mark‑to‑market derivative charges tied to the SPAC closing .
• Liquidity stood at ~$90.1M at quarter end; management authorized a $10M share repurchase program, signaling a view of intrinsic value post‑de‑SPAC .
• No formal quantitative guidance was issued; catalysts include integration/technology (Athena IDX), network expansion (Florida; urology), and continued participation in CMS value‑based models .

What Went Well and What Went Wrong

What Went Well

• Expansion and diversification: Entered the Florida market and added Triple Crown Urology; 19 new providers were added to the platform in the quarter .
• Organic growth resilience: Management highlighted positive same‑store growth, accretive ancillary utilization, and expanded imaging/research; patient encounters increased 6% YoY .
• Value‑based leadership: One of only 44 practices participating in CMS’s enhanced oncology alternative payment model, underscoring payer innovation positioning .

Quotes:

• “We added 19 providers… entered the state of Florida… and expanded our solution set with our first urology practice” — CEO Todd Schonherz .
• “We continue to experience positive year‑over‑year same-store growth… accretive growth… and expansion of clinical services including imaging and research” — CEO Todd Schonherz .

What Went Wrong

• Margin compression: Adjusted EBITDA fell to $7.1M (−21.1% YoY), primarily due to increased DIR fees in the quarter .
• Cost pressure: Cost of revenue rose $43.2M YoY, driven by higher drug/supply pricing and mix; cost per encounter raised costs by $24.2M .
• Non‑operating/transaction drag: $24.6M in transaction expenses and derivative mark‑to‑market charges ($3.3M in Q3) weighed on GAAP results; interest expense also increased with Fed rate hikes .

Financial Results

KPIs and Drivers (Quarter Detail):

• Patient encounters increased 6.0%, contributing $38.6M to revenue .
• Cost of revenue increased $43.2M; of this, volume added $13.4M, cost per encounter added $24.2M; remaining increase tied to two affiliate agreements and $4.8M non‑cash stock comp .
• Interest expense rose due to Fed hikes (Q3 interest expense $1.53M vs $0.92M YoY) .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We grew our network by entering Florida… expanded our solution set with our first urology practice… and added 19 new providers… Looking forward, I see a long runway for growth and continued operational efficiencies” — CEO Todd Schonherz .
• “Adjusted EBITDA for the quarter was $7.1 million… down from $9 million in the prior year due to an increase in DIR fees during the quarter” — CFO David Gould .
• “We completed our revenue cycle system upgrade to Athena IDX… ensuring AON is on the cutting edge of technology to drive performance” — CFO David Gould .
• “Following the reverse merger, we announced an opportunistic share repurchase program of up to $10 million as we believe our stock represents tremendous value” — CFO David Gould .

Q&A Highlights

• Profitability drivers: Management attributed Adjusted EBITDA pressure to DIR fees and rising cost per encounter; highlighted technology upgrade and scale efficiencies as countermeasures .
• Capital allocation: Post‑merger capital strategy includes opportunistic $10M buyback; liquidity ~$90.1M supports operations and selective growth .
• No quantitative guidance: Management did not provide formal revenue/EPS guidance in the quarter .

Estimates Context

• Wall Street consensus (S&P Global) was not available at the time of this analysis; therefore, we cannot assess beats/misses vs EPS or revenue estimates for Q3 2023. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Revenue growth is intact (+13.1% YoY) on patient encounter expansion, but cost per encounter and DIR fees constrain margins; watch payer/fee dynamics and drug pricing trends .
• Integration investments (Athena IDX) and scale should support revenue cycle efficiency over time; monitor sequential margin stabilization from Q4 onwards .
• Robust liquidity and a $10M buyback authorization provide flexibility and potential downside support post‑de‑SPAC volatility .
• Value‑based care positioning and network expansion (Florida; urology) diversify growth drivers beyond core oncology infusion services .
• Non‑operating items tied to the business combination (transaction costs; derivative mark‑to‑market) materially impacted GAAP results in Q3; expect normalization in subsequent quarters .
• Interest rate exposure remains a watch item given the variable‑rate PNC facility; extended maturity to 2026 reduces near‑term refinancing risk .
• With no formal guidance, focus on organic same‑store growth, provider additions, ancillary utilization, and Adjusted EBITDA progression as near‑term KPIs .