Oncology Institute Q2 Earnings Call Highlights

Oncology Institute (NASDAQ:TOI) reported second-quarter revenue growth, positive adjusted EBITDA and an expanded pipeline of value-based oncology contracts as the company announced it has rebranded as Starling Oncology.

Chief Executive Officer Dan Virnich said the new name reflects the company’s evolution into a national value-based oncology provider. The Starling name was inspired by the coordinated flight patterns of starlings, known as murmurations, which the company said symbolize its approach to coordinated care, community access and technology-driven innovation.

Virnich said the company’s previous name no longer reflected its scope and had at times created confusion among payers, patients and referring specialists. He said the timing coincides with the company’s transition to profitability, growth in capitated partnerships and the planned launch of its new provider portal.

Second-Quarter Results

Total revenue was $161.3 million in the second quarter, up 34.6% from $119.8 million in the prior-year period. The growth was driven largely by Specialty Pharmacy revenue, which increased 57.6% year over year to $98.6 million and represented 61.1% of total revenue.

Patient Services revenue, including capitated and fee-for-service arrangements, rose 5.3% to $58.8 million, accounting for 36.5% of total revenue.

Gross profit increased to $27.2 million from $17.5 million a year earlier, while consolidated gross margin improved by roughly 225 basis points to 16.8%.

• Specialty Pharmacy gross profit rose 85.1% to $21.3 million, with gross margin improving to 21.6% from 18.4%.
• Patient Services gross profit declined to $2.1 million from $4.7 million a year earlier.
• Second-quarter SG&A was $29.9 million, or 18.6% of revenue, compared with $26.9 million, or 22.5% of revenue, in the prior-year period.
• Adjusted EBITDA was positive $0.2 million, compared with a $4.1 million loss a year earlier.

Chief Financial Officer Rob Carter said the decline in Patient Services gross profit reflected increased clinical labor ahead of contract launches, a conservative approach to fee-for-service operations and a natural rise in medical costs as new capitated members are onboarded.

The company began reporting medical loss ratio, or MLR, for all capitated members. Second-quarter MLR was 85.5%, compared with 71% a year earlier. Carter said MLR is expected to range between 80% and 90% over the next 12 months as delegated members are added. Once fully ramped, the company expects delegated-product MLR to range from 75% to 85%, while narrow-network products outside Florida have MLRs in the 70% to 75% range.

Contract Growth and Expansion

Starling expects to add three delegated capitation contracts at the start of the fourth quarter, including new health-plan relationships in Nevada and Oregon. The two contracts in those states represent the company’s first delegated-capitation expansion outside Florida, Virnich said.

Together, the Nevada and Oregon contracts are expected to add approximately 80,000 aggregate lives and about $50 million in annualized capitated revenue, excluding potential related revenue from services such as pharmacy. The Oregon contract will be statewide, while the Nevada agreement will cover members in Clark County tied to a specific payer.

The company also secured exclusivity in California with one of its largest partners across that partner’s delegated medical groups. The relationship had previously been shared with another entity. Starling said the expansion added roughly 230,000 capitated lives and is expected to contribute about $6 million of annualized capitation revenue, plus associated Part D pharmacy growth.

Virnich said the California win was driven by the company’s service performance, including member access through its network and coordination between primary care physicians and specialists. He characterized the opportunity as primarily a result of winning business from competitors rather than a broad industry trend toward consolidation of oncology arrangements.

A previously announced statewide Florida payer relationship was delayed from the third quarter to the fourth quarter because of payer-level setup processes, Carter said. The delay was not related to the contract itself, he added.

Portal Launch and Refinancing

Starling plans to formally launch its Starling Nexus provider portal in mid-August, with a phased rollout to MSO-affiliated physicians in September and employed physicians later in the year. The portal is intended to allow providers to submit treatment orders and obtain authorizations, while supporting clinical-pathway adherence and promoting ancillary offerings including Part D pharmacy and decentralized clinical trials.

Virnich said the product has already been soft-launched to enable access for providers in the network. E-prescribing integration for Part D is expected to follow about a month after the initial rollout, likely between September and early October. The company said it has not included any anticipated pharmacy lift from the portal in its guidance.

In July, the company completed a refinancing with OrbiMed. It repaid an $86 million senior secured convertible note with a $75 million term loan and about $11 million of balance-sheet cash. Carter said the transaction did not require additional equity financing or shareholder dilution and extended debt maturities from 2027 to 2031.

Starling ended the quarter with $41.1 million in cash and cash equivalents. Operating cash flow for the first six months was positive $9.7 million, compared with a $15.2 million use in the comparable prior-year period. Second-quarter free cash flow was approximately $12.5 million, bringing year-to-date free cash flow to $9.5 million.

Updated Outlook

The company raised its full-year revenue and gross-profit outlook while narrowing its adjusted EBITDA range. Starling now expects:

• Revenue of $650 million to $670 million, including approximately $150 million of capitation revenue;
• Gross profit of $105 million to $110 million;
• Adjusted EBITDA of $2 million to $7 million; and
• Free cash flow of $5 million to $15 million.

For the third quarter, Starling expects adjusted EBITDA of $500,000 to $1.5 million as it begins onboarding the newly added California members. Carter said the company expects momentum to build through the remainder of the year and remains committed to positive adjusted EBITDA for the full year.

About Oncology Institute (NASDAQ:TOI)

The Oncology Institute, Inc, an oncology company, provides various medical oncology services in the United States. The company operates through three segments: Dispensary, Patient Services, and Clinical Trials & Other. It offers physician services, in-house infusion and dispensary, clinical trial, radiation, outpatient blood product transfusion, and patient support services, as well as educational seminars, support groups, and counseling services. The company also provides managing clinical trials, palliative care programs, stem cell transplants services, and other care delivery models associated with non-community-based academic and tertiary care settings; and conducts clinical trials for a range of pharmaceutical and medical device companies.