The Oncology Institute, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue growth driven by pharmacy and fee-for-service (10% year-over-year) with monthly records in pharmacy and 10% growth in fee-for-service.
• Value-based contract pipeline strong, with over 50,000 capitated lives added in Q2. Confident in achieving positive adjusted EBITDA in Q4.
• Patient service business: New capitation wins/expansions, including Silver Summit Health Plan in Nevada and Elevance health plan in Florida.
• Leadership changes: New Chief Clinical Officer and Chief Administrative Officer appointed. AI enablement efforts in Q3 for revenue cycle, prior authorization, and call center. Chairman Richard Barish retires, Anne McGeorge becomes new Chair.

Segment Performance

• Patient Service Business: Revenue of $55.9 million, representing 47% of total revenue. Delivered new capitated contract wins/expansions, with 2 contracts effective in Q2 in Nevada and California, and an expanded capitation relationship in Nevada adding 49,000 patient lives. Also, reached a verbal agreement for expansion in Florida with an Elevance health plan, adding over 40,000 Medicare Advantage lives.
• Pharmacy Business: Revenue of $62.6 million, up 41% year-over-year. Driven by increased patient volumes and reduced prescription leakage to outside pharmacies.
• Financials: Second quarter revenue was $120 million, with year-over-year growth over 20%. Adjusted EBITDA loss was $4.1 million, a $4.6 million improvement compared to the same quarter last year.

Guidance

• Full year 2025 revenue guidance: $460 million to $480 million, expecting the high end due to first-half growth.
• Adjusted EBITDA guidance: Loss of $17 million to $8 million, on track to the midpoint.
• Q3 adjusted EBITDA expected: Negative $2.5 million to negative $3.5 million. Q4 expected to be positive.

Risks

• Drug cost trends and potential impact of drug pricing reform like the Inflation Reduction Act.
• Transitioning new capitation contracts may initially affect margin as new populations take time to mature and operationalize.

Question and Answer Q: Talk about dispensing gross margin.

A: Driven by scale, rebates, and drug procurement; Q2 2024 was impacted by EARP clawback, but normalized, there's double-digit growth year-over-year.

Q: Impact of drug pricing reform?

A: Net positive for TOI as reduction in pricing on capitated business is favorable and fee-for-service may have make-whole through rebates.

Q: Pressure on patient service margin?

A: Primarily related to cap margin; new cap contracts in Florida are maturing, and margin will pick up over next 3 months.

Q: Timeline of Florida opportunity?

A: Revenue recognized in Q4 as patients transfer care to TOI clinics.

Q: What does fully delegated risk arrangements mean?

A: Refers to TOI taking risk for Part B oncology spend, with delegation in utilization management, network design, and claims adjudication for non-TOI employed providers in the network.