The Oncology Institute, Inc.

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Please stand by, your meeting is about to begin. Hello and welcome everyone joining today's Starling Oncology's second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. To register to ask a question at any time, please press star 1 on your telephone keypad. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Minh Merchant. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Starling Oncology's second quarter 2026 earnings conference call. I'm Minh Merchant, chief legal officer, and joining me today are Dan Virnich, our chief executive officer, and Rob Carter, our chief financial officer. The press release announcing our results for the second quarter of 2026 is available in the investor relations section of our website, StarlingOncology.com. A replay of this call will also be available on our website following its conclusion. Before we get started, I'd like to remind you of the company's safe harbor language included within our press release for the second quarter of 2026. Management may make forward-looking statements. including guidance and underlying assumptions. These forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see our filings with the SEC, including our most recent Form 10-Q for the quarter-ended June 30, 2026. This call will also discuss non-GAAP financial measures, such as adjusted EBITDA, MLR, and free cash flow. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in the earnings release furnished to the SEC and available on our website. With that, I'm going to call over to Dan.

Thank you, Minh. Good afternoon, everyone, and thank you for joining our second quarter of 2026 earnings call. We are reporting a very strong second quarter with profitability and completion of a strategic refinancing. And we've had a very exciting summer so far with a lot of positive momentum in our business. Before I get into our results, I want to share an important announcement. The company has decided to rebrand as Starling Oncology. As we have transformed this business over the past several years, our prior name no longer reflected our scope as a national value-based oncology leader. Our new name, Starling Oncology, is inspired by the coordinated flying patterns of starlings, called murmurations. This symbolizes the coordinated care, community access, and technology-driven innovation that define our approach to value-based oncology care. This rebrand comes at a pivotal moment in our company's evolution. After rebuilding the organization, achieving profitability, scaling our value-based care capabilities, strengthening our operations, and establishing a foundation for future growth, We believe our brand should now reflect the company we have become. While our name is changing, our mission remains the same, delivering high-quality, patient-centered cancer care in the communities we serve. Turning to our financial results, the second quarter saw revenue of approximately $161 million, an increase of 35% year-over-year, driven by strong cap-dated growth in our specialty pharmacy business. I'm also pleased to report that we have achieved positive adjusted EBITDA and came in at the top end of our guidance range in the second quarter due to continued growth, strong MLR performance on our risk contracts, and operational efficiencies as we scale. This marks our second profitable quarter as a public company. As we continue to scale, we are finding additional OPEX efficiencies across the business. Last quarter, we announced a substantial update to our free cash flow guidance due to payment term negotiations with key vendors. I'm pleased that the progress continued in Q2 as we negotiated fee reductions with another key vendor partner that will substantially lower our costs to collect on non-cap-gated encounters and resulted in over $1 million in OPEC savings annualized at our current size. Next, as discussed on our last call, we're launching our new provider portal, Starling Nexus, in mid-August. will be rolling this out in a phased approach, onboarding our MSO-affiliated physicians in September and PC-employed physicians later this year. Once fully launched, all of our providers, both PC-employed and networked providers, will use the portal to submit treatment orders and obtain pre-authorizations from us, which we believe will drive increased adherence to our clinical care pathways. In addition, The portal will be a hub to drive ancillary services such as our Part D pharmacy, decentralized clinical trials, and other value-add offerings to our network providers, which will create tremendous value for our important network practices and for Starling. Lastly, Starling Nexus will provide an immense amount of data on practice patterns and patient care being delivered across our network, which will allow us to continue to excel on MLR performance and create valuable data insights to partners over time. In addition to a strong second quarter, we're also excited to share several announcements from July and August. First, on new capitated contracts, we anticipate adding three new delegated capitation contracts at the start of Q4, which is notable in that two of them are occurring in Nevada and Oregon, representing our first expansion of this model with health plan partners outside of Florida. In total, these three contracts represent approximately 80,000 additional aggregate lives and approximately $50 million on an annualized capitated revenue, not including the downstream benefit of wraparound services like pharmacy. I'm also pleased to announce that we achieved exclusivity in California with one of our largest partners across all of their delegated medical groups, a relationship that was previously split This added approximately 230,000 capitated lives and an estimated additional $6 million annualized capitation revenue in addition to associated Part B growth. Lastly, our statewide payer relationship in Florida that we announced in our Q2 call has been pushed from Q3 to Q4 in terms of effective date. Finally, as many of you saw, last month we announced a strategic refinancing that strengthened our balance sheet and improved our liquidity by replacing a convertible note, that was nearing maturity with a new term facility. Rob will discuss this in more detail in a few minutes, but I want to say how pleased we are with the results and the additional financial flexibility this affords us. Our results in the first half of the year have given us the opportunity to raise our outlook for the full year. We are raising our revenue and gross profit ranges and tightening our adjusted EBITDA range. 2026 will still mark our first year of positive adjusted EBITDA as a public company, while allowing us to continue investing in the business ahead of an expected 100% increase in capitated revenue next year. Wrapping up, I'm very pleased with the momentum we're seeing so far this year. The business is continuing to track increasing profitability quarter over quarter in 2026. Our capitated contract growth remains robust. We see ongoing strong MLR performance. And our Part D business is continuing to set monthly fill records. I look forward to keeping you posted on our progress as we move forward at Starling Oncology. I'll now turn it over to Rob to review our financial results in more detail. Rob?

Thanks, Dan, and good afternoon, everyone. Building on what Dan shared, I'm equally encouraged by the momentum we continue to see across the business. On the call today, I will provide some color on our improved capital structure, review our second quarter financial results, including additional transparency we are providing into our medical costs, Touch on our balance sheet and cash flow and close with our updated guidance and outlook. I'm pleased to report that we completed a strategic refinancing with OrbiMed in July following repaying the $86 million senior secured convertible note that had been outstanding. Under the new arrangement, we repaid that balance with a $75 million term loan from OrbiMed along with approximately $11 million of cash for the balance sheet. And we did this without raising additional equity or diluting our shareholders. This is a meaningful step for us. It extends our debt maturities from 2027 out to 2031, improves our liquidity and operating flexibility, and gives us committed funding as we continue to scale the business. Turning to our second quarter financial results, total revenue was $161.3 million compared to $119.8 million in the prior year period, representing 34.6% year-over-year growth, an extension of the strong momentum we've been generating. Patient Services Revenue, which includes both our capitated and fee-for-service arrangements, was $58.8 million, representing 36.5% of total revenue and a 5.3% year-over-year increase. Specialty Pharmacy Revenue was $98.6 million, representing 61.1% of total revenue and growing 57.6% year-over-year. This was driven by continued strength in prescription fiddle volumes as we bring new capitals of lives onto the platform along with the ongoing ramp of our Florida delegated arrangements. Gross profit for the second quarter was $27.2 million compared to $17.5 million in the second quarter of 2025, reflecting continued top-line expansion across both segments. Overall gross margin was 16.8% compared to 14.6% in the prior year, an improvement of approximately 225 basis points. Patient services gross profit was $2.1 million compared to $4.7 million in the second quarter of 2025, a decline of approximately 57%. There are three drivers of this decline. First is an increase in clinical labor as we staff ahead of our new contract launches. Second is our conservative fee-for-service approach mentioned in our first quarter earnings call. And third, a natural increase in MLR as we onboard new lives. In an effort to provide increased transparency and allow you to better assess the health of our capitated model, beginning this quarter, we are providing a medical loss ratio for all of our capitated members. MLR for the second quarter was 85.5% compared to 71% a year ago. MLR will reflect not only our medical cost trends, but is anticipated to fluctuate as we onboard delegated members. That said, we anticipate that MLRs will be in the range of 80% to 90% in the next 12 months. Specialty pharmacy gross profit was $21.3 million, growing 85.1% year-over-year from $11.5 million in the prior year period. Gross margin improved to 21.6% up from 18.4% a year ago, reflecting the continued benefit of scale, procurement optimization, and our clinical pathways utilization management as the pharmacy grows. Moving to operating expenses, second quarter SG&A came in at $29.9 million, or 18.6% of revenue, down from $26.9 million, or 22.5% of revenue a year ago. roughly 390 basis points of improvement. That reflects the operating leverage built into our model as we scale along with the cost discipline we've maintained throughout the business. Adjusted EBITDA for the second quarter was $0.2 million compared to a loss of $4.1 million a year ago and within the range we guided to in our last call. This represents an improvement of approximately $4.3 million consistent with the seasonal pattern we described and reflects the continued ramp of our Florida delegated arrangements Growth and Specialty Pharmacy, and Ongoing Cost Discipline. We ended the quarter with $41.1 million in cash and cash equivalents compared to $33.6 million at year-end 2025. Operating cash flow for the six-month period was a positive $9.7 million compared to a use of $15.2 million in the second quarter of last year, reflecting the improvement in adjusted EBITDA together with favorable working capital dynamics, including the timing of accounts payable. Pre-tash flow for the second quarter was approximately 12.5 million, bringing year-to-date pre-tash flow to 9.5 million, compared to a use of 14.6 million in the first half of 2025, an improvement of over 24 million. Turning to guidance, for the full year, we are raising our revenue and gross profit ranges to reflect the strength we have seen in the first half of the year. We are also narrowing our adjusted EBITDA range to reflect a delegated contract launch that was pushed by two months until October 1st, as well as investments we are making in the business to support the capitated revenue growth we expect for next year. We now expect revenue of $650 million to $670 million, including approximately $150 million of capitation revenue. There is profit of $105 million to $110 million. Adjusted EBITDA of $2 million to positive $7 million, and we still expect free cash flow in the range of positive $5 million to positive $15 million. For the third quarter, we anticipate Adjusted EBITDA to be positive but muted in the range of $500,000 to $1.5 million as we onboard the aforementioned 230,000 new members and they begin to ramp. We expect momentum to build through the remainder of the year and remain confident in our commitment to full-year positive Adjusted EBITDA. With that, I'll turn the call over to Dan for his closing remarks. Dan?

In conclusion, we are excited to report a second quarter that demonstrated record revenue, positive adjusted EBITDA, a successful refinancing of our legacy debt, and ongoing robust value-based contract growth. Before we open the call for questions, I want to thank our patients for putting their trust in us and to thank our physicians, clinicians, and employees across Starling Oncology for their continued dedication. Operator, we're now ready to take questions.

Thank you. If you would like to ask a question, please press star 1 now on your telephone keypad. To leave the queue at any time, you may press star 2. Once again, that is star 1 to ask a question. And we'll pause for just a moment to allow everyone a chance to join the queue. Thank you. We'll take our first question from David Larson. with BTIG. Your line is open. Please go ahead.

Hey, congratulations on the great quarter. Can you maybe talk a little bit about the Nevada and Oregon expansions? How did those come about? Those sound like solid wins. What does the membership look like, the incremental revenue contribution? Just any more color there will be very helpful. Thank you.

Hi, Dave. Thanks for the question. This is Dan. So there's one contract in each state, one in Nevada, one in Oregon. Both contracts together, as we commented on in the call, have a fairly substantial contribution in terms of both membership, around $80,000, and then the revenue we mentioned. Those are both delegated capitation contracts that are direct to health plan partners. The Oregon contract will be a statewide delegated contract with the health plan partners. The Nevada contract will be based in Clark County on behalf of members tied to a specific payer.

That's great. And did I hear that the MLR is in the 80% to 90% range? That sounds pretty good, actually. A lot of the plans are talking about like 95%. Just any more thoughts there would be very helpful. Thank you.

Dave, it's Rob. As we've discussed before, we segment our MLR between our various cap products. So in the delegated product, we're looking at MLR between 75% to 85% once fully ramped. Because of the influx of so many delegated lives, we're guiding towards 80% to 90% in the next 12 months, which is something we're still quite proud of. And as a reminder, on our narrow network products outside of Florida, those are in the 70% to 75% range.

Okay, great. And then it just sounded to me like the incremental expansion in California sounds promising. Just any thoughts around what drove that? And in my mind, all the health plans are talking about higher MLR trend, oncology, medications costs being a driver of that. It seems to me like you can bring a pretty good solution to Medi-Cal or health plans, broadly speaking. Any more thoughts around what led to that win? Thank you.

Yeah, great question, and apologies, I'm losing my voice a little bit. But what mainly led to that win was just outperforming on service, providing better access to members through our expansive network in California, better coordination of care with primary care physicians, referring specialists. As noted, that was previously a contract that was split with another entity, and we just outperformed on access and coordination of care. As we commented in the call, the annualized contribution from a capitation revenue perspective of those additional 200-plus thousand members is relatively small when you compare it to the Nevada and Oregon contracts we were just discussing. The reason for that is the heavy predominance of Medi-Cal membership, which because of the lower prevalence rates in the younger population has a lower cap rate. That being said, it's still an enormous amount of transition of care into our organization, and we'll tie things like Part D revenues as members come to us for care and get those medication fills. So most importantly, I think we're just proud of the fact that it came from the existing relationship and shows confidence in our model, given our partner's ability to expand with us.

If you can make margin in Medi-Cal, you can probably make margin anywhere, especially Medicare, in other regions of the country. So congrats on the great quarter. I'll hop back in the queue.

We'll move on now to Matt Shea with Needham. Your line is now open.

Hey, guys. Congrats on another really nice quarter here, and especially under the new name. Maybe you want to start there. Just with the rebrand, like, What's your thinking on why now? Just thinking we're mid-year, mid-scaling in certain markets, so just kind of curious what drove the timing. And then I think in past calls, word-of-mouth referrals were starting to become a theme in more mature markets. So do you have any concerns about the name change causing confusion, or is there sort of a marketing plan in place to help drive awareness of the new brand? It would be good to just kind of get some more color around the rebranding.

Yeah, the rebranding really came about because our legacy name, as we had heard for many years from everyone from payers to patients to referring specialists, drew a lot of confusion. Oncology Institute of Open Innovation had connotations of being a clinical trials organization or a faith-based organization or an organization that was somehow daily care-based. It didn't really reflect what we do. And this being a year where we have this pivotal transition into a profitable public company, Really phenomenal growth in terms of expansion of our capitated partnerships. The time just seemed right, and we wanted to tie that with the launch of our Nexus provider portal. So that's why we did it this quarter. In terms of, you know, ensuring that there's smooth brand recognition with the new Starling Oncology name, excuse me, with both our existing and future partners, we have a very targeted communication campaign, which we launched this week. We ensure that all of our existing partners know about the name change, are aware of the reasons for the change. Same thing with all of our pipeline conversations. So we don't anticipate any disruptions in growth or anything else related to the actual name change itself.

Okay, good to hear. Maybe on the provider portal, good to hear that that's still on pace for Q3. Have you started doing any early marketing or provider education ahead of that launch, maybe beta testing in smaller groups or anything kind of less than the formal launch? And then more importantly, Will e-prescribing be functional at go-live, or does that capability lag the initial rollout?

Yeah, so we are fully launching that product in terms of external PR at mid-August. We've already soft-launched the product in terms of enabling access for providers in our network this month, so that's already live. In terms of integration of e-prescribe on Part D, That's going to lag the initial launch by about a month or so as we work through some integration. So I'd expect that to come live in probably the September to early October timeframe.

Okay. And still nothing assumed in the guidance in terms of any Part D lift related to the portal rollout, correct?

No, nothing.

Okay. And then last one for me, I just want to follow up on the achievement of exclusivity in that California partner. So obviously kicked out an incumbent oncology vendor. Is that a trend you're seeing in other places or should we take this to mean like this is a signal of broader trend of partners or plans collapsing split oncology arrangements? Like are you seeing this opportunity with any other partners or plans as you look at kind of your current book of partners?

I can see our experience has really been more about winning business from competitors than consolidation per se. This is clearly a service-related win. And then, you know, service and price seem to be the way we're winning in other markets, too, in terms of taking on new contracts from competitors.

Okay. Helpful. Thank you.

Thank you. We'll move on now to Yuan Ji of B. Reilly Securities. Your line is open.

Thank you for taking our questions. Congrats on a good quarter. Maybe just to clarify, I want to double check, did you guide 2027 capitated business to double, meaning $300 million?

That is correct, Yuan. Yes, we're guiding this year $250 million of capitated revenue, so spot on.

and for the 300, are we saying that the whole year revenue from capital business is 300 or it's more of a run rate by 4Q 2027?

I'm not 100% sure I got that whole thing. So we've guided specifically to two tranches of launches. In the first quarter call, we guided to our full state Florida expansion and then in this call right now, we talked about The 80,000 lives in Oregon and Nevada, as well as the 230,000 lives through the expansion in California. So those are the basis of the growth in CAP, but the pipeline is robust and there will be additional growth on top of that.

Got it, got it. Yeah, thanks for the clarification there. And then maybe a little bit more color on the Florida contract, you know, pushing from 3Q to 4Q, Does that impact your capitated revenue in 3Q, and what gives you the confidence that the overall 2026 guidance is even higher than you previously guided before?

It does impact 3Q revenue, specifically for the capitated segments, but as we reaffirmed today, we still expect approximately $150 million of capitated revenue this year. Our specialty pharmacy segment this year continues to surpass our own expectations. That was the significance behind the raise there on revenue, but still confident in the pipeline and the launches that we've called out.

And as you want, Dan, the only other things I would add to that are that the exclusivity obtained this quarter in California was not part of the initial forecast, nor was the two contracts Morgan, and Nevada. So there have been, in addition to that statewide contract pushing by a couple months, there have been some unforecast winds as well on the capitation side.

Got it. Yeah, maybe my last question. So if we take a step back for your covered medical life in California in 2027, How do you expect the numbers to change considering the work requirement and then the new added 230,000 covered lives?

Yeah, so I'd say broadly speaking, our total cap-dated Medi-Cal lives go up. We don't have a precise full year 2027 number on that, but certainly the exclusivity that we obtained this quarter My existing partner, which is heavily Medi-Cal based, is going to cause that rise as well as some additional pipeline opportunities on Medi-Cal. As far as the macro-related shifts in Medi-Cal membership next year, the percentage to which that will be offset, I would expect it to be fairly small, but we don't have clear guidance on that yet.

Got it. Thanks for taking our questions. I will jump back in the queue.

Thank you, and once again, if you would like to ask a question, that is star 1 now on your telephone keypad. We'll move next to Ben Hainor with Lake Street Capital Markets. Your line is open.

Good afternoon, gentlemen.

Thanks for taking the questions.

First off, I apologize if this was already addressed, but on especially pharmacy business, it looks like gross margins Ticked up pretty healthily here from Q1 to Q2. Is this kind of a new normal? What drove that? Is this sustainable?

Hey, Ben. It's certainly being helped by some specific initiatives within our drug procurement department. And so the nature of those types of initiatives are are temporary. We are certainly outpacing the market right now, and it's fantastic for the business. I would expect that over the coming quarters, it comes down slightly, but still certainly in the high teens, and we're constantly looking for new opportunities to expand margin and to generate opportunities like we've seen in the second quarter.

Okay, got it. Excuse me, and then... On the $130,000 live shifting by a couple months, why did that slip? Any more color that you can provide there?

Yeah, it was just, frankly, related to delays in some of the processes related at sort of the payer level with getting us set up. So, you know, nothing related at all to the contract itself or confidence in the contract, just a process-related issue.

Lastly for me, now that you're providing the MLR, any chance of getting visits out of you?

Of getting what then?

Visits, total visits out of you? Total visits, yeah. It's certainly something we can discuss, yeah. All right. That's it for me. Congrats on the quarter, and thanks for taking the questions.

Thank you. Thank you. Once again, that is star one if you would like to ask a question. One moment while we queue. And at this time, there are no further questions in queue. I will now turn the meeting back over to our host for any closing comments.

Thanks so much for the thoughtful questions. Again, we're very pleased with the results this past quarter and look forward to providing more updates to the company in the future. Thank you so much.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Thank you for watching!

Once again, Starling Oncology's second quarter 2026 earnings call has concluded. You may now disconnect your lines.

Thank you.