Oncology Institute (TOI) Earnings Transcript

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DATE
Thursday, March 12, 2026 at 5 p.m. ET
CALL PARTICIPANTS
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Chief Executive Officer — Daniel Virnich
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Chief Financial Officer — Rob Carter
Full Conference Call Transcript
Daniel Virnich: Thank you, Mark. Good afternoon, everyone, and thank you for joining our fourth quarter and full year 2025 earnings call. Before getting into the results, I want to start by thanking our physicians, clinicians and employees across The Oncology Institute. Their continued focus on delivering high-quality oncology care in the community is what drives the progress we are seeing across the business. Most importantly, the fourth quarter marked an important milestone being our first profitable quarter as a public company from an adjusted EBITDA perspective. Based on the momentum that we have built, we are reaffirming our expectation to achieve full year positive adjusted EBITDA in 2026.
The biggest driver of this progress continues to be the expansion of our capitated care model, particularly through our delegated arrangements, which enables us to manage the oncology benefit more comprehensively while aligning incentives with our payer partners across markets and delivering quality clinical outcomes to the patients that we serve. Stepping back, 2025 was a very productive year for TOI and one where we made progress across multiple areas of the organization. From a financial perspective, we delivered strong top line growth with revenue increasing approximately 28% year-over-year and surpassing $500 million for the first time in our history.
We continued expanding our capitated footprint, initiating 9 new capitated contracts during 2025 in California, Florida and Nevada, representing approximately 260,000 additional patient lives under management. Another key contributor to this growth was our Part D dispensing platform, which remains an important part of our integrated care model as we continue to increase prescription volumes and attachment rates within our network. This segment of our business reached almost $270 million in total revenue and contributed close to $50 million in gross profit for the full year. From an operating standpoint, we continue improving efficiency across the organization. SG&A declined 2% year-over-year, demonstrating the leverage in our model as we scale.
During the year, we also outsourced our clinical trials operations, allowing our physicians and care teams to remain focused on delivering high-quality clinical care while still being able to direct our patients to the trials they need in our clinics and supporting more rapid growth and multi-market scalability. And finally, we strengthened our balance sheet during the year. We reduced debt on our convertible preferred note by $24 million and ended the year with $33.6 million in cash after experiencing positive free cash flow in Q4, giving us additional flexibility as we continue to grow the platform. Operationally, we also made meaningful progress expanding our care model.
Our delegated capitation partnership with Elevance in Florida continued to ramp during the fourth quarter and remains on track to continue expansion across the state in 2026, which would more than double the current partnership. Today, we have approximately 70,000 lives under capitated arrangements within this partnership. Given the economics of our delegated model, it's also worth highlighting that delegated members represented less than 5% of total capitated lives at the end of 2025, but account for approximately 1/3 of our run rate capitated revenue, reflecting the higher PMPM structure associated with these arrangements and the high utilizing populations they service.
In addition to Elevance, we also initiated capitation agreements with Humana and CarePlus in Florida during the fourth quarter, further expanding payer partnerships and representing approximately 22,000 additional MA lives in South Florida. Our Florida Oncology network platform also continued to grow with the number of participating providers increasing to approximately 207 physicians and advanced practice providers across our network, supporting what we refer to as our hybrid model of patient care, which allows us to treat our managed populations at a combination of TOI-affiliated as well as independent clinics and our employed clinics under our fully delegated network umbrella.
Finally, from an organizational standpoint, we strengthened the leadership team substantially in 2025, with the additions of Jeffrey Langsam as Chief Clinical Officer; and Kristin England as Chief Administrative Officer. Both bring significant experience scaling healthcare organizations and will play an important role as we continue expanding our platform and executing on our growth strategy. As we move into 2026, our focus remains on continuing to scale and drive profitability in our value-based care platform so that we can serve more patients and payers across the country with high-quality oncology care while improving access to therapeutics and reducing the financial burden of that care.
First, we expect continued strong growth in our delegated capitation model, having guided in January to over 80% growth in capitated revenue for the year. Second, we are preparing to launch a proprietary new network portal in Q2, which will further strengthen engagement with both our affiliated and independent providers. The platform will improve visibility into the utilization management pathways, support formulary adherence and help drive continued improvement in our medical loss ratio. Importantly, it will also help enable ancillary services engagement such as Part D dispensing adoption across our independent network providers, which remains a meaningful opportunity for incremental growth. Finally, we strengthened our Board of Directors in Q1 with the additions of Mark Stolper and Kim Tzoumakas.
Mark brings significant financial leadership and public markets experience as the long-time CFO of RadNet, while Kim brings deep expertise in oncology and pharmacy services through her prior leadership roles as CEO of VytlOne and 21st Century Oncology, respectively. We believe both will add valuable perspectives as we continue scaling the organization. In summary, 2025 was a foundational year for TOI. We showed our ability to grow and manage industry-leading MLR performance under our delegated capitation model in Florida, set records in Part D pharmacy growth, derisked our balance sheet and recorded our first positive adjusted EBITDA quarter as a public company in the fourth quarter.
As we enter 2026, our focus is on execution, and we believe we are well positioned to further expand payer partnerships and deliver sustainable profitability over the long term. With that, I'll turn the call over to Rob to review our financial results. Rob?
Rob Carter: Thanks, Dan, and good afternoon, everyone. I want to echo Dan's comments on what was a significant year for TOI. In the fourth quarter, we continued to build momentum across both our fee-for-service and capitation businesses as well as dispensing while at the same time moving toward positive adjusted EBITDA. On today's call, I'll start by addressing the expected impact of the Inflation Reduction Act, then review our key financial highlights for 2025, walk through our fourth quarter results and finally discuss our guidance and outlook for 2026 and beyond.
Regarding the Inflation Reduction Act, we expect the impact to IMBRUVICA in 2026 to be minor, representing an unfavorable impact of less than 1% of total pharmacy revenue and gross margin. Importantly, as IMBRUVICA and additional drugs are subject to maximum fair price negotiations under the IRA, we have multiple levers available to help offset this impact, including, but not limited to, optimization of our pharmacy mix via increased utilization of alternative therapies, a function which TOI has significant control over through our centralized utilization management process.
Additionally, the reimbursement shift in certain disease state categories introduced by the IRA allows TOI an opportunity to leverage relationships with drug manufacturers and distributors to reassess category economics, discussions which are benefited by TOI's improving purchasing power as we scale as a drug purchasing organization. As a result of the foregoing, we do not expect the IRA specifically to materially alter the long-term economics or trajectory of our platform. Turning to full year 2025. The year marked meaningful operational and financial progress for TOI. We delivered revenue growth of approximately 27.8% year-over-year from $393.4 million to $502.7 million, driven by continued expansion in both patient volumes and services per patient.
Our fee-for-service business grew 9% year-over-year, from $136.2 million to $148.5 million, while our capitation business grew 17.2% year-over-year, from $68.7 million to $80.5 million, driven primarily by the launch of our new delegation model in Florida, which I will expand on more in a moment. Pharmacy revenue grew 49.6% year-over-year, from $179.9 million to $269.2 million, primarily the result of improved attachment of prescriptions to our provider visits in both fee-for-service and capitation populations as well as reduced leakage of prescriptions written by TOI providers to outside specialty pharmacies.
The successful launch of our new delegation model in Florida produced over $10 million in new capitated revenue in 2025 with an annualized run rate of approximately $50 million as we enter 2026. We believe this new delegated model enhances TOI's ability to efficiently scale in new markets while retaining our ability to both directly control clinical utilization as well as deliver our comprehensive oncology model to populations under the delegated contracts. We accomplished this by serving patients at a mix of network providers and TOI clinics, a dynamic you will hear us refer to as our hybrid model, because it utilizes both independent and captive providers in a hybridized deployment.
This hybrid model allows us to optimize for MLR while balancing capital efficiency and operating leverage, all while delivering maximum savings and minimum time-to-launch and network disruption to our payer partners. Most importantly, we ended the year with positive adjusted EBITDA in the fourth quarter, reflecting the operating leverage embedded in our model and the progress we've made towards sustainable profitability. Turning to the fourth quarter. Results were consistent with the trends we've discussed throughout the year. Total revenue for the fourth quarter was $142 million compared to $100.3 million in the prior year period, representing a 41.6% year-over-year growth that was driven by continued patient growth and pharmacy contribution.
Patient services revenue, which includes both capitation and fee-for-service arrangements, totaled $59.8 million, or 42.2% of total revenue and increased 19.2% year-over-year. Within the segment, fee-for-service contributed roughly 25.6% of total revenue and capitation accounted for 16.6%, reflecting the significant recurring nature of patient services revenue and steady patient volumes on which we layer new capitation contracts as well as a continuous expansion of our fee-for-service referral base. Pharmacy revenue was $81.4 million, representing 57.4% of total revenue and increased 71.1% year-over-year, driven by higher prescription volumes and expanded pharmacy attachment within our clinics, which was a key operational focus for us over the course of the year. Turning to gross profit.
We reported $22.7 million for the quarter compared to $14.6 million in the fourth quarter of 2024. Gross margin was 16% versus 14.6% in the prior year period, reflecting a year-over-year margin increase of approximately 140 basis points. Patient services gross profit was $7.1 million, up from $4.5 million a year ago, representing a 59.5% year-over-year increase with a gross margin of 11.9%, up from 8.9% in the prior year. Pharmacy gross profit totaled $14.9 million compared to $8.1 million in the fourth quarter of 2024, an 84.7% year-over-year increase, driven by higher dispensing volumes and improved drug purchasing.
Pharmacy gross margin increased over 130 basis points from the prior year to 18.3%, reflecting ongoing optimization in commercial drug procurement, reflecting a focus on leveraging TOI's increasing scale in supply chain operations. Turning to operating expenses. Excluding depreciation and amortization, the total SG&A was $28 million, or 19.7% of revenue compared to 24.8% of revenue, a reduction of over 500 basis points versus a year ago. The decrease in SG&A reflects continued cost discipline and operating leverage inherent in our model. Adjusted EBITDA was $147,000, improving from negative $7.8 million in the fourth quarter of 2024. We achieved positive adjusted EBITDA in the fourth quarter, a key milestone as we exit 2025.
Turning to the balance sheet and cash flow. We ended the quarter with $33.6 million in cash and cash equivalents. Operating cash flow for the quarter was a positive $3.2 million, reflecting investments in drug inventory and working capital to support our scaling dispensing activity. Now turning to guidance. For full year 2026, we are reiterating guidance provided in January 2026 as follows: revenue in the range of $630 million to $650 million, approximately $150 million of capitated revenue; gross profit in the range of $97 million to $107 million; and adjusted EBITDA in the range of $0 million to $9 million; and free cash flow in the range of negative $15 million to $5 million.
I want to highlight that the first quarter is seasonally our lowest due to patient deductible resets and annual drug price increases that are not immediately reflected in reimbursement rates as pharmaceutical reimbursement adjustments operate on a lagged basis for pricing. While we always worked hard to mitigate these 2 factors, naturally lead us to anticipate an adjusted EBITDA loss for the first quarter. Based on these factors, we anticipate first quarter adjusted EBITDA to be between a loss of $3 million to $1 million with continued momentum over the course of the year. On a year-over-year comparison basis, the first quarter of 2025 included a onetime benefit of $1.6 million based on a renegotiated drug distribution agreement.
On the pharmacy side, we are assuming performance in line with the second half 2025 revenue run rate of approximately $27 million per month, plus a modest incremental growth of 3% to 5% from attachment to new capitation lives we are capturing in TOI clinics through 2026. We believe this capture of capitation lives in TOI clinics is the beginning of a multiyear penetration narrative as we optimize TOI's captive clinic footprint relative to network providers for populations managed under our delegated model, as previously discussed, as part of our hybrid strategy. With respect to