Hello everyone, and welcome to this next session of the 25th Annual Needham Virtual Healthcare Conference. I'm Matt Shea, and I lead Needham's value-based care research efforts. In this session, I'm pleased to be joined by The Oncology Institute CFO, Rob Carter. Rob, thanks for joining me today.
My pleasure. Great to be here.
Thanks for everyone who's joining us today. For those listening in, we've got about 40 minutes to go through a list of questions on a fireside chat here, but if you do have questions for Rob, feel free to put them into the chat box and we'll make sure to get those asked and answered over the last 5 minutes or so of the fireside chat. With that, let's jump in. Rob, maybe to kick us off, for those who may not be familiar with The Oncology Institute, how about a brief overview of the business?
Yeah. At our core, TOI is a value-based oncology provider. We've been in business for over 19 years. At this point, we're in five states, have over 130 providers, and a rapidly growing network of ancillary providers as well. We take risk on Part B drugs. That's B as in boy, so IV meds, full risk, and we're currently at risk for over two million patients. We have been public for about five years now. Just reached $500 million in revenue in 2025, and have put out a 2026 guide that includes profitability from Adjusted EBITDA for the first time as a public company. That's a very high-level overview of TOI.
Okay, great. Yeah, maybe before we dive in, we've heard various takes on the current oncology environment, but general agreement that utilization is up for higher incidence and costs are up from new therapies.
Yeah.
However, you haven't seen this negatively impact your financials in the way that it has impacted maybe other peers in the oncology space. Maybe from your view, what's TOI's position in sort of the current oncology environment and what is sort of your view of both the utilization and the cost drivers that are out there?
Yeah. I mean, it's certainly an inflationary market. We are certainly seeing the double-digit cost trend on the drug side. Why are we not seeing the impact like some of the others in the space? Couple reasons for that, and I'll back up and provide a little bit more context on the business. TOI has historically contracted with delegated primary care groups, so it's a very California risk-based model where the primary care groups are delegated for risk from the health plans, and then they can go subcap to specialty providers like us. That model doesn't work outside of California. What we have now in Florida is what's known as a delegated model, and that's where we're partnering directly with the health plan, and they are delegating to us the complete control of the network.
That means that we are in charge of utilization management, prior auth, and claims, which gives us a significant degree of control over the network. In both of those products, the narrow network, sort of California-based model, as well as this delegated model, TOI is in a unique position to control and monitor spend because of a couple of reasons. Number 1, we are historically an employed model. That is somewhat novel at this point. That means that our doctors are not independent. They work for us, not 1099s. Our UM protocols are followed to a T, right? They're coming out of a centralized hub, if you will. We have a great clinical leader who's running that for us. We even have a portal that makes the whole process quite easy. We get very strict adherence to our UM protocols that way.
In the delegated model, it is a combination of employed physicians as well as I mentioned before, a wrap of independents. Imagine that we're going to a net new territory with a payer partner, and we have three clinics in that area. In order to have full adequacy in terms of geographic coverage, we are going to partner with independent physicians, and we're going to subcontract with them. In order for them to maintain status within the network, they're going to have to comply with our UM protocols, and so that has to do with drug selection, that has to do with length of treatment, that has to do with place of treatment. All of those factors go into having much greater cost control than what you're seeing in the market.
Ultimately, we've seen really significant revenue growth and a stable MLR, which is very, very difficult to do, and it's because we have that higher level of control through the hybrid model that gives us the ability to control spend in that way.
Great. Okay, so that really helps underscore why you guys have been successful in value-based care here. Payers are increasingly seeking partners to help them control oncology costs. With your patient services segments, plans can work with you in either a fee-for-service or a value-based care arrangement, ultimately with that goal of moving them towards those capitated value-based care arrangements over time that you described. Maybe as we think about that transition from fee-for-service to value-based care, what does that look like in practice? How do you identify good markets to start with fee-for-service, and what does that transition to value-based care look like over time?
Yeah, I think it's helpful to think about it from the perspective of TOI is targeting markets where a payer has expressed a need, right? There is significant pressure on the payer population right now with all of the rate announcements that are going on. This all started with V28 a couple of years ago. You have payers who are looking for solutions to top-line pressure, and one of those is specialty care, and oncology is a huge chunk of that. We're targeting markets where there's a specific need from a payer. It's not necessarily that we're going to go to a net new market and set up a shop and start building a fee for service practice.
It's actually more along the lines of we have a payer that comes to us and says, "Hey, we have a need for you in this particular market." By the way, that doesn't mean net new state. That could just mean additional counties in any of the states that we're in currently. These are big states, and so that could be the expansion there as well. If there was a need, and it made sense for us from an underwriting perspective, a pricing perspective, that's when we'll make the move to a new market. We'll assess the market. We'll underwrite it, of course. If it makes sense, we'll put a couple of dots on the map, and we'll build around those dots with a network, like I was just mentioning. That's sort of the growth plan going forward.
Okay. Got it. Clearly, there's that clear move towards value-based care and that manifests in capitated arrangements in your patient services segment. You've had a variety of wins there recently, new wins with Humana and CarePlus and an expansion with Elevance.
Mm-hmm.
Maybe starting with Humana, you had a relationship with them for fee-for-service patients now entering your first value-based care contract with them. What ultimately gave Humana the comfort or desire to shift towards a capitated relationship with you?
Yeah, it's a really good question, right? First and foremost, we're solving a very direct problem, right? There is a problem with the cost of oncology in America. I think all payers, Humana included, are approaching this from the perspective of how do we lower our costs and how do we stabilize our MLR, right? That's the first thing. As it relates to comfort around making the shift from fee-for-service to cap, I think our model in and of itself is really quite conducive to that. Number one, we've been doing it for a very long time. It's a very, very proven model. The results in terms of quality are published and very, very clear and direct that by moving over, there's actually going to be improvement to the overall quality of the care delivered.
There's obviously the impact to cost and the discount that we provide from their benchmark spend. We very much view this as a long-term relationship. We're viewing this as the potential for additional expansion beyond that current opportunity. I think the combination of those things is enough to get the payers over the hump.
For sure. Yeah, I think that opportunity to continue to expand with them is somewhat of an underappreciated.
Yeah
... opportunity, so I'm glad you called that out. Off of that, CarePlus was another nice win that you recently announced, another win in Florida, building on your expansion with Elevance in the state as well.
Yeah.
Maybe with Florida in particular, and CarePlus and Elevance, how did these deals come to fruition? There seems to be an acceleration on the TOI side in terms of Florida-centric deal making.
Mm-hmm.
Maybe just help us kind of compare and contrast how your pipeline in Florida maybe looks relative to some of your other geographies.
Sure. The pipeline is strong across the board. It is, as of now, particularly weighted towards Florida. There's a couple of reasons for that. First and foremost, there's a need, right? We're targeting an MA population. Benchmark spend is incredibly high relative to other parts of the country. I think the work that we've been doing there over the couple of years has really been impactful. Healthcare, and managed care in particular, is a very small world. I've worked in healthcare my entire career, and I can tell you, as you move to different companies, you're going to see the same people also moving to different companies 10, 15 years later. That is a very real effect that we're seeing in Florida, which in particular is a tight culture and community.
The whole word of mouth and reputation thing is very, very meaningful from that perspective, plus the fact that there's just this really great need for it in Florida. Going back to just the overall pipeline, it's robust. I've been here coming on five years. I joined right as we were going public. The pipeline has never looked like it has right now. It's very, very exciting.
That is super exciting. With Florida and wins in other geographies outside of California, you are leading with that delegated model that you touched on briefly before.
Yeah.
Maybe just want to double click on that, put on our CFO hat for a second and help investors on the call, because I think this is another somewhat underappreciated aspect of the story. Maybe just as we think about that delegated model, how would you kind of compare and contrast that model with California? Not so much what it looks like in practice, but more importantly, what does that delegated model
Yeah
... do in terms of enhancing the P&L?
It's a really great question. First and foremost, you have to understand that in the delegated model, you have two types of physicians, as I mentioned. You have our own employed physicians, and you have a network of independents, if you will. What that means is that because we're now paying a sub-capitation to the network, the margin profile is different than the traditional California model, if you will. It actually generates less gross margin as a percentage. The key here, though, is that the deal size is much, much larger with a delegated contract, which is why you need the wrap independence around our own physicians. Ultimately, from a gross profit perspective, we're talking about a significant tailwind for our gross profit looking forward. Beyond that, from a net working capital perspective, these are very accretive.
Capitation is a fantastic model for providers because you're prepaid, essentially, on the care. As soon as we go live on a contract, payments are coming in, and there is a several-month network and capital benefit associated with that. As you think about 2026 and beyond, we guided to $150 million of capitated revenue in 2026. That's up from about $80 million in 2025. First of all, we've never seen that level of growth before. We've mentioned that the bulk of that growth is coming from the delegated segment. What you've got here is a really interesting sort of jumping-off point for us, as you've got significant lives coming under management in 2026. Those contracts take about nine months to mature to full sort of profitability.
What you have is a really big jumping-off point, again, looking at 2027, when the significant deals will reach maturity, and you'll start to see the flow-through to EBITDA in about Q2 of 2027.
Okay. Got it. Lots of room to expand in Florida, particularly with that delegated model. You're growing in Nevada as well. You also have some early operations in Oregon and Arizona, and then always the opportunity for new states.
Mm-hmm.
Maybe as we think about the medium-term targets that you guys have put out there for, call it, 20% growth through 2028.
Yeah
In terms of capitation contracts, what geographies do you expect to support that growth through 2028?
Quite frankly, we can hit that goal without expanding to new geographies. There's that much white space in the five states that we're in. That's a great position to be in. Having said that, as I mentioned before, we are opportunistic about growth. Obviously if a payer comes to us and says, "Hey, we have an oncology problem in these five states. Can you go there?" We will certainly have that conversation, and if it makes sense, we would make that move. As it relates to that goal specifically, we don't need to expand.
Okay, great. Yeah. It's great that a payer would have more of a push.
Yeah
Maybe we've talked so much about this delegated contract, but obviously California is where you have gotten your start and have a lot of presence today. Just maybe as we take that same question, thinking about the growth algorithm through 2028-
Mm-hmm
What kind of opportunity do you see in California? Just maybe as a CFO, how do you think about different geographies in terms of priorities? There's obviously so many benefits to the P&L by driving this delegated contract. Surely there's still demand in sort of your home market of California, if you will.
Oh, absolutely. Yeah.
How do you sort of balance that?
Yeah. The good news is that we don't have to prioritize one for the other. California is obviously a massive state, and so there's clearly room for growth there. I view it as sort of a portfolio, right? The margin profile, as I mentioned, is different. You're looking at 15%-20% margins on the delegated business, and maybe around 30% on the narrow network California business. The mix of those contracts on our overall margin and EBITDA pull-through is obviously significant. The narrow network contracts in California are, in many ways, tougher to close just because the market has been managed for so long. If the growth is coming from Florida and other net new markets over the next couple of years, obviously we still expect California to grow to some extent, and I think we're totally okay with that.
There's capacity for growth in both places. There isn't a constraint when it comes to that.
Okay, great. It sounds like the ball is in your court then.
Yeah.
Maybe if we think more near term than 2028, for 2026, you laid out a target of $150 million of capitated revenue in the outlook. Maybe just put some context around that. How much of that is contracted right now versus go-get? Maybe as we think about the amount of capitation revenue in prior outlooks, call it last year, for example, how much of that was contracted versus go-get at that point? Basically just trying to compare and contrast how much visibility you have to that $150 million of capitated revenue in 2026 versus maybe years prior.
Yeah. As a general rule, we don't guide, including go-get. By the way, we define go-get as contracts that are on the pipeline, that aren't in an imminent stage. Oftentimes with these deals, you can come to agreement on pricing and terms and the deal actually isn't signed until immediately before it's supposed to launch. It's a very normal occurrence for us. It's not a problem. That's the type of deal that we would include. If it's not at that stage, we're not going to guide to at all. As it relates to the $150 million that we've guided to this year, yeah, it's highly probable and imminent. We have great line of sight into it. Looking back in previous years, again, the methodology hasn't changed.
It's just the pure scale of deals we're talking about and the size of the deals, that's changed significantly. We've always maintained the stance as it relates to guiding. We're just going to exclude the ones where there's some risk that it's not going to close.
Okay. Sounds prudent, especially given the current environment.
Yeah
Heard of elongated contracting cycles, so I think that is the right approach.
Yeah.
Okay, great. I think we've covered patient services. Maybe let's shift gears and touch on the dispensary segment, which in 2025 actually eclipsed the patient services segment as the largest segment after growing just shy of 50%.
Yeah.
In our view, this is one of the most differentiated aspects of the story, something other public companies in the oncology space don't offer, but also one of just the most underappreciated aspects of your story. When we speak to other investors, it's often just unknown what this business is, what it does.
Yeah
Maybe just starting at a high level, what is this segment of the business?
Yeah.
How does it work, and where are operations geographically today?
Yeah. This is Part D, as in dog. These are the oral meds, only oncolytics, so only oral medications intended to treat cancer. TOI has historically ran what's known as a medically integrated dispensary, or MID. That is sort of a subsection of pharmacy pricing and licensure. What that means is that there's a small office inside of our clinics where patients can pick up a script on their way out. That's always been in the model. I think it was viewed more as sort of ancillary revenue previously. What has happened since is, number one, we acquired a pharmacy, which is a slightly different licensure than the MID. That was late 2023. We did that because the state of California had made some changes to the way it administers its Medi-Cal program, which is Medicaid.
We lost the ability to fill scripts for that patient population. Upon acquiring the pharmacy, we could fill those scripts again. It did $70 million of incremental revenue in 2024. We also at that time made some operational changes within the business, where we outsourced some of our operational functions and got very, very serious about our workflows. Those changes drove a 50% increase year-over-year in 2025 from 2024. To your point, it's become the largest revenue segment. At this point, it's operating really, really efficiently. There's this concept of leakage in pharmacy, which relates to scripts that leak to outside pharmacies. We've got that to a very low level at this point, and so we don't expect there to be much additional accretion from that specifically. It's growing now as an attachment.
As we contract for additional lives under management, as our organic fee-for-service grows and more visits and patients are coming through our clinics, there's an attachment of Part D scripts to all of that. That's where the growth is going to come going forward. An 18% margin business. To your point, it's fantastic from a P&L perspective. It's fantastic from a working capital perspective because DSOs are quite low in this business. It's a natural hedge, to your point, to the capitated business. With all the noise that's coming out of D.C. around various changes to drug pricing, it's nice to be able to have multiple segments that generate profit on drugs in different ways.
For sure. Yeah, that's exactly why we like that segment, is because of the natural hedge it gives to your capitated business.
Yes.
In our view, not only can you capture revenue when dispensing drugs to your patient services patients, you can also have tighter integration between treating clinicians and pharmacy, which I would think drives better med adherence, selections, just better clinical outcomes. Maybe how would you describe the value of the dispensary segment adds to the overall business?
Yeah.
In the investors that you speak with, how well understood would you say that hedge within the business is today?
I don't think that that's well understood. It's part of what we've been trying to do. We put a significant amount of effort in trying to help investors understand the various business units, the various margin profiles associated with them. I still think there's some work to go there. The benefits are significant. It's generally lower out-of-pocket expenses for the patients. It's going to reduce payer costs, relative to some of the other specialty pharmacy options. It's, as we talked about, a high growth, high margin business. If you look at the pipeline of drugs over the next five, 10 years, it's going towards Part D for obvious reasons, right? If you were a patient, you would rather take an oral than have to sit in the chair for several hours with an IV infusion. That's the way the market's going.
We're just really well situated for that shift in the market, given that it's outside of cap, right? It's billed fee-for-service. We're not at risk for it. That's what we mean by it being a hedge for the capitated business. I think it is now evident that it's a really significant lever for us. It's going to continue to be even more as the pipeline shifts more towards orals.
Great. Okay. That's a super helpful overview there. Maybe shifting to profitability. You reached your first quarter of EBITDA profitability in Q4 of 2025 and guided to full year profitability in this year ahead in 2026. At the same time, you're onboarding what we've described as a record number of new delegated contracts. What is the expected ramp in profitability over the year with those new contracts and how much visibility do you have in the profitability outlook as a result of that? Maybe just help us understand what maybe are some of the biggest swing factors in the outlook right now.
Yeah. Biggest swing factor is when our contracts launch. As mentioned, these delegated deals are large. They're quite significant in terms of revenue, but there's a profitability ramp. The flow-through to EBITDA is all going to correspond when they actually launch. We expect the majority of the profitability to come in the second half of the year. Again, that's just due to when the contracts are launching. That's not necessarily how it is every single year. It's not like that second half of the year is when the contracts launch. It just happens to be that way for us this year. That's when you're going to start to see the uptick. As I mentioned before, if you're looking at this from a multi-year perspective, those contracts, and we'll let everyone know how big they are.
We give a general range for PMPM, and so it'd be very, very easy to model from that perspective. You got to think about it from a 9-month ramp to get to that steady state of profitability.
Got you. Okay. Yeah, to your point, contract launch is the most important swing factor then.
Yeah.
We alluded to this prior, and we've seen it with other companies in the space, and that given macro uncertainty, pressure on payers, data integrations, you name it, we've seen contracting cycles often get elongated or maybe a contract start gets pushed from one month to the next.
Yeah.
That obviously can have pretty dramatic impacts on the P&L when contracts get this large. Maybe just as we think about contract timing being a swing factor next year, how do you go about forecasting the go lives of these contracts? How do you build ample conservatism into that timing and-
Yeah
Especially in an event where these are often things that aren't in your control.
Yeah. Certainly. This is a little in the weeds corporate finance, but we receive our inputs from obviously our business development team, right? It's their pipeline. They own it. I think it's a wise move for any finance team to apply their own confidence assumptions on top of the confidence assumptions that come from BD. That's what we do in a number of different ways. We'll change those based on our own experience, having been here for almost five years now. Yeah. We are going to quite a bit of work to ensure that even if there is a month or two swing in the contract launch, that it's not something that's going to be super detrimental to the full year picture. That's because there's a number of other things happening, including specialty pharmacy to sort of offset that.
Exactly. Okay. Great. Then another piece of the profitability story is you've been increasingly vocal about the role AI could play in the business, laying out three buckets across revenue cycle management, prior auth, and then third is patient call center, which are expected to drive $2 million of operating efficiencies. Among those three buckets, are there any that you expect to be bigger efficiency drivers than others? Our understanding is prior auth automation is the furthest along.
Yeah.
Maybe similar question of how we should think about the pacing of the efficiencies in 2026 across those three buckets.
Yeah. They are all underway at this point. You're right. Prior auth is furthest along. I think it's just helpful to take a step back, and any managed care group that's treating patients is going to have some sort of central engine. Some companies call it MSO ops, where it's incredibly labor driven, process driven types of activities that are actually quite fundamental to patient life cycle. It's actually really, really important work, and these are areas that are sort of low-hanging fruit, if you will. Could it be bigger? Yes, I think so. I think the way that we're looking at this is that within that central engine, if you will, what are all of the areas that have an opportunity for some improvement, that are very people driven processes that are also high impact to our patients?
The reason why prior auth and call center were among the first is because those two impact patient care directly, right? Again, low-hanging fruit is the way that we're viewing this. Certainly, we think that $2 million is sort of just the tip of the iceberg, if you will, and more to come on this.
Okay, great. As we think about you sort of rolling these out, how do these innovations sort of start? Is it a pilot that then you roll out to the broader care force or how do you-
Exactly
Sort of go from test to go time?
Yeah. No, that's exactly what has happened, which we've piloted all of them. Interestingly, I've even been on some of these pilots, including the call center one where you have no idea you're talking to an AI bot. It sounds that real. Yeah, that's exactly what's happened.
Okay. Makes sense. Yeah, and exciting to hear that there's potential opportunity beyond that 2 million. Maybe as we think about beyond 2026, you've also laid out 2028 targets in terms of EBITDA margin expansion into the mid-single digits. Maybe for investors that are sort of new, haven't been following the story, what are the biggest drivers of that expansion? If we think about mid-single digits being a range, what pushes you towards the higher versus lower end of that mid-single digit range?
Yeah. I mean, the drivers are the things that we've discussed, right? You've got this incredibly robust pipeline, which is going to drive contract wins, sort of the waterfall effect of profitability associated with these contracts is really meaningful to what that actual percentage ends up being in 2028, and really what it ends up being beyond 2028. What I mean by that is that if you obviously have a really, really robust year in 2026 or 2027, you're going to see the impact of that in 2028, and so on and so forth. That's really, really meaningful. Our ability to drive script attachment to those new lives is really impactful. The third thing I'll mention that we haven't talked about before, and that's operating leverage.
AI is obviously a piece of that, but in a company like ours, there's a number of SG&A line items that are variable in nature that obviously if you're talking about $1 billion in revenue and then using the math that we've given out, like that's where we're at in 2028, you have numerous opportunities for leverage with some of these variable expenses, including things like in-housing, renegotiating contracts, et cetera. Very normal sort of blocking and tackling activities. With that level of scale, it becomes really meaningful to the P&L. To your question, what does mid-single actually mean? We've heard anything from 3% to 7%. I think for us, it's certainly at the higher range of that. I think $1 billion and anywhere from $50 million-$70 million in 2028 makes a ton of sense.
Beyond that, I think that there's certainly a possibility of even higher than that.
Okay, great. Obviously, you alluded to SG&A leverage being a big part of that. Have you contemplated much beyond the $2 million of AI efficiencies in 2026 and sort of that 2028 outlook, or would that be more of an upside driver, if you will?
It is more of an upside driver. Yeah. It's an area where I think that further refinement is needed. It's in its infancy right now, and so it's something we look to update the market on in the future.
Okay, great to hear. Maybe moving to the balance sheet as we close things out here. As a reminder, if anyone in the audience has any questions they'd like to get asked and answered, feel free to throw those into the chat, and we will get those asked. Yeah, on the balance sheet, you closed the year with about $77 million in converts, which mature in August of 2027. You're also rounding the corner on free cash generation with guidance calling for anywhere between a $15 million outflow to a $5 million inflow in 2026. With all those factors, how are you thinking about the current debt situation and capital allocation priority, and how might those change as you enter this era of positive cash generation?
Yeah. First off, I think we're in a really great position from a cash perspective. Obviously, with operating losses declining and completely going away, that's a great position to be in. We've always ran the business, I think, pretty efficiently as it relates to net working capital and just overall, CapEx. We use capital to grow the business in terms of growth in AP. Inventory, I think, has become a lot more meaningful now that we're procuring as much drug as we are right now. We've never been over $3 million of CapEx in a year since going public, and so, as of right now, the cash needs are well within the range of the cash balance right now. Looking at the debt specifically, so $86 million, it's at 4% interest. The strike is $8.50, and it comes due August 2027.
We're very aware of the note going current, and so we're working towards a solution with that. We're working with Deerfield specifically. They've been great partners. We hope to have a formal announcement on that here in the next several months.
Okay, great. Obviously, you've built a good part of this organically, but maybe as capital structures changes, what is sort of your appetite for M&A, or do you see opportunity in the market to be acquisitive?
Yeah, I think it's really interesting. TOI has moved away from the 1 and 2 doc M&A practice that we used to do. I think for us, we have a radiation oncology segment. We haven't talked about that much, but it's really important because there's no drug involved, so it's a high-margin business. It is CapEx intensive, and so generally speaking, that's more of an M&A or JV move as opposed to a de novo, just because the equipment is so expensive. I think that's really interesting, particularly in Florida. Right now, we have no rad onc assets in Florida. Yeah, I think as we look at expansion into new markets, and as I mentioned, we'll look to where we can put a dot or two on the map and then build around that with a network.
I think it's a really interesting option to be able to buy into that network as well, where it makes sense. Yeah, I would say we're opportunistic about that, and it is interesting as we look at the long range plan.
Okay, great. Well, and it looks like I froze at just the right time there. With that, we are coming up on time here, and I'm not showing any further questions, and frankly, my computer seems to tell me it's time to park it there. With that, Rob, thank you so much for tuning in and helping us with the fireside chat today. It was great to shine some light on the TOI story, and thank you to everyone who tuned in and listened to this fireside chat. Thanks again to everyone involved, and good luck with the rest of the conference.
Thanks so much. Take care.