Executive Summary / Key Takeaways

• The Oncology Institute (TOI) is executing a strategic transformation towards sustained profitability, leveraging its differentiated value-based oncology care model, robust pharmacy growth, and operational efficiencies.
• Q2 2025 demonstrated strong financial momentum with over 20% year-over-year revenue growth, driven by record pharmacy performance and 10% fee-for-service (FFS) growth, alongside a significant $4.6 million year-over-year improvement in Adjusted EBITDA loss to $4.1 million.
• TOI's "fully delegated" capitation model, a core technological differentiator, is rapidly expanding in new, higher-utilization markets like Florida and Nevada, providing enhanced control over oncology spend and serving as a cornerstone for future margin expansion.
• Strategic initiatives, including AI-enabled operational improvements across revenue cycle management and patient services, coupled with a strengthened balance sheet through recent debt reduction and a private placement, are paving the way for anticipated positive Adjusted EBITDA and cash flow breakeven by Q4 2025.
• While the company faces risks such as NASDAQ listing compliance and the complexities of drug pricing, management views industry reforms as potentially net positive, reinforcing confidence in its long-term growth trajectory.

The Oncology Institute's Vision: Redefining Cancer Care through Value

The Oncology Institute, Inc. (TOI), founded in 2007, has evolved into a national platform dedicated to delivering integrated, direct, and cost-managed care for cancer patients and payors. Operating community clinics and infusion suites, TOI provides advanced treatments including chemotherapy, immunotherapy, oncolytics, and radiation oncology. This comprehensive approach is complemented by coordinated case management, drug formulary management, and fully-delegated networks of care providers, all designed to improve treatment outcomes at the lowest possible cost. The company also operates a specialty pharmacy for oral and self-injectable medications and contributes significantly to clinical research.

The broader healthcare landscape is undergoing a fundamental shift towards value-based care, a trend that plays directly into TOI's core strengths. Rising drug costs, while a challenge for many, paradoxically create a greater opportunity for TOI to demonstrate its value to payer partners through its sophisticated cost management capabilities. New markets, particularly those with a strong Medicare Advantage focus like Florida and Nevada, present higher utilization benchmarks and thus a more substantial opportunity for TOI to generate savings and value. TOI's overarching strategy is to capitalize on these trends by expanding its scalable, value-based care model, growing its pharmacy segment, optimizing costs through operational efficiencies, and leveraging technology, including artificial intelligence.

In a competitive landscape populated by large players like McKesson Corporation (MCK), American Oncology Network (AON), and HCA Healthcare (HCA), TOI carves out a specialized niche. McKesson, with its vast distribution network, offers integrated healthcare solutions, often demonstrating stronger operational execution due to sheer scale. AON focuses on a collaborative, physician-led network model, potentially achieving greater efficiency through shared resources. HCA Healthcare, a major hospital operator, provides integrated care within its extensive infrastructure. Against these formidable rivals, TOI distinguishes itself with a patient-centric, community-based approach, emphasizing specialized oncology care and program depth. While TOI may not match the overall market share or diversified revenue streams of its larger competitors, its focused expertise and innovative care delivery models provide a distinct competitive edge.

TOI's core technological differentiation lies in its "fully delegated model," an integrated system of processes, data, and clinical technology. This model empowers TOI with critical control over utilization management, network design, and claims adjudication for oncology, medical, and radiation oncology spend (Part B risk only). This capability allows TOI to direct care to lower-cost sites, ensure value-based therapeutic decision-making, and actively manage drug formularies, a core competency honed over years. The tangible benefits are clear: improved treatment outcomes at lower costs, high-quality coordinated cancer care, and significant value creation for both TOI and its payer partners. This operational technology enables TOI to maintain a relatively stable Medical Loss Ratio (MLR) even amidst "huge increases in drug cost trend."

Further enhancing its technological roadmap, TOI is actively transforming into an AI-enabled care delivery organization. In Q3 2025, the company plans to launch three AI enablement efforts focused on revenue cycle management, prior authorization services, and its patient call center. These initiatives aim to drive a better patient and physician experience while significantly reducing operating expenses as a percentage of revenue, thereby expanding margins and accelerating profitability. This strategic embrace of AI is designed to fortify TOI's competitive moat by enhancing efficiency and scalability, directly contributing to its financial performance and market positioning.

A Strategic Pivot: From Legacy Challenges to Growth Momentum

TOI's journey has been marked by strategic evolution. After its founding in 2007 and becoming a public company in 2021, the company expanded its financial and operational footprint, including securing a $110 million Senior Secured Convertible Note in August 2022. However, 2023 presented significant headwinds, with gross profit declining 9.4% due to infusion drug price inflation outpacing reimbursement and higher clinical payroll costs incurred to build infrastructure for anticipated growth. This period also saw the forfeiture of earnout shares, signaling unmet stock price targets.

Recognizing the need for a decisive shift, TOI initiated a comprehensive turnaround in 2024. This strategic pivot yielded tangible results, with full-year revenue increasing 21% over 2023. A key driver was the launch of six new capitated contracts in Q3 and Q4 2024, encompassing over 270,000 lives. Crucially, TOI successfully validated its model outside California, securing two new contracts in Florida that added over 200,000 lives. The pharmacy and medically integrated dispensaries also experienced rapid expansion, generating $180 million in revenue for the full year, representing an impressive 73% annualized growth. Operational efficiencies were paramount, leading to a 12% reduction in Selling, General and Administrative (SG&A) expenses in Q4 2024 compared to the prior year, and an 800 basis point reduction as a percentage of revenue for the full year. A new multiyear agreement with its primary drug distributor in Q4 2024 further bolstered margins and improved payment terms, while a favorable legal settlement contributed a $4.1 million cash inflow, significantly strengthening the balance sheet.

This momentum carried into early 2025. In February, TOI strategically amended its Facility Agreement, making a $20 million principal prepayment on its Senior Secured Convertible Note and, critically, eliminating the $40 million minimum cash covenant. This move substantially enhanced financial flexibility. A subsequent $16.5 million private placement of common equity, with a $4.1 million debt-to-equity conversion by Deerfield on the same terms, further strengthened the company's capital structure, reducing outstanding debt from $110 million to $86 million. Leadership was also bolstered with the appointment of Dr. Jeff Langsam as Chief Clinical Officer in May 2025, focused on therapeutics and utilization management, and Kristin England as Chief Administrative Officer in July 2025, overseeing operations and technology strategy.

Q2 2025 Performance: Tangible Progress on the Path to Profitability

The second quarter of 2025 underscored TOI's accelerating progress towards its profitability goals. Consolidated revenue reached $119.8 million, marking a robust 21.5% increase year-over-year. For the six months ended June 30, 2025, total operating revenue grew 16.0% to $224.2 million. This top-line expansion translated into a significant improvement in profitability, with Adjusted EBITDA loss narrowing to $4.1 million in Q2 2025, a $4.6 million improvement compared to the $8.7 million loss in Q2 2024. This positive trend was primarily driven by organic fee-for-service (FFS) and pharmacy revenue growth, disciplined clinical payroll management, and optimized SG&A across higher volumes, alongside improving drug margins.

The Dispensary segment emerged as a standout performer, with revenue surging 40.8% year-over-year to $62.6 million in Q2 2025, and 33.0% to $111.9 million for the first six months. This segment now accounts for 52% of total revenue. The impressive growth was fueled by monthly records in pharmacy fills, increased patient volumes, and a reduction in prescription leakage to outside pharmacies. The gross margin for the Dispensary segment expanded significantly to 18.36% in Q2 2025 from 12.69% in Q2 2024. This expansion reflects improved drug procurement strategies, yielding better rebates and overall margins due to TOI's increased scale. Management noted that the prior year's Q2 was "artificially low" due to the EARP clawback impact, and that the drag from DIR fees is now largely "lapped," with pricing at the point of sale. An additional pharmacy location in Florida is slated to open in the second half of 2025 to support MSO affiliate practices.

The Patient Services segment generated $55.9 million in revenue in Q2 2025, a 6.5% increase year-over-year. This growth was largely propelled by a 9.6% increase in FFS revenue in Q2, driven by momentum in new markets like Florida and Oregon, and investments in referral relationship management. However, the Patient Services gross margin experienced a slight year-over-year decline to 8.48% in Q2 2025 from 11.32% in Q2 2024. This was primarily attributed to new, sizable capitation contracts, particularly in Florida, which typically experience lower margins during the initial continuity of care period as patients transition to TOI clinics and utilization management operationalizes. Management anticipates these margins will improve as the new populations are conformed to TOI's medical model.

Operational efficiency remained a key focus, with Selling, General and Administrative (SG&A) expenses decreasing 3.5% year-over-year to $26.9 million in Q2 2025. As a percentage of total revenue, SG&A saw a substantial 580 basis point reduction to 22%. This reduction highlights TOI's cost discipline and ongoing efforts to streamline operations. The Clinical Trials segment, which was outsourced to Helios CR, Inc. in mid-Q2 2025 under a profit-sharing arrangement, saw a $2.4 million one-time write-off of net assets, which was added back to Adjusted EBITDA. This restructuring is expected to reduce recognized clinical research revenue but will be offset by increased Dispensary segment revenue, maintaining the full-year revenue guidance.

Liquidity also saw significant improvement. Cash and cash equivalents stood at $30.3 million at the end of Q2 2025. Net cash used in operating activities for the six months ended June 30, 2025, improved by 52% year-over-year to $15.2 million, reflecting enhanced working capital management across receivables, inventory, and payables. The company's recent debt reduction and private placement have strengthened its financial position, with management concluding it has sufficient liquidity for at least one year from the 10-Q filing date.

Expanding the Moat: The Power of Fully Delegated Care and AI

TOI's strategic expansion of its "fully delegated model" is a critical differentiator, providing a robust competitive moat. This model, which TOI aims to make its primary approach for health plan relationships outside California, grants the company control over utilization management, network design, and claims adjudication for oncology, medical, and radiation oncology spend. This level of control allows TOI to actively manage patient populations, steer care to lower-cost settings, and make value-based therapeutic decisions, directly translating into improved outcomes and cost savings for payer partners. As CEO Daniel Virnich stated, "our fully delegated offering gives TOI control over utilization management, network design and claims adjudication for the patients that we serve... and increases our ability to not just deliver outstanding quality care and utilization improvement, and also enables access to ancillary services such as pharmacy and clinical trials for our MSO practice partners, which will drive value for them as well as TOI." This model is a more robust and cash-efficient way to scale value-based care compared to traditional narrow networks.

Geographic expansion under this model is a key growth driver. New value-based contracts in Q2 2025 added over 50,000 capitated lives in Nevada and California. Further, an expanded capitation relationship with Silver Summit Health Plan in Nevada, effective July 1, 2025, added an additional 49,000 Medicaid patient lives. In Florida, a verbal agreement with an Elevance health plan, commencing in Q4 2025, will add over 40,000 Medicare Advantage lives across two new counties, effectively doubling TOI's existing relationship and bringing its total Medicare Advantage lives under capitation in Florida to over 100,000. These new markets, particularly Florida and Nevada, offer higher per-member-per-month (PMPM) revenue opportunities due to higher baseline oncology utilization compared to California, amplifying the impact of TOI's cost-management capabilities.

TOI's commitment to technological leadership is further evidenced by its aggressive AI enablement strategy. The company is launching AI pilots in Q3 2025 to automate prior authorizations, enhance denial management, and optimize its next-generation call center. These initiatives are designed to streamline operations, reduce operating expenses as a percentage of revenue, and improve both patient and physician experiences. The integration of AI is expected to provide significant operational leverage as the company scales. Additionally, TOI's certification to offer Radiopharmaceutical Therapy in its California radiation oncology practice, targeting a December go-live, is projected to contribute over $1 million to Adjusted EBITDA in 2025, showcasing innovation in specialized treatment offerings that traditionally reside in hospital settings.

Outlook and Risks: Charting a Course for Sustainable Value

TOI's management remains confident in its trajectory, reaffirming its full-year 2025 guidance. The company expects revenue in the range of $460 million to $480 million, anticipating to reach the high end of this range. Adjusted EBITDA is projected to be a loss between $17 million and $8 million, with management having a solid line of sight to the midpoint. Free cash flow is guided to be negative $12 million to negative $21 million, with an expectation to end the year at the lower end of this range due to working capital dynamics. The "North Star" remains clear: achieving positive Adjusted EBITDA and cash flow breakeven in Q4 2025.

This optimistic outlook is underpinned by several key assumptions for the second half of 2025. Quarterly revenue is expected to increase sequentially, driven by the initiation and maturation of new risk contracts, particularly the fully delegated network deal in Florida, continued robust growth in the pharmacy business, and strong organic FFS performance in Florida and Oregon. Sequential improvement in gross margin is also anticipated, stemming from optimized risk margins as new capitation contracts mature, a natural expansion in drug pricing spread, and ongoing optimization of the drug supply chain and clinical formulary management. Management has explicitly stated that the current pipeline of value-based contracts is sufficient to achieve guidance, implying any further contract wins would represent upside.

Despite the positive momentum, investors should be aware of several pertinent risks. TOI faces NASDAQ listing compliance challenges due to its share price falling below the $1 minimum bid threshold, and while it plans to seek an extension, a reverse stock split remains a possibility. Inflation poses a risk by potentially increasing drug, clinical trial, and administrative costs, which could outpace expectations and necessitate additional capital. The company also faces impairment risk for its goodwill and intangible assets if reporting units underperform or economic conditions deteriorate.

Drug pricing reform, such as the Inflation Reduction Act (IRA) and potential Most Favored Nation clauses, presents a complex risk. However, management views these reforms as "net positive" for TOI. As CEO Daniel Virnich explained, "reduction in pricing on our capitated business is obviously favorable for capitated margins... and on the fee-for-service side... we believe there will be some sort of make-whole through rebates or another mechanism to help keep those practices afloat." Furthermore, the trend of PBMs shifting infusion drugs from Part B (medical benefit) to Part D (pharmacy benefit) is also seen as potentially net positive for TOI's Part B-only risk contracts, as it would remove costs from its risk exposure. TOI also benefits from a diversified drug portfolio, mitigating the risk of significant impact from pricing changes or biosimilar competition for any single drug.

Conclusion

The Oncology Institute is in the midst of a compelling transformation, strategically leveraging its specialized value-based care model, robust pharmacy operations, and a forward-looking embrace of technology to drive towards sustained profitability. The strong financial performance in Q2 2025, marked by significant revenue growth and a narrowing Adjusted EBITDA loss, provides tangible evidence of this progress. By expanding its "fully delegated" capitation model into high-growth markets and implementing AI-driven efficiencies, TOI is not merely reacting to industry trends but actively shaping its competitive advantage. The commitment to achieving positive Adjusted EBITDA and cash flow breakeven by Q4 2025, supported by a strengthened balance sheet and a clear strategic roadmap, positions TOI as a compelling investment story in the evolving oncology landscape. While risks persist, the company's proactive management and differentiated approach to delivering high-quality, cost-effective cancer care underscore its potential for long-term value creation.