Starling Oncology, Inc. Common Stock 2026 Q2 Earnings Call

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 30th, 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 will turn the call over to Dan.

Thank you, Minh. Good afternoon, everyone, and thank you for joining our second quarter 2026 earnings call. We are reporting a very strong second quarter with profitability and completion of its 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 capitated growth in our specialty pharmacy business. I am 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 am pleased that the progress continued in Q2 as we negotiated fee reductions with another key vendor partner that will substantially lower our cost to collect on non-capitated encounters and resulted in over $1 million in OpEx savings annualized at our current size. As discussed on our last call, we are launching our new provider portal, Starling Nexus, in mid-August. We 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 network 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. 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. 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 are 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 with another entity. This added approximately 230,000 capitated lives and an estimated additional $6 million annualized capitation revenue in addition to associated Part D growth.

Lastly, our statewide payer relationship in Florida that we announced on our Q2 call has been pushed from Q3 to Q4 in terms of effective date. 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 which 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 from the balance sheet. 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 fill volumes as we bring new capitated 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. 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.