Starling Oncology’s 2027 Capitated Revenue Guidance and MLR Projections Clash in Q2 2026 Earnings Call

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $161.3M, up 34.6% YOY
• Gross Margin: 16.8%, up approximately 225 basis points YOY

Guidance:

• Full-year 2026 revenue expected to be $650M to $670M, including ~$150M of capitation revenue.
• Full-year gross profit expected to be $105M to $110M.
• Full-year adjusted EBITDA expected to be $2M to $7M.
• Full-year free cash flow expected to be positive $5M to $15M.
• Q3 2026 adjusted EBITDA expected to be positive but muted, in the range of $500K to $1.5M.
• Capitated revenue expected to increase approximately 100% in 2027.

Business Commentary:

Revenue Growth and Profitability:

• Starling Oncology reported revenue of approximately $161 million for Q2 2026, marking a 35% increase year-over-year.
• Growth was driven by strong capitated growth in their specialty pharmacy business, operational efficiencies, and successful negotiations with vendors.

Specialty Pharmacy Segment Performance:

• The company's specialty pharmacy revenue was $98.6 million, representing 61.1% of total revenue and growing 57.6% year-over-year.
• This growth was attributed to increased prescription fill volumes and the ongoing ramp of Florida delegated arrangements.

Adjusted EBITDA and Operational Efficiencies:

• Starling Oncology achieved positive adjusted EBITDA of $0.2 million, compared to a loss of $4.1 million a year ago.
• This improvement was due to continued growth, strong MLR performance on risk contracts, and ongoing cost discipline across the business.

Capitated Contract Expansion:

• The company added approximately 80,000 aggregate lives through new delegated capitation contracts in Nevada and Oregon, representing an annualized capitated revenue of approximately $50 million.
• This expansion reflects Starling Oncology's strategy to grow its value-based care capabilities and establish a broader presence outside of Florida.

Strategic Refinancing and Financial Flexibility:

• Starling Oncology completed a strategic refinancing, replacing a convertible note with a new term facility, improving its liquidity and extending debt maturities.
• This refinancing provided the company with additional financial flexibility to support scaling the business without diluting shareholders.

Sentiment Analysis:

Overall Tone: Positive

• Dan Vernick stated 'We are reporting a very strong second quarter with profitability and completion of a strategic refinancing' and 'We are raising our outlook for the full year.' Rob Carter said 'I'm equally encouraged by the momentum we continue to see across the business.' The tone highlights record revenue, positive adjusted EBITDA, and robust contract growth.

Q&A:

• Question from David Larson (BTIG): Can you talk about the Nevada and Oregon expansions? How did those come about? What does the membership look like, the incremental revenue contribution?
  Response: Two delegated capitation contracts adding ~80,000 lives and ~$50M annualized revenue, with one in Nevada and one statewide in Oregon.

• Question from David Larson (BTIG): Is the MLR in the 80% to 90% range? Any more thoughts?
  Response: Guiding MLR for next 12 months is 80% to 90% overall, with delegated products around 75% to 85% and narrow network products outside Florida at 70% to 75%.

• Question from David Larson (BTIG): Thoughts on the incremental expansion in California and what drove that win?
  Response: Win driven by outperforming on service, access, and care coordination; adds ~230,000 lives and ~$6M annualized capitation revenue, though heavily Medi-Cal with lower cap rates.

• Question from Matt Shea (Needham): Why the rebrand now? Any concerns about confusion or marketing plan?
  Response: Rebranded to reflect the company's evolved identity as a national value-based oncology leader; launched targeted communication campaign to ensure smooth recognition with partners.

• Question from Matt Shea (Needham): On the provider portal, any early marketing or e-prescribing at go live?
  Response: Soft-launched product for network providers in August; e-prescribing for Part D will lag by about a month, going live September to early October.

• Question from Matt Shea (Needham): Is the California exclusivity a trend of partners collapsing split oncology arrangements?
  Response: Primarily a service-related win; experience has been more about winning business from competitors than consolidation.

• Question from Yuan Ji (B. Reilly Securities): Did you guide 2027 capitated business to double, meaning $300 million?
  Response: Guiding 2027 capitated revenue to be approximately $300 million, up from $250 million in 2026.

• Question from Yuan Ji (B. Reilly Securities): Clarification on 2027 capitated revenue and Florida contract push from Q3 to Q4 impact.
  Response: The three new capitated contracts (Oregon, Nevada, California exclusivity) and the delayed Florida launch are unforecast wins that support the raised guidance; still confident in ~$150M capitated revenue for 2026.

• Question from Yuan Ji (B. Reilly Securities): How do you expect covered medical lives in California for 2027?
  Response: Total capitated Medi-Cal lives will increase due to exclusivity win and pipeline; macro shifts in Medi-Cal membership are expected to have a small offset.

• Question from Ben Hainor (Lake Street Capital Markets): Is the specialty pharmacy gross margin increase sustainable?
  Response: Margin benefited from temporary procurement initiatives; expected to come down slightly but remain in the high teens.

• Question from Ben Hainor (Lake Street Capital Markets): Why did the Florida contract slip from Q3 to Q4?
  Response: Delay due to payer processes in getting set up, not related to contract confidence.

• Question from Ben Hainor (Lake Street Capital Markets): Any chance of getting total visits data?
  Response: Total visits data can be discussed.

Contradiction Point 1

2027 Capitated Revenue Guidance

Guidance for 2027 capitated revenue doubled from $500M to $300M.

Yuan Ji (B. Reilly Securities) - Yuan Ji (B. Reilly Securities)

2026Q2: Yes, the guidance is for $300 million in capitated revenue for 2027. - Rob Carter(CFO)

Did you guide the 2027 capitated business to double to $300 million? - Yuan Zhi (B. Riley Securities)

2026Q2: Yes, capitated revenue is guided to $250 million in 2026, doubling to $500 million in 2027. - Dan Virnich(CEO)

Contradiction Point 2

Medical Loss Ratio (MLR) Expectations for Delegated Capitation Products

Guidance for future MLR performance appears inconsistent.

David Larson (BTIG) - David Larson (BTIG)

2026Q2: For the delegated capitation product, MLR is expected to be 75% to 85% once fully ramped. The guidance for the next 12 months is 80% to 90% due to the influx of new delegated lives. - Rob Carter(CFO)

Why is the MLR in the 80-90% range despite other plans showing higher MLR trends? - David Larsen (BTIG)

2026Q1: The MLR (Medical Loss Ratio) for the 2025 cohort of delegated capitation contracts is performing slightly better than the target of 85%. - Daniel Virnich(CEO)

Contradiction Point 3

Timeline and Functional Scope of the Provider Portal Launch

The expected launch timeline for the portal's key functionality (e-prescribing) has shifted.

What questions does Matt Shea from Needham have for management? - Matt Shea (Needham)

2026Q2: The portal is fully launching externally in mid-August... E-prescribing for Part D will lag the initial launch by about a month, coming live in September to early October. No Part D revenue lift is assumed in the current guidance. - Dan Vernick(CEO)

Is the Starling Nexus provider portal on track for a Q3 launch, and have marketing/education efforts or beta testing begun, with e-prescribing functionality available at go-live? - Matthew Shea (Needham)

2026Q1: The portal... provides a path to capture Part D fills from MSO network providers in the second half of 2026, which is not currently contemplated in financial guidance due to timing and attach rate visibility. - Daniel Virnich(CEO)

Contradiction Point 4

Capitated Revenue Growth Drivers and Guidance

Contradiction on whether new market expansions are needed to hit revenue guidance.

Yuan Ji (B. Reilly Securities) - Yuan Ji (B. Reilly Securities)

2026Q2: The growth is based on the launches mentioned (Florida expansion, and the new contracts in Oregon, Nevada, and California), with a robust pipeline for additional growth. - Rob Carter(CFO)

Did you guide the 2027 capitated business to double, reaching $300 million? - Yuan Zhi (B. Riley) - Follow-up

20260313-2025 Q4: The guidance is based on approximately $50 million in run-rate revenue from Florida's delegated contracts plus a healthy pipeline in existing markets. The company does not need to expand beyond its current markets to hit the guidance. - Rob Carter(CFO)

Contradiction Point 5

Medical Loss Ratio (MLR) Expectations

Contradiction on the expected MLR range for delegated capitation products.

David Larson (BTIG) - David Larson (BTIG)

2026Q2: For the delegated capitation product, MLR is expected to be 75% to 85% once fully ramped. - Rob Carter(CFO)

How does the 80-90% MLR range compare to industry trends of higher MLRs in other plans? - David Larsen (BTIG)

20260313-2025 Q4: For new delegated contracts in Florida, an MLR of around 85% is expected by late 2026. - Rob Carter(CFO)