Unprecedented Medical Cost Trends and Impact on Margins
The second quarter 2025 medical cost ratio (MCR) was 90.4%, reflecting an unprecedented environment of rising medical costs across Medicaid, Medicare, and Marketplace segments.
Cost pressures are driven by behavioral health, high-cost drugs, inpatient and outpatient care, with trends surpassing rate updates and risk corridor protections.
Management emphasizes the effectiveness of cost control protocols despite the higher intake volumes and persistent cost increases.
Strategic Focus on Advanced Practitioner Model and Center Utilization
The company operates 170 infusion centers with over 750 chairs, actively expanding their utilization for both home and center-based care.
Progress in deploying nurse practitioners for complex and high-acuity patients, including oncology and neurological disorders like Alzheimer's.
Centers are being optimized for better nurse productivity, with utilization increasing from 17% to over 35%, enabling more efficient care delivery and capacity expansion.
Adjusted EBITDA was $46 million in Q2, surpassing guidance range of $10 million to $18 million, with a margin of 4.5%, expanding 360 basis points year-over-year.
Adjusted gross profit was $135 million, a 76% increase year-over-year, with a consolidated MBR of 86.7%, improving by 200 basis points.
Adjusted SG&A ratio improved by 160 basis points year-over-year to 8.8%.
Balance sheet ended Q2 with $504 million in cash, cash equivalents, and investments.
First half 2025 adjusted EBITDA was $66 million, exceeding the high end of initial full year guidance ($35 million to $60 million).
Health plan membership reached 223,700 members in Q2 2025, a 28% year-over-year increase.
Total revenue for Q2 2025 was $1 billion, up approximately 49% year-over-year.
Recognition of Top-Ranked Rehabilitation Hospitals and Strategic Development Achievements
Eight hospitals recognized among the nation's best by U.S. News & World Report, with Kessler Institute for Rehabilitation ranked #4 for 33rd consecutive year.
Opened new facilities including a 12-bed hospital with UPMC in Pennsylvania, a neuro transitional care unit in Missouri, and expansions in Florida.
Plans to open multiple new hospitals in 2026 and 2027, including partnerships with Banner Health and Cox Health Systems, with a focus on high-demand markets.
Cash and investments totaled $912 million at quarter-end; $560 million in convertible notes due later this year will be retired with cash on hand.
General and administrative expenses rose 17% to $44 million, driven by higher share-based compensation and personnel costs supporting the lung cancer launch and company build-out.
Gross margin was 74%, down from 77% in Q2 2024, mainly due to rollout costs of the HFE array and non-small cell lung cancer launch prior to broad reimbursement.
Net loss was $40 million with a loss per share of $0.36; adjusted EBITDA was negative $10 million.
Net revenues were $159 million, a 6% increase from Q2 2024, driven primarily by 7% active patient growth in the GBM franchise and double-digit growth in international markets.
Research and development expenses were $56 million, up 2% year-over-year, with no expected material step-up this year due to shifting trial spend.
Sales and marketing expenses were $57 million, a 1% increase, reflecting incremental launch costs for non-small cell lung cancer mostly offset by lower stock-based compensation.
The company plans to draw $100 million from its credit facility in September as part of a four-tranche agreement, with the first two tranches obligated to be drawn.
Impact of the Big Beautiful Bill on Pediatric and Neonatal Care in Non-Expansion States
Management expressed cautious optimism about the legislation's phased implementation, noting that 60% of their volume resides in non-expansion states.
They believe the bill's initial wording suggests minimal impact on their core patient populations—pregnant women and children—since it primarily targets other demographics.
Management highlighted the importance of legislative details yet to be announced, but they are actively engaging with policymakers to advocate for their interests.
The company’s confidence is based on the bill's focus on different population segments and their strategic positioning in non-expansion states, which may shield them from significant cuts.
Revised Financial Outlook and Impact of Portfolio Actions
The company now expects a $6.5 billion increase in 2025 medical costs versus initial estimates, with specific impacts in Medicare ($3.6 billion), commercial ($2.3 billion), and Medicaid.
Approximately $1 billion of previously planned portfolio actions are no longer being pursued, affecting the outlook.
Recognition of $850 million in unfavorable prior period items and one-time settlements, indicating a more challenging financial environment than initially projected.
Dafinchi
