One Medical CEO says pending deal with Iora Health positions company as 'national brand' to reach 40% of Americans

An image outside of a One Medical Clinic
One Medical benefited from a number of market tailwinds in the first quarter of 2021, including high COVID-19 testing volumes and pent-up demand for healthcare services. But executives expect those tailwinds to abate through the rest of 2021. (One Medical)

Tech-enabled primary care company One Medical saw its membership jump 31% in the second quarter to reach 621,000 members, above its previous projections.

The company also reported second-quarter revenue climbed 54% to $120 million compared to $78 million during the same quarter a year ago. Revenue for the quarter came in $2 million above the company's guidance.

The revenue growth was driven in part by One Medical's strong membership growth and the normalization of primary care consumption compared to the same period last year during shelter in place orders, the company's chief financial officer Bjorn Thaler said during One Medical's second-quarter earnings call Wednesday.

Membership revenue during the quarter grew $3.2 million to $21 million, reflecting higher than anticipated membership growth. Net patient service revenue climbed 81% from $24 million a year ago to $43 million. Partnership revenue increased 65% from $34 million during the second quarter of 2020 to $56 million.

The company's stock price rose by 6.62% Thursday following the second-quarter results as revenue beat Wall Street analysts' estimate for quarterly revenue to come in at $115 million.

"We delivered a Q2 care margin of $53 million, or 44% of net revenue, which represents our highest quarterly care margin ever reported even with our ongoing entry into new markets," said Amir Dan Rubin, chair, and CEO and president of One Medical, during the earnings call.

RELATED: One Medical to acquire Iora Health in $2.1B all-stock deal

The company opened 14 new offices during the quarter and continues to prepare to enter six new markets over the next 12 months.

Adjusted EBITDA was positive $7 million, or 6% of net revenue, compared to a loss of $15 million, or 19% of net revenue, during the second quarter of 2020.

"Both our care margin and adjusted EBITDA results showcased the leverage inherent in our model," Rubin said.

"One Medical’s human-centered and technology-powered model continues to resonate with a growing number of employers and consumers, supporting another quarter of outstanding performance delivered by our fabulous team,” he said.

The company now expects full-year 2021 standalone adjusted EBITDA to be approximately breakeven and plans to achieve sustained positive adjusted EBITDA by year-end 2021, a full year ahead of the schedule the company laid out as part of its IPO, Thaler said.

But the company's losses deepened during the quarter, as One Medical reported a second-quarter loss of $41 million, or 30 cents a share, worse than losses of $30 million a year ago. Analysts on average expected a loss of 20 cents per share, so the company missed Wall Street's earnings estimate by 10 cents.

The high-flying primary care company faced government scrutiny for allegedly using vaccine distribution to increase its bottom line and is now facing a new challenge from within: disgruntled employees who have voiced complaints about hiring, compensation and treatment at the company.

More than 500 nonclinical employees at One Medical are trying to unionize and have declared their intention to join international labor union Workers United. Executives did not address the unionization efforts during the earnings call.

Future growth opportunities

During the second quarter, One Medical signed on new employer customers in industries across legal, financial services, manufacturing, construction, insurance, real estate, commerce, software and consumer goods, Rubin said. And the company continues to expand its services, including One Medical Now, One Medical for Kids, Healthy Together Workplace Return Services and Mindset Behavioral Health.

"Of the top 10 largest clients we signed in the quarter, 60% purchased multiple offerings, highlighting our robust solutions that continue to attract and serve a diverse client base," he said. "We're really seeing employers find that an integrated solution, integrating chronic disease management, digital health, vaccination, COVID services, continues to be very powerful. And we anticipate that continuing into the future."

In June, One Medical announced plans to acquire Iora Health, another primary care competitor focused on Medicare patients, in a $2.1 billion deal.

One Medical has largely focused on care for the commercially insured, so a union with Iora Health will broaden its reach into the Medicare space. The deal would expand One Medical's potential market opportunity to $870 billion.

RELATED: One Medical expands reach with employers, plans to grow to 22 markets in 2021

The two companies expect the acquisition would create in excess of $350 million in revenue synergies by 2025 as well as about $30 million in annual net cost synergies in that same window.

Rubin said the company plans to take its core strengths and apply them to further serve the senior population in risk-bearing programs in Medicare through the proposed deal with Iora Health. 

"We think that positions us to really be a premier national brand and healthcare organization," he said.

"We consider the ability to derive profitable membership growth, engage with our members, improve their health and lower their healthcare costs core strengths of One Medical. And we are particularly excited about doubling down on these strengths with Iora and Medicare eligibles," Thaler said Wednesday.

"We believe the Iora acquisition will further enable us to transform healthcare at scale, allowing us to serve nearly 40% of the U.S. population in person in our combined 28 markets, and nationally through our virtual offering, helping us create a national model for exceptional high-quality care," he said.

The company benefited from a number of market tailwinds in the first quarter of 2021, including high COVID-19 testing volumes and pent-up demand for healthcare services, such as annual physicals and deferred chronic care.

RELATED: One Medical contests unionizing employees' 'unsupported and factually incorrect' claims of poor pay, mistreatment

Executives expect those tailwinds to abate through the rest of 2021. "What's baked into our guidance, both for Q3 and Q4, is, thankfully, largely assumed to return to sort of more normal demand patterns with a modest amount of COVID testing for example," Thaler said, adding that the company did not include the potential for COVID-19 booster shots into its financial guidance for the year.

Executives also aren't changing their view on the general cadence of the business due to the delta variant, he said.

The company expects to finish the third quarter with a total membership count in the range of 640,000 to 650,000 members and projects revenue in the range of $113 million to $120 million.

For the full year, One Medical expects to finish 2021 with a total membership count in the range of 670,000 to 680,000 and to deliver annual net revenue of approximately $475 million to $485 million. The company projects a care margin of approximately $185 million to $195 million and annual adjusted EBITDA to be approximately breakeven.