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spk05: Greetings and welcome to the DocGo second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steve Halper. Please go ahead, sir.
spk04: Thank you, Irene. Before turning the call over to management, I'd like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are indeed forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions are used typically to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to certain risks and uncertainties and other factors that may affect DOTCO's business, financial condition, and other operating results. These include but are not limited to the risk factors and other qualifications contained in DOTCO's annual report on Form 10-K, quarterly reports filed on Forms 10-Q, and other reports and statements filed by DOTCO with the SEC to which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. In addition, today's presentation contains references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release as well as in our filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain relevant and operative at a later time. We undertake no obligation to update any information discussed in this call in the future. At this time, it is now my pleasure to turn the call over to Mr. Stan Wachowski, CEO and co-founder of DocGo. Stan?
spk03: Thank you, Stephen, and thank you all for joining us today. The second quarter represented another period of strong operational execution. Our revenues increased 76% year-over-year to $109.5 million. Continued sales momentum and acquisition-based contributions have supported an increase in our 2022 revenue guidance to a range of $425 to $435 million, up from a previous range of $400 to $420 million. We're also raising our guidance for adjusted EBITDA to a range of 40 to 45 million compared to our original guidance of 35 to 41 million. Some of the key factors driving our continued organic growth, including the expansion of our agreements with Carnival Cruise Lines, new municipal programs in New York, new mobile health programs in Los Angeles, and expanded medical transportation business with Northwell. Our mass COVID testing revenues for the quarter were approximately 28 million and are expected to decline significantly in the third quarter. We have already begun offsetting with non-COVID related business in place, and in many cases, the customers will remain the same. An example of this in New York is our transition from mass COVID testing with a municipal client directly into providing primary care at homeless shelters or medical imaging services for that same client. In sum, we expect the transition to these new non-COVID projects to be relatively seamless with minimal impact on revenue generation. On the M&A front, we expect to increase our activity with several prospective transactions in the pipeline about which we are very excited. We continue to pursue synergistic opportunities where prospective targets may be currently outsourcing services which DACO could directly provide. This is in addition to those opportunities which open up new markets and drive enhanced profitability. Our goal is to continue utilizing a strong balance sheet and cash flow from operations to expand the breadth, depth, and profitability of the company portfolio of services. We continue to do an excellent job both securing your customers and deepening those relationships considerably over time. Last quarter, we shared the statistic that approximately 90% of Docco's revenues are generated from customers in the third, fourth, or fifth generation contract, and that trend continues today. This success has occurred across all varieties of customers, from corporations to healthcare systems and municipal accounts. This achievement speaks volumes about our ability to get our foot in the door, provide exceptional value to the customer, and grow that business substantially. We have also significantly enhanced our RFP capabilities in recent months, allowing us to actively bid on larger contracts across the country. While it is too early to quantify expectations, the pace of activity in this channel has more than tripled recently, and we anticipate a meaningful contribution from these efforts as we enter 2023. It is clear that the municipal customer segment will remain a cornerstone of our business for the foreseeable future, providing us with a stable base of revenue upon which we can build. Our direct-to-consumer and corporate health beta tests continue to provide very encouraging results. The direct-to-consumer market represents a tremendous opportunity, and we have partnered with some of the largest payers in the industry, including Aetna, Blue Cross, LA Care. We expect coordinated marketing efforts to begin with these partners in late 2022 and early 2023. One market I would like to take a moment to review in greater detail is a cruise line business, given that it represents a great business study regarding the value of down-to-earth services to the customer. Initially, we entered this market with a relatively small contract to provide COVID-related testing services to Carnival staff in early 2021. By the end of 2022, we expect to be facilitating full spectrum of standard healthcare services for doctors down to lower-level clinicians, a majority of Carnival's fleet. In 2022, we began serving two additional major cruise lines that we expect to follow a similar growth trajectory. The pace at which these initial contracts expanded highlights the attractiveness of DACO's unique model and commitment to customer service. This success is also reflected in our NPS, or Net Promoter Score, which is the gold standard of customer experience metrics. Scores are measured from a range of negative 100 to positive 100, with scores over 30 commonly viewed as good, with over 50 being considered excellent. Our Q2 mobile health NPS score was an impressive 77. which is a testament to our customer's strong perception regarding the value of DACO's service. Another example of continued business execution comes from a major hospital system in Southern California. This customer utilizes DACO's emergency room avoidance program, which attempts to mitigate unnecessary emergency room visits. With our program, we achieved a 35% reduction in ER visits, resulting in a significant financial savings for that institution, and earning bonus payments to DACO for hitting that goal. At the end of the day, our proprietary technology is the lifeblood that allows us to deliver efficient, cost-effective healthcare in a mobile setting. And we are making further substantial investments to support the next generation of functionality. At this time, I will hand it over to Anthony Capone, our president, to provide us some details on that front. Anthony?
spk09: Thanks, Dan. At its heart, DocGo is a technology company. As its former chief technology officer, I've observed our software evolve into a highly sophisticated system. In Q2, we greatly enhanced our dispatching application with the ability to assign mobile health and ambulance resources based upon predictive demand analysis. This sophisticated model allows for increased utilization, thus decreasing the idle time of our mobile units, further enabling our ability to deliver cost-effective health care. Our team also built a highly intelligent machine learning system to help predict reimbursement and help ensure collectability. At DocGo, we build software that is core to our business model and integrate with systems that support our business. In Q2, we completed our integration with one of the nation's largest EHRs, Athena Health. Additionally, DocGo was accepted into the Epic App Orchard as its first and currently only fully embedded mobile health ordering application. Being in the Epic app portrait grants the thousands of hospitals using Epic the ability to order DocGo services directly from within their native EHR. DocGo believes in virtual and mobile-first medicine. To support this vision, we've improved HealthPoint, our patient EHR system, by embedding telehealth support, which ensures a seamless in-app patient experience. Software and automation is at the heart of our company, and over the coming years, DACA will continue investing tens of millions of dollars into our engineering team. Stan, I'll hand it back to you.
spk03: Thanks, Anthony. In sum, after an excellent quarter, we continue to see tremendous growth potential coming from a variety of different avenues in the years ahead.
spk06: At this point, I will hand it over to Andre Oberholzer to address the financial details. Thank you, Stan, and good morning.
spk12: Total revenue for the second quarter of 2022 amounted to $109.5 million, representing growth of 76% as compared to the $62.2 million recorded for the second quarter of 2021. The year-over-year revenue growth was driven mainly by the contribution of revenue from continued expansion of major corporate accounts, new and expanded municipal mobile health contracts, and the expansion of key customer relationships on the medical transportation side, such as Northvale. Mobile health revenue for the second quarter of 2022 amounted to $87.3 million as compared to $33.2 million in Q2 of 21, up approximately 163%. Excluding mass COVID testing revenues from both quarters, mobile health revenue amounted to $59.3 million up from $23.2 million last year, an increase of 156%. Total medical transportation revenue amounts to $22.2 million compared to $28.9 million in Q2 2021. Recurring transportation revenue increased to $20.2 million as compared to $18.7 million in the prior year quarter, an increase of 8%. It is important to note that last year's second quarter included approximately $10.2 million in project-based standby transportation revenue comprising emergency deployments on behalf of different municipal agencies to provide standby services at testing and vaccination sites. These emergency deployments gradually wound down by the end of the second quarter of 2021. During Q2 2022, project-based emergency deployment revenues amounted to approximately $2 million. Mobile health revenue amounted to 80% of total revenue during Q2 this year, which is 53% in the prior year, with transportation as the remainder. Revenue generated by the UK market grew by 45% to $3.2 million during Q2 of this year, representing approximately 3% of total revenue. Net income, amounted to $11.8 million in the second quarter of 2022, which represents a substantial improvement over net income of $100,000 recorded in the second quarter of the prior year. Please note that net income includes a gain of approximately $3 million from the re-measurement of warrant liabilities and $1.4 million in a gain from re-measurement of finance leases. Even after removing these items, net income amounted to more than $7 million for Q2. The net income improvement resulted from a strong increase in revenues during the quarter coupled with improved total gross margin while certain overhead costs related to infrastructure provided leverage as it did not increase in the same proportion as the revenue growth. Adjusted EBITDA grew to $12.3 million during the second quarter of $22 million, up from $3.4 million in the prior year period, even with additional investments required in regional expansion, product offerings, and infrastructure. As a reminder, adjusted EBITDA is a non-GAAP measure, representing earnings before interest, tax, depreciation, amortization, stock-based compensation, warrant and finance, lease liability, revaluation, and other non-recurring expenses. These refer to our earnings release for our reconciliation of adjusted EBITDA to net income. Total gross margin percentage during Q2 2022 amounted to 35.9% as compared to 34% in the same period of 2021. It is important to note that on a consolidated basis, DACA was able to drive year-over-year gross margin improvements despite the negative impacts of inflation on the cost of labor and other cost of sales items. The 1.9% increase in the total gross margin percentage was driven by the mobile health segment, where gross margins increased from 28% during Q2 last year to 39.9% during our second quarter this year. This mobile health gross margin improvement was driven by a combination of factors, including lower lab fees and a continued shift away from higher-priced subcontractor labor, which represented a much lower percentage of mobile health revenues this quarter versus last year's second quarter. Positive improvements were reduced somewhat by higher costs of certain medical supplies. Margins from the transportation segment were 20% during Q2 this year, compared to 22.7% during Q1. Our transportation gross margin this year continues to be suppressed by the impact of higher hourly wages over time and a significant increase in cost of fuel. Transportation gross margins last year benefited from the inclusion of over $10 million in high-margin emergency deployment standby revenues. As of June 30, 2022, our total cash and cash equivalents totaled $208 million as compared to $199 million $179 million as of the end of Q1 this year and the end of fiscal 21, respectively. During the first half of 2022, positive net cash provided by operational activities amounted to $30 million versus $1.1 million cash used in operations during the prior year period. Excluding vehicle leases, outstanding debt amounted to $2.6 million at the end of Q2 versus $1.9 million at the end of last year. In May of this year, DALCA announced a share repurchase program of up to $40 million of common stock. Under this program, we repurchased 70,000 shares at an average cost of $7.10 during the quarter. In terms of the impact of inflation, as previously discussed, we have two major expense categories where inflation may significantly impact our results. Our 2022 guidance provided at the beginning of this year assumed that the average cost per hour of labor would increase by approximately 7% versus the already inflated 21 labor rates, and that the average cost of gas would be $4.30 per gallon. Within the second quarter of 2022, the actual increase in the average hourly labor rate was higher than last year's actual rate, but lower than our assumption, while the average fuel cost per gallon was significantly higher versus both the prior year and our forecasted rates. During Q2 of this year, the negative impact of the increased gas costs was approximately 73 basis points on gross margin compared to the second quarter of 21, with a negative impact of 55 basis points against our assumptions for 22. As for the cost of labor, The year-over-year increase in the average hourly rate was a negative impact of 129 basis points on margins during Q2 of this year. However, the actual average hourly rate was slower versus our 2022 assumption, which resulted in a positive impact against forecasted gross margins of approximately 94 basis points. COVID-related testing and revenue declined to $28 million during the second quarter of 2022, as compared to $38 million in the first quarter. Excluding COVID testing revenue from both Q1 and Q2 of this year, mobile health revenue increased by 13% to $59.3 million in the second quarter of 2022, up from approximately $52 million in the first quarter. As we have indicated before, going forward, we will no longer break out COVID-related testing revenue from total revenues. Adjusted EBITDA amounted to $12.3 million in the second quarter of 2022, approximately 11.2% of revenue, basically in line with the first quarter's EBITDA margin of 11.5%, and above the annual guidance of 9.3% given at the beginning of the year. When the six months ended June 30, 2022, total revenue amounted to $227 million, representing growth of 104% over total revenue of $112 million last year. Adjusted EBITDA for the six-month end of June 2022 amounted to $25.9 million, representing a substantial improvement versus the adjusted EBITDA of $3.8 million last year. Now turning to our 2022 outlook. We anticipate strong demand from our customers for both mobile health and transportation services. Given our strong year-to-date performance, as Stan mentioned earlier, we are increasing our revenue guidance to $425 to $435 million, up from our prior guidance of $400 to $420, and we are increasing our Desert River guidance to $40 to $45 million, up from $35 to $41 million. This represents revenue growth of 33% to 36% year-over-year, while adjusted EBITDA would show improvement as a percentage of revenue to approximately 10% this year versus 7.9% during fiscal 21. In terms of segment revenues, we expect that the mobile health segment will continue to contribute approximately 74% to 76% of revenues with medical transportation as the remainder. That concludes our prepared remarks.
spk06: At this time, we will ask the operator to open the call to questions. Thank you. Thank you.
spk05: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
spk06: Our first question is from Richard Close of Kennel Court Genuinity.
spk05: Please go ahead.
spk07: Yes, thanks for the questions. Congratulations on the continued success. Andre, I was wondering maybe just some housekeeping. Is there any way you could provide us the transport volumes and pricing for the quarter? And then as we think about the growth rate, in transportation on the recurring revenue side. I'm just curious your thoughts on the 8% growth. Should we be looking for something greater than that going forward or how should we think about growth on recurring revenue in transportation?
spk12: Hi, Richard. In terms of the actual volume and the price per trip, At this time, we have not disclosed that. That will be in MD&A tonight. It will be filed with the HHC. When you see the results, you will see both an increase in the trip volume as well as the increase in price per call, which drove the 8% increase year-over-year. That excludes the project-based revenue, so just recurring. We still feel, as in the past, that transportation year-over-year will grow around 30%. We do not see that trend changing at this point in time.
spk03: Let me add to that, Richard. Richard, it's Stan. Good to hear from you again. Also, as we've discussed earlier, our business model has evolved over the last several years where the metric of quantity of trips per day is really no longer relevant because of the way we charge our customers. what we refer to as our leased hour program. So we get paid the exact same dollar amount by the customer. They're paying us at a minimum rate per day, which includes vehicle, cruise, supplies, everything. So if we do one transport or if we do seven transports with that single vehicle for that one customer, our compensation for that day is the same. This helps mitigate days that are quieter versus days that are busier, brings some consistency, and allows us to better forecast our business. It also allows the customer to be assured that they have dedicated resources versus on-demand resources that in the past have proven to be somewhat non-reliable.
spk07: Okay. And then, but 30% is a good growth rate in transportation? Yeah.
spk03: I just want to, okay. Yeah, we're still going to stick with 30% growth for the year in that range.
spk07: Okay. And is there any non-recurring revenue in the third quarter of 2021 that we should be aware of?
spk03: Well, Richard, it's kind of hard to project. Right now, we're not projecting much, but the reality is that there could be a hurricane tomorrow. There could be a forest fire in California where we get notified by FEMA. We get notified by state agencies to come in and assist. Those are project-based, one-time type services. They happen several times throughout the course of the year, but projecting them is quite difficult. But we're always going to be super conservative and say that we can accomplish our growth target with what we can rely on, which is our contracted business. We don't know if Q3 is going to have that one-time, call it project-based emergency response that we've had in the past. Odds are we'll probably have a little bit of it there, but no way to gauge on how much of it will be in Q3.
spk12: In terms of last year, Q3 did not have any significant project-based revenue. Most of that work wound down by the end of Q2 last year.
spk07: Okay, that's very helpful. Thanks, Andre. And then, Stan, on the M&A opportunity, maybe if you could just dive into that a little bit more. Based on your comments, it somewhat sounded like You guys are seeing opportunities on the mobile health side, maybe with some additional services. Did I hear that correctly or just any thoughts on M&A?
spk03: No, you're absolutely right, Richard. Our focus on M&A is mobile health services. We think there will be opportunities. We're starting to see more and more opportunities. approaching us. We hope to execute in the near future on some of these opportunities. We'll always acquire licenses and small little companies on the transportation side because that's just the most effective way to get a license and break into a market. You can file for one, but you can wait six, 12, 24 months if you're working through the municipality for a license. where you can spend a few hundred thousand dollars and acquire a small company and then just use that license as a starting point. So there'll always be some, you know, call it license acquisitions on the transportation side, but we are reserving most of our, call it, capital for a significant amount of M&A activity in the future around mobile health. That's the space that we're mostly excited. It's a very fast-growing space we see you know, endless amounts of possibilities. We see lots of areas that we're very interested in, that we've proven to be very effective in, and that's how we're going to put our capital to work.
spk05: Our next question is from Mike Latimore of Northland Securities. Please go ahead.
spk11: Great. Thanks, Jack. Congratulations. Excellent execution again. So I guess just on the guidance, In the press release, it says guidance increases based on organic growth and M&A activities, which occurred subsequent to the quarter end. It kind of sounds like you've already made an acquisition, or am I interpreting that incorrectly? No, your assumption is correct.
spk03: We've made what we call, we use the term tuck-in acquisitions, small acquisitions that give us licensing capabilities. So we haven't spent any material amount of money. We haven't acquired any material amounts of revenue. But we're always, I mean, historically by five, six, seven little companies, we use their licenses as launching points. And, you know, we haven't done anything called material, Richard. I mean, Mike. But, you know, historically you look at our patterns, you know, every quarter we always buy a small little mama pop out somewhere for their license.
spk11: Yeah. So, so most of the increase relates to organic activities.
spk03: Virtually all of it. I mean, a very, very small amount of it. Yeah. And you also have to understand a lot of times we'll acquire a company that may have a couple of few million dollars in revenue, but it's not the kind of business we want to keep anyway. Um, so we'll, we'll release that revenue and, and, you know, focus more on the way we want to conduct our business.
spk11: Okay. Great. And the, uh, obviously the gross margins are great. Um, Should we view them as relatively maintainable at these levels, or are there room for expansion the second half of the year?
spk03: Well, the reality is we're always going to try to make them better. We still pay premium for staffing. As the market is talking about contracting on staffing, we're doing the opposite. We're hiring full speed ahead. We're paying recruiter fees. We're paying staffing agencies fees. We're still giving up a lot of margin that over time I think will stabilize and that will help drive continued improvement of our gross margin. We've always said mobile health ideally should be somewhere at about 42, 43% gross margin and transportation slightly below that. So there's still room for growth and improvement.
spk11: Okay. And then just last on the, I think you said you're hiring, you want to hire 600 people by year end. How many of those are, you know, sort of net new versus replacing a staffing agency person?
spk03: All 100% are incremental to our current headcount. So whatever we have right now, we're not, that 600 does not include, you know, replacement from attrition. You know, just based on current workload contracts that we've executed with start dates already agreed to, work that we're anticipating in the second quarter of the year, our need for clinicians and operational staff is quite strong. We have a recruiting group of over 20 people. We have a whole bunch of agencies that help us bring candidates. So we're continuing to hire as aggressively as, almost as aggressive as last year.
spk12: Mike, I just, this is Andre. I just want to clarify something for mobile health. We still price contracts with a desired margin around 50% to 53%. And based on the improvement you saw in Q2, using their subcontractor labor, we are on that path towards those desired margins.
spk06: Correct. Thanks for that, Andre.
spk05: Our next question is from Sarah James of Barclays. Please go ahead.
spk01: Thank you. So you guys had a really strong quarter as far as contract signing goes. I think you flagged Carnival, LA Care, and Empire Blue Cross in the release. Can you give us any idea on the size of those or how we should think about modeling new contract ads as far as transportation revenue growth goes?
spk06: That's a great question, Sarah.
spk03: We don't really provide details down to the customer level. Our agreements with our customers prohibit us from sharing that kind of information. In terms of modeling, all I can say is we have a very good, strong track record of meeting and beating our guidance. You know, we feel very comfortable with the municipal contracts, the hospital contracts that we've signed. You know, the percentage of customers that are migrating from COVID-related work to non-COVID-related work is extremely high, well over 80%. And... I would just say that municipal work will continue to be our biggest contributor throughout the country. We have some very unique programs that I think differentiate DOTCO from other medical providers, and then followed by hospitals and insurance companies from there. Andre, anything else you want to add to that, or what do you think, Andre?
spk12: That sounds good. I mean, year over year, you know, we see this year about 30 to 36% growth, and, you know, that's kind of the contracted system that has the growth.
spk03: Let me just add one more thing. We talk about 30, 36% growth, but that's if you take, you know, the number of 319 from last year compared to the guidance that we provided this year. The realities are That 319 number from last year has about 40, 50 million of COVID testing that's not going to replicate in this year. So if you take that 319 number down to, let's say, 250, you know, that's the real incremental business that we're out there securing. So it's been a wonderful year. We're very excited about the year. The demand for our services continues to be very strong. We provide clinical services in a way that our competition does not. extremely innovative and very tech-enabled. So it's 30-35% if you look at it from end of last year. But in reality, that number is closer to 50-60% if you remove last year's second half portion of the COVID testing, which we did not see as a major contributor this year.
spk01: That's very helpful. Could you give us a little color on your pipeline for new clients, either municipal RFP pipeline or conversations with providers? How does that compare to last year?
spk03: Strong, extremely strong. You know, one thing that we've said before, you know, something that we're very happy about is the remaining of the COVID business is really only two call it customers to major customers left that we do mass COVID testing for. And one of those agreements expire early September. And the other one, the second one is extremely small. Something that we're just super proud of and I think speaks a lot to our company's efforts is that same exact customer is migrating from a COVID program to a pure mobile health traditional type program. and the personnel and the revenue that they contributed will remain working. There will be no layoffs. They'll just simply come in, get some additional training in-house, and then be redeployed, a lot of times working for that exact same customer. We've accounted for all of the revenue that we expect to lose from the mass COVID testing sites for the second half of the year. And all of that revenue is going to be traditional mobile health, nothing to do with COVID testing, COVID vaccinations, or anything related to COVID.
spk06: Our next question is from .
spk05: Please go ahead.
spk08: Hi there. This is on for . Thanks for taking the question. Just wanted to ask on margins again. I heard your comments on the strong 2Q gross margin, and you think that can be maintainable going from here, but it looks like the guide suggests at least some step down in 2H, so just wanted to get a feel for is that just kind of the roll-off of the COVID testing revenue or some conservatism around the labor and fuel costs, or can you just talk a little bit more about kind of that move in margins for in the 2H?
spk06: Andrew, you want to take that?
spk12: Sure, I'll give it a go. So in terms of the COVID testing reduction, there's no real impact on gross margin because everything we price on mobile health that includes COVID testing, and it is mass testing, not consumer, we priced at about the same margin between 50 and 52.56. So as we roll off the COVID program and roll into a mobile health replacement program, there's no real change in the margin shift. For the second half, you know, we continue to look at inflation. Gas prices, you know, did surprise us more than we planned on during Q2, so that cuts us a couple of basis points. Labor is still holding. But, you know, we always want to give guidance that includes, you know, some conservatives. There's no real margin decline that we plan on other than, you know, looking at inflation and thinking about the impact of inflation in the second half.
spk08: Got it. Okay.
spk03: I would just add that, you know, traditionally we've been always very conservative when it comes to revenue and EBITDA guidance. Internally, we always plan for the worst, and those are the numbers that you're seeing. Ideally, we hope for the best. If we see an improvement, we'll go ahead and then raise guidance one more time if that opportunity arises at the end of the next quarter. But in general, our company cultures try to be conservative, expect the worst, and hope for the best.
spk08: Got it. Thank you. And then if you could just give us any quick update on, is there any seasonality to watch for on the transportation side in 3Q and the 4Q? And just kind of how did that business track versus your internal expectations this quarter? I think you took down, you know, that transport mix as a percentage of total by one percentage point. I'm guessing that's just kind of some outperformance there. on the COVID revenues within mobile health. But did that kind of live up to what you guys wanted to see there in 2Q?
spk03: Thanks a lot. Yeah. Look, we see a lot of value in our transportation business. That part of our business is getting smaller a little bit. It may continue over time. We'll see. We like that business because it's recurring. It's steady. It's almost annuity-like. It also gives us access to a lot of patients that may down the line require our mobile health services. So, you know, naturally we focus our energy, we focus our strength in our higher revenue, higher gross margin, more profitable business, which is mobile health. But we are still strategically committed to our transportation business. We still see good, steady growth in that business. And what we're very busy with doing is we transport tremendous amounts of thousands of people every single day. So what we're very busy in doing is saying, hey, we've got a person in our vehicle. We're taking them home. We know why they're being released. Well, what other services can we now offer to that patient? And ultimately take a patient that was purely transport revenue and have that patient contribute in the future to our mobile health.
spk06: And that's the kind of stuff that we're always thinking about and innovating. Our next question is from Ryan McDonald of Needham. Please go ahead.
spk02: Thanks for taking my questions and congrats on a great quarter. Stan, first one for you. It's great to see all the success you're starting to have in the payer end market, but now accessing member populations really starts to flex a new muscle for DOTCO in terms of needing to market to members within that population. I would just be curious how that's going thus far in the beta test and you know, maybe what your expectations are as this grows, what sort of penetration you think you can get within those member populations. And then lastly, are you assuming any revenue or much revenue contribution from these contracts in the back half of this year? Thanks.
spk03: Hey, Ron. Good to hear from you again. The reality is we do not assume any revenue or any significant revenue from those pay years for all the rest of 2022. We see a little bit of contribution in 23. We see a lot of potential in that space in our direct-to-consumer future offering. The results are coming in very strong. But, Ryan, as you can imagine, we don't do anything traditional. And we realize that in a traditional direct-to-consumer offering, the customer acquisition costs can get very high. We know that. So we are working and thinking very creatively how do we reach out to millions of patients that can benefit from our service but doing it in a nontraditional way that allows us to have access to high amounts of people at a very low cost. And until we figure that out, you know, we're going to keep on trying various different things. Right now, the pilots are going very well in New York and New Jersey. I would say tracking a little bit ahead of plan where we had expected. But we still have a long way to go to really come up with a direct-to-consumer plan that we feel super, super confident about. And then once that happens, and we hope that will happen sometime in 2023, that will open up a tremendous TAM that we're not even tapping into right now.
spk02: Really helpful, Keller. Stan, thanks very much. And then maybe just as a follow-up, I thought it was interesting to hear about the updated technical integrations with Athena Health and then being accepted into the Epic App Orchard. I'd be curious, in your conversations with health systems, how much in the past has this been maybe a gating factor that might have prevented opportunities from materializing? And what do you think the impact is to the pipeline you know, having these natural integrations with two major EHRs now. Thanks.
spk03: Ryan, I'm going to let Anthony Zipone, our president, answer that. Go ahead, Anthony. Thanks. Yeah, thanks, Stan.
spk09: So one of the biggest, I would say, issues that many companies run into when they work with health systems is they try to convince the health system to use their software. So it's a whole new application, and a hospital system may have thousands, tens of thousands of employees, and they're trying to get those tens of thousands of employees to use their new web portal, their new application. When you embed inside of their EHR and you eliminate all of that, so it's single sign-on, it's a click right from the patient's chart, it's seamless integration of data of all the patient's demographics, payer details, and and charting information, HMP, all of that comes straight into your application, the barrier is pretty much non-existent at that point. That's what the Epic App Orchard allows us to do. Now, many people go into the Epic App Orchard, it's really just a link that you're inside of Epic, and then it launches your application. That's not the route we took. We took the route where the entire experience, end to end, start to finish, is inside of Epic, and then all of the data goes back into Epic so that the health system can do all of their reporting and KPIs, metrics inside of their application without having to come to us for any of that. So that really, really eliminates the barrier. As far as the second part of your question about what it opens up to, well, Epic is the most widely used and the fastest growing EHR in the hospital health system space. And that is very encouraging for us because the Epic App Orchard is now available to anyone that's in that space.
spk03: And Ryan, let me add to that. Coming into a hospital system, a major hospital system, and sharing with them an offering that we would like to do with them and telling them they can further leverage their investment that they've already made in Epic by utilizing our tech. It just makes the sale so much more attractive than anything else a competitor might be able to offer. In terms of barriers of entry, getting that integration completed took years. It took millions of dollars, and most importantly, it took major hospital systems lobbying on our behalf with Epic to get the support we needed to complete this endeavor. This was very, very complex, expensive, and time-consuming, and the only reason why we were able to achieve it is because large hospital systems that we have working relationships with log it on our behalf. Our competitors today don't have that advantage, and that's something that we're very excited about and something that we think will continue to contribute to our growth in the future because we're telling hospitals, hey, just further leverage what you've already spent hundreds of millions of dollars on by using our services.
spk06: Our next question is from Craig Jones of Stifle.
spk05: Please go ahead.
spk10: Hey, thank you. So, Stan, you mentioned how that your main COVID, mass COVID testing partner was rolling into just a mobile health contract. So of that $28 million that you did in 2Q of the mass COVID, how much of that are you modeling in for 3Q and 4Q, whether it's mobile or COVID or however you want to classify it? Very little.
spk03: We basically just have, you know, through August, a couple of days in September, and then that entire program goes away. You know, so you're looking at, you know, we don't give segment reporting out on particular projects. But what I would say is, you know, very minimal mass COVID testing revenue going forward. And that is the reason why, as Andre mentioned, we don't really plan on reporting it as a separate line item going forward. It's way below the level of materiality, and it's just way too much effort and way too much work to continue doing. You know, something that generates a few million here and there is not worth separating out for us.
spk10: Yeah, sorry, maybe I didn't ask that well enough. I meant, so your client is transitioning to mobile health. How big of a quarterly revenue contributor will they be from a mobile health perspective?
spk03: From that aspect, I would say you can basically model out very similar, if not maybe a little higher, to what they were contributing in terms of revenue while they were doing COVID testing.
spk10: Okay, so the majority of the $28 million should keep going just under a different contract under mobile?
spk03: under a different contract on the traditional mobile health services. Correct.
spk10: Okay.
spk03: Got it.
spk10: And then on the, on the carnival side, um, you know, I think the, the mobile health grew something like four 13, 14% sequentially excluding COVID was the majority of this, um, carnival ramping. And then you think about sort of the ARR, you know, how far, how close are we to getting, you know, I guess, where is it right now from a either monthly or annual perspective? recurring and then, you know, how high can it get?
spk03: You know, Carnival was definitely a contributor. We have other cruise lines that are contributors. We have other hospitals and municipalities that are contributors. But another way that you may want to consider looking at it is that all of the COVID, or the very vast majority of the COVID testing revenue is going to become mobile health revenues. So whatever growth you're seeing right now in mobile health, that excludes mass COVID testing. In the future, you can basically model out that that revenue will become part of mobile health and that percentage of mobile health growth will increase nicely going forward in Q3 and Q4.
spk10: Got it. Okay, so then if we look at the guidance, it looks like it's implying, you know, sequentially lower 3Q and 4Q versus the first half for mobile health, or I guess for, yeah, probably for mobile health. So if that customer is largely transitioning from, you know, mass COVID to mobile, what's driving that headwind there for why that would decline sequentially?
spk03: You know, so kind of like we mentioned earlier, we're always taking a very conservative approach. Many things can happen during the transition. We feel very good about the way the second half of the year looks. But naturally, you know, we are taking a conservative approach. And at the end of the third quarter, if we're a bit too conservative, we'll once again go ahead and raise guidance.
spk06: Okay, got it. All right, that's good enough. Thank you, Aaron. That's all from me today. Our next question is a follow-up from Richard Close of Kennecourt Genuity.
spk05: Please go ahead.
spk07: Yep, thanks for the follow-up. Stan, I was wondering if you could talk a little bit about the RFP. You made some comments there about activity growing. Mm-hmm. Can you just dive in a little bit more on that? Is anything baked into your guidance or is that all upside? And on those type of contracts, how does a typical contract look like on that side?
spk03: Well, in terms of baking anything into our guidance, the answer is no. You know, we base our guidance on contracts and agreements. that we feel very confident about. On the RFP side, we have access to lots of municipal and government systems that allow us to see what needs are throughout various municipalities throughout the country. We probably have the most amount of experience in the large medical programs of anyone out there today. And we have wonderful clients that are willing to be our references for those types of services. So we've seen a 3X growth in our responses in those RFPs. We win some of them, and they could be small contracts, but we now really are focusing into some of the large ones. You know, contracts by the CDC, Department of of homeless services and there's municipalities, border patrol. There are medical services by very large agencies, dozens of them that come out every couple of months. And more than ever, we're responding to those and slowly we're starting to win a couple.
spk06: Okay, thank you.
spk05: Ladies and gentlemen, we have reached the end of the question and answer session, and I would love to hand the call back to Stan Wachowski for closing remarks.
spk03: Okay. Well, this concludes our call this morning. We began 2022 with a clear and significant momentum across our businesses, and I'm optimistic that we have set the stage for a very successful year. I look forward to our next quarterly update in November.
spk06: Thank you, everybody, for joining us. This concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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