DocGo Inc.

Thank you for standing by. This is the conference operator. Welcome to the DocGo 3rd Quarter 2022 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Mike Cole, Vice President of Investor Relations, please go ahead, sir.

Thank you, operator. 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 forward-looking statements. The words anticipate, aim, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions are used to typically 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 DACA's business, financial condition, and other operating results. These include but are not limited to the risk factors and other qualifications contained in DACA's annual report on Form 10-K, quarterly reports filed on Form 10-Q, and other reports and statements filed by DACA 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 call contains references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures are mostly most directly comparable. GAAP financial measures are included in our earnings release, which is posted on our website, .go.com, as well as in our filings with the Securities and Exchange Commission. The information contained in this call is accurate as of only the date discussed. Investors should not assume the 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, Chairman, and Co-Founder of DOTCO. Stan, please go ahead.

Thank you, Mike, and thank you all for joining the call today.

The third quarter represented another period of strong operational execution as revenues increased 22% year-over-year to $104.3 million. Continued sales momentum and acquisition-based contributions have supported an increase in our full-year 2022 revenue guidance to a range of $430 to $440 million. up from a previous range of 425 to 435 million dollars. We are also increasing our adjusted EBITDA 2022 guidance to a range of 41 to 46 million dollars, up from a previous range of 40 to 45 million dollars. Overall, we did an excellent job transitioning our mass COVID testing customers to various other long-term mobile health programs. We estimate that mass COVID testing accounted for mid-single digits on a percentage basis of total revenues during the third quarter, compared to approximately 35% of revenue in Q3 of 2021, and the last of these contracts concluded in September of this year. Many of these new programs are centered around population health, which has become a very hot topic with municipal, state, and federal programs. We are seeing substantial increased budgets in this segment, and DACO's low-cost health delivery model is ideally suited to meet this need going forward. At this time, I will turn the call over to our President, Anthony Capone, to discuss operational progress and our growth initiatives as we head into 2023.

Anthony. Thank you, Stan, and thank you all for joining the call today.

On the operational front, this is an incredible, exciting time at DocGo. Not only do we continue to grow our existing mobile health and medical transport businesses, but we are also developing new markets that we expect to contribute to our next leg of growth in 2023. DocGo has now solidified its offerings and gained sufficient experience in each service line to support a scalable growth strategy. It's important to understand added essence why DocGo's mobile medical solution is a key part of society's future. In the past, doctors used to provide most care to patients in their home. This allowed for more comprehensive care, which factored a patient's environment and family directly into their treatment plan. Society moved doctors into hospitals, not because it was better, but because it was more cost efficient. It became untenable to have highly paid clinicians travel to everyone's homes. DocGo's model solves this using well-trained doctors. cost-effective clinicians who bring care to patients where they are, when they need it, under direct video supervision of a remote advanced medical provider. It's cost-effective, but high-quality care delivery model allows society to return to the days of comprehensive, holistic care at an affordable cost and is becoming increasingly recognized for its innovativeness. Another example of DocGo's innovation is our show program with New York City, which was selected as a finalist for Fast Company's World Changing Ideas and is currently a finalist for the UCSF Digital Health Awards. DocGo's clinical innovation is going to accelerate even faster with the addition of Dr. Jim Powell, the new CEO of our Managed Clinical Practice Group. Dr. Powell is not only a renowned clinical innovator, but we believe he's one of the best primary care doctors in the country. Lee Beanstock, who joined us as chief operating officer from Google earlier this year, has pushed our growth efforts into high gear. This past quarter, we saw some great organic growth within both our mobile health and transport divisions. In August, we launched a pilot with Dollar General in Tennessee to provide primary and urgent care services to their customers via a mobile health clinic parked in their store parking lot. While it is still early in the pilot phase, we are excited about the potential of this relationship, given Dollar General's massive national footprint. In September, we converted our last mass COVID testing contract into a community pharmacy program, which dispenses medications such as Paxlovid. I'm pleased to announce that at this time, we currently have no active mass COVID testing contracts. DOTCO does have a number of standby mass COVID testing surge contracts, which could be activated in the event of a COVID surge. However, this resurgence is not planned for and is not part of our financial forecast. In September, we also began providing health care to the arriving migrant population here in New York City that has been in the news lately. This migrant health project has since grown into a long-term contract where DACO is managing a comprehensive set of services for asylum seekers within their shelters. It's important to note that all of these new projects come with initially higher expenses. The initial launch expense is primarily driven by temporarily higher labor rates, as well as costs associated with increased management oversight related to new project launches. These initial launch expenses begin decreasing after the first 30 days and fully normalize after 90 to 120 days. In addition to organic growth, our acquisition strategy has proven to be quite successful. Under the leadership of Ben Sherman, our EVP of corporate development, we acquired three high-potential companies in Q3. Our strategy and how we define synergy, is that day one post transaction, the acquired entity has the ability to derive significant revenue from DocGo's existing customer base. A perfect example of this is Exceptional Medical Transport. Exceptional's largest customer is now Jefferson Health, with whom DocGo has had a strategic partnership for over three years. Another example is that one of government medical services' largest customers, is now in New York City Health and Hospitals, with whom Bako has built a robust relationship. Our team has proven that we can not only acquire licenses and capabilities at great value, but also execute against that potential value to capture an increasing portion of the addressable market. The foundation of our company, though, is technology. We have spent over $3 million this year and over $1 million in the third quarter alone to build sophisticated proprietary technology that's used by our highly capable clinicians. Our world-class engineering team under the direction of Hawk Newton, our chief technology officer, and Aaron Sievers, our chief product officer, delivered some incredible tech this quarter. Not only did they get Docco's B2C on-demand mobile healthcare app released into the iOS app store, but they also got Docco's B2B mobile health app released into the Epic App Orchard. Q4 and 2023 are going to be even more exciting as we enter into 2021. remote patient monitoring, or the RPM market. In early October, we announced that we launched our first pilot program associated with this effort with WestPace out of San Diego. WestPace is a program focusing on person-centric care that reduces emergency room visits, unnecessary hospital admissions, and long-term nursing home claimants, all while reducing the cost of care. Obviously, this aligns ideally with DACA's model of care, and this is a relationship and an industry that we are tremendously excited about. What makes the RPM market especially attractive to DocGo is our ability to not only monitor these patients who often have chronic issues, but to also utilize DocGo as mobile conditions to avoid costly and unnecessary hospital admissions by treating that patient in comfort in their own home whenever possible. Additionally, if medical transportation is required, we can provide that service as well. Through our contract with payers, DocGo has the opportunity to service over 10 million covered lives. We plan to leverage these relationships to capture additional RPM customers. DACO is uniquely positioned to provide end-to-end solutions to this industry, from monitoring to telehealth to home visits by over 4,000 clinicians to patient transportation when needed. We plan on making considerable investments in this space, both via M&A and also by leveraging more than 50 people on our product and engineering team to establish a significant presence in this market. Last quarter, under the direction of Lee, we undertook a significant push to compete for larger RFP opportunities. The length of time to work through these types of RFPs process varies, but on average, most tend to run about six months. Given our pace of activity in this channel increased greatly earlier this summer, we expect to see benefits of those activities in early 2023. Some examples of the types of projects we are bidding on include providing mobile infectious disease Response teams in a major metropolitan area providing medical transportation services for a major national payer, and separately, a large hospital network in the Northeast. As always, no assurances can be made that our efforts will be successful, but we are excited about the potential contribution from this channel next year. The growing stable of payer relationships we have developed also has tremendous potential as we enter into 2023. In the third quarter, we announced a new agreement with Sigma to provide urgent care and support annual physical type services to their member population in certain areas of New York and New Jersey. If successful, these are the types of relationships which have the potential to expand rapidly. Our goal is to continue nurturing these relationships from the current pilot phase to become trusted vendors servicing their broad member populations across the US. Over time, DocGo has demonstrated a consistent ability to get our foot in the door with high profile customers, deliver upon our goals and grow these customers into significant revenue generating relationships. As we approach 2023, this is exactly what we are working towards. Continue to grow our core business while planting the seeds for significant growth opportunities in a low risk manner. In that regard, we are in a great position. At this time, I will hand it over to Andre to review the financials from this quarter. Andre?

Thank you, Anthony, and good afternoon. Total revenue for the third quarter of 2022 amounted to $104.3 million, representing growth of 22% as compared to the $85.8 million recorded for the third quarter of 2021. The year-over-year revenue growth was driven by a combination of same-store sales, new customer additions, and inorganic growth through the acquisition of licenses and capabilities in various markets. Mobile health revenue for the third quarter of 2022 amounted to 76.6 million as compared to 67.9 million in the third quarter of 21, up approximately 13%. Mass COVID testing-related revenues accounted for mid-single digits as a percentage of total revenue Global health revenue amounts to 73% of total revenue during Q3 this year, versus 79% in the prior year with transportation as the remainder. Revenue generated by the UK market grew by 15% to 3 million during Q3 of this year, representing approximately which represents a substantial improvement over net income of $800,000 recorded in the third quarter of the prior year. Excluding a loss of $1.8 million on the remeasurement of warrant liabilities in the third quarter of this year, net income would have been $4.3 million. The net income improvement resulted from 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. Double gross margin percentage during the third quarter of 2022 amounted to 31.7% as compared to 30.1% for the same period of 2021. It is important to note that DACA was able to drive year-over-year gross margin improvement despite the negative impact of inflation on the cost of labor and other cost-of-sales items, including fuel and medical supplies. The 1.6% increase in the total gross margin percentage was driven by the transportation segment, where gross margins increased from 7.1% during Q3 last year to 23.2% during our third quarter this year. The improvement was due to increased volumes and higher average trip prices combined with lower average hourly wages as recent market wage pressures began to subside and as the company more effectively managed its staff to reduce overtime hours for field employees. These factors more than offset higher average fuel costs. Cost margins from the mobile health segment were 34.8% in Q3 of this year, compared to 36.1% for the third quarter of 22. The modest decrease was due to higher startup costs associated with some of the company's new projects this year. As of September 30, 22, our total cash and cash equivalents, including the strict cash, totaled $179.4 million, as compared to $179.1 million as of the end of fiscal 21. The cash balance remained basically flat despite investing approximately $35.5 million in acquiring licenses and new service offerings in new markets. During the first nine months of 2022, positive net cash provided by operational activities amounted to $31.3 million versus $6.9 million in cash provided by operations during a prior year period. Excluding vehicle finance uses of $9 million, Outstanding debt amounted to $2.1 million at the end of Q2 versus $1.9 million at the end of last year. 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 the year, assumes 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. During the third quarter of 2022, the actual average hourly labor rate was higher than last year's actual rate, but lower than our assumptions, while the average fuel cost per gallon, which moderated from the Q2 level, was significantly higher versus the prior year, but very close to our forecasted rate. the increased gas cost was approximately 30 basis points on gross margin compared to the third quarter of 21, with a negative impact of only two basis points versus our assumptions for 2022. As for the cost of labor, the year-over-year increase in average hourly rate was less than 2%, resulting in a negative impact of 36 basis points on margins during Q3 of this year. However, the actual average hourly rate was lower versus our 2022 assumptions, which resulted in a positive impact against our gross margin forecast of approximately 163 basis points. Adjusted EBITDA during the third quarter of 2022 amounted to $8.4 million. or 4.7% of revenue in the prior year. As a reminder, adjusted EBITDA is a non-GAAP measure representing earnings before interest, tax, depreciation, amortization, stock price compensation, warrant and finance lease liability, revaluations, and other non-recurring expenses. Please refer to our earnings release for a recalculation of adjusted EBITDA to net income. September 30, 2022, total revenue amounted to $331.7 million, representing growth of 68% over total revenue of $197.4 million for the nine months ended September 21. Adjusted EBITDA for nine months ended September 30, 2022, amounted to $34.5 million, representing a substantial improvement versus the adjusted EBITDA of $7.8 million for the compatible period last year. Net income for the nine months ended September 22 amounted to $23.6 million, representing a substantial improvement versus the net loss of $1.1 million for the compatible period last year. In terms of our 2022 outlook, we anticipate continued strong demand Given our strong year-to-date performance, as Stan mentioned earlier, we are increasing our revenue guidance to a range of $430 to $440 million, up from our prior guidance of $425 to $435 million. We are also increasing our adjusted EBITDA guidance to a range of $41 to $46 million, up from our prior guidance of $40 to $45 million. This guidance increase is due to a combination of organic growth and incremental acquisition activities. This represents revenue growth of 35% to 38% year-over-year, while adjusted EBITDA is expected to show improvement as a percentage of revenue to nearly 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 75% of revenues with medical transportation as the remainder. That concludes my remarks at this time.

I would like to hand it back to Stan for closing remarks. Thank you, Stan. Thank you, Andre.

Before opening the call for questions, I would like to comment on the plan's chief executive office and transition that we announced in today's earnings results press release. Effective December 31st, I will be retiring. stepping down as CEO and Chairman of the Board of Directors. Our current president, Anthony Capone, will assume the CEO role at that time, and I have agreed to assist the company through the end of 2023 to ensure for a seamless transition. Long-serving board member and co-founder, Iris Medra, will assume the role of Chairman of the Board. I am incredibly proud of what we have accomplished in the last seven years, and I firmly believe our best days are ahead. Many of us expected that Anthony would one day succeed to the CEO and his contributions as president have been a significant factor in our success today. Anthony has been instrumental in integrating cutting edge technology into our solutions that truly sets us apart and creates a sustainable advantage for us in the market. I have every confidence in the continued growth and success of this company. With that, let's now open the call for questions. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on the telephone keypad. You will hear a tone acknowledging your request. If you are using a computer phone, you pick up your hand to do processing and key. To withdraw your question, you may press star then 2.

First question comes from Richard Close, Santa Virginia.

Please go ahead. Richard Close, your mic is open, sir. Please go ahead.

Our next question is from Ryan McDonald. Please go ahead.

Hey, can you guys hear me all right? Hey, perfect. Okay, great. Yeah, this is Matt Shea on for Ryan McDonald. Appreciate you guys taking the question and congrats on a great quarter. And, you know, best of wishes stands on whatever is next. But, you know, specific to the quarter, it was, yeah. Specific to the quarter, it was great to hear about some of the RPM updates. I was curious with that Gary and Mary Westpace relationship, would you be able to provide some color maybe on what services you're providing, maybe how you're getting reimbursed for those services, and then how do you expect to kind of use the data and maybe, you know, any other insights developed from the relationship to guide your future RPM strategy or even any M&A in the space?

Yeah. Anthony, you want to take that question?

Sure, absolutely. It's a great question indeed. Thank you, Matt, for joining us. So the relationship that we have with West Pace, which is a family in the Southern California area, is focused initially on urgent care services. This is where you're trying to prevent their capitated population from being either readmitted or admitted to the hospital. And we do that by, you know, responding on scene and we treat individuals on scene. That's following with our traditional model where we have that lower-level provider on-site and that higher-level provider remote. That's the same model that we use there, which is consistent throughout the whole country. Similarly, the WestPace contract that we have as well follows our nearly majority of our contracts, follow the same model on the pricing structure. That's where we bill at an hourly rate for our services. They say, I want one mobile health unit per in this area, one in this area, one in that area, and they pay us a fixed hourly rate, which kind of helps us to protect our margin. In addition to that, we also get, in this case, and in many cases, we also get a bonus payment in the event that we can deliver successful patient outcomes. In this case, a successful patient outcome is actually reducing the readmissions or reducing the admissions to the emergency room versus the baselines. And actually, we announced in our last quarter, we haven't actually got all the data completed for Q3, but for Q2, we actually did get that bonus payment. We were actually able to reduce the rates of admissions, readmissions against the baseline. Now, all that data has been super valuable, and it's actually a lot of what motivated us earlier in the year to get into RPM. And the data which we received from that We then took, packaged up into a white paper, and WestPace actually just presented that at their national PACE conference. So PACE, as many of you know, is one of the largest semi-public, semi-private healthcare organizations in the United States. And so the opportunity here is to take the exact same program we have with WestPace in Southern California and to get that launched at all the PACE locations throughout the entire country. Now, the RPM data sits on top of that urgent care services, and it fits hand-in-hand, hand-in-glove with those. Now, rather than waiting, traditionally you would wait for a patient to be able to trigger to you and say, okay, I need your urgent care services. Now, because we're monitoring them, we know. We can see elevated vitals. And we have the ability ourself to begin to initiate either a telehealth visit and then subsequently, if necessary, we can respond rapidly on scene. So RPM has really become the foundation by which we can be in the kind of control seat of health care as opposed to sitting back and waiting for it to come to us. Hope that answers your question.

Got it. Okay. So it sounds like it's a little bit more about helping create value-based care constructs. constructs rather than just billing medicare for cpt code so that makes sense um maybe changing gears i think one of the other exciting updates was the epic integration allowing for for now mobile health integration building on the transport stuff um seems like a nice add-on we've heard from our checks that that health systems are looking to build around their ehr so seems like kind of a nice trojan horse way to get in there wondering if this is increasing your ability to add on mobile health services to transportation contracts with existing health systems? And then maybe with that in mind, is there any way to think about the percentage of health systems today that are transport customers that are also using mobile health services? Just trying to get a sense of kind of what that opportunity looks like for you guys. Thanks.

Yeah. Thank you, Stan. You want me to take that as well?

Hey, as former CTO, who better to answer that question than you?

Go ahead. Thank you. Thank you. Yeah, and congratulations to our tech team for really pushing through and getting that, you know, finally fully deployed inside of the Epic App Orchard. And it is a pretty big differentiator. I was just on a call where I was going through that with a large health system. And the, you know, the Epic App Orchard, because it's just such an ease of use, it's simply one more click to order that transition of care post-acute service as it is the transport. It's just physically, very, very easy to do so. We're now structuring all of our contracts such that they include mobile health services in them. It doesn't mean that it's all guaranteed, but there's already a construct by which the financial component, the ordering component, the clinical component is already built in there. And so our new contracts all include that going forward. It is a very big differentiator. And part of the way that we do that is because we use this leased our model with the hospital, we basically make sure the hospitals understand that they have leased clinicians. Now, those leased clinicians can do anything that you want them to do. Now, sure, they can transport. That's their main function. But those leased clinicians that happen to be in vehicles, ambulances, they can do anything else. They can do transition of care. They could do post-surgery services. And they're yours because they're dedicated to you. We're leasing them to you. So get creative in all the areas that they could benefit your health system. And so going forward, it's really, we haven't found any health systems that don't want to also have that capability bundled in. And now, since most people are moving to Epic, they can do that with just one simple additional click.

The next question comes from Sarah James of Barclays. Please go ahead.

Congratulations on another great quarter. And I'll be really sorry to see you go, but Anthony, you guys have had an impressive amount of new contracts coming online. How do you think about the strategy of pacing new contract ads? Are there any bottlenecks or balancing points to the pace of top line growth and What is the implied ramp from the recently announced contracts annualizing as we think about a bridge from 22 to 23?

I'll start with that question.

Anthony, maybe you can finish it. We've navigated through lots of challenges over the last three, four years. Something that we've gotten quite proficient at is scaling large projects quickly. I think we're a go-to for lots of municipalities, lots of large hospital systems throughout the country that need to launch a program, and they'd like to do it in a big scale, and they want to do it quickly. From a hiring standpoint, we have processes in place that allow us to hire, allow us to use third-party agencies if we need to, But we've on multiple occasions have started projects up in weeks where our competitors would take months and they very often include hundreds of medical personnel. So that's part of a little bit of our secret recipe. You know, we share tidbits with it with people, but nevertheless, you know, it is somewhat proprietary. I think we've demonstrated over the last, I guess, eight quarters now that we've been reporting our ability to scale and scale nicely in the most difficult of times. You know, you first had during the COVID period where people didn't want to go to work. Then you had the mass resignation period. And you have all these different cycles that we've lived through over the last several years. And we've been very fortunate with the dedication of our leadership to navigate through those challenges. Anthony, anything else you want to go ahead and add to that?

Yeah, just that, you know, right now we don't have guidance yet for 2023. So I can tell you, you know, exactly where the ramp will go to. But what I can tell you is that we have become, as Stan was saying, very proficient at taking a contract that is oftentimes relatively small and growing into something that is very large. We have a lot of historical precedent for that. And that's just based on the simple concept that we overdeliver and we are always rapidly available for whatever our customers need.

Great. And I guess on that topic, you guys mentioned the pilot that you're doing with Cigna. How do you think about what a typical evaluation period is before we could discuss expansion? And what types of benchmarks are your partners looking for? to share performance and want to engage in expansion conversations?

Well, you know, all of this here is really part of the evaluations for us. We're slowly dipping our toes in the water and really figuring out exactly how we want our B2C program to work. As you know, almost all companies that went into B2C, they lose money. and then they end up pivoting and becoming B2B organizations. We don't want to make those mistakes. We have a pretty healthy company that is B2B today. We're very intrigued in a B2C future and a strategy, but we're going to do it very carefully where we are keeping a really close eye on the biggest factor, which is the customer acquisition cost. So I think our payer relationships like Cigna and several others in 2022 are really going to be there for the purpose of validating business processes and concepts and financial models. And only when we're happy with those results will we go all in and we are preparing for that, you know, going all in because we're very satisfied with some of the results that we've seen year to date.

And you will see that sometime in hopefully 2023.

The next question comes from Richard Close of County Grid Genuity. Please go ahead. Richard, welcome back.

Richard, thanks for the question. I apologize. Yeah, sorry about that. Thanks for the question. So we've, you know, have had a lot of discussions with investors. And, you know, there's somewhat or some confusion, I guess, about the DocGo story. And I thought it would be good maybe if you could talk a little bit about utilization. You know, there's soft utilization trends that many companies have called out. There's labor headwinds, shortages, retention, wage pressure, people have called out. Some investors ask me, why doesn't DocGo see any of this? Can you talk a little bit about your business in terms of softer utilization trends and the labor headwinds and maybe why you're insulated?

Yeah, I'll start, and then I'll transition it to Anthony Richard. You know, fundamentally, we have very different business models than our competitors. I mean, keep in mind, I've been in healthcare 30 years, and this is not my first rodeo. When starting mobile health, you know, we knew from the very beginning that if you go into traditional fee-for-service, where you're taking reimbursement from Medicare, Medicaid, commercial, MA plans, you're going to be limited in exactly what you can collect and how you collect it. That is not a business model that we wanted to get into. And we developed this concept of a lease, what we call our lease labor plan. And what we do is we put together a full clinical program. We charge a daily amount per clinician. These are all dedicated staff trained for specific projects. When we're out in the field, we then also have nominal upcharges with different, call it, procedures or tests that we do. And then very often, based on outcomes, we'll also get a bonus payment, like Anthony mentioned earlier. So we're not a traditional CFO service business. We adjust our, call it, least hour headcount on a month or a quarter basis based on the contract. But these are dedicated staff, and then we put the responsibility of utilization on our customer, not on us. So if we have, you know, 15 physician assistants, you know, doing pre-op services in patients' homes on behalf of a hospital, the hospital is the one that loads up their schedule using our tech platform. The hospital is one that dictates who gets priority and who doesn't get priority. If we feel that we need to add staff, we'll add staff. We'll make a recommendation to add. If we see that the demand is lower, we'll make a recommendation to reduce that headcount in the following quarter. So the entire business plan is very, very different. We're not a traditional TIFO service. We also have the ability to renegotiate our rates much more frequently. If I'm a traditional fee-for-service company and I accept reimbursements from United or Aetna, if my labor costs and my fuel costs go up, I have very limited ability to go to Aetna, United, and renegotiate that reimbursement. Very different if I have a hospital that I work with where I could go to them at the end of the year and I could adjust my pricing based on inflationary pressures. So from the fundamental of the business, it's very different. We practically do no fee for service. We have a very different business model, one that is based on lease hour with additional upcharges for different procedures that we do. It's a dedicated staff model. And the hospitals, our municipalities, our commercial accounts that we work for, They really see us as an extension of their team, not as just a vendor. And I think that's another reason why we have very high customer renewal rates and success rates. So that, you know, I hope answers the question. Anthony, do you want to add to that?

The only point I would just simply add is the quality that comes from it, which Stan alluded to. I can't really over exaggerate how important that is. It is sure easier in a traditional model of fee-for-service to potentially get for like the end healthcare organization that you're contracting with, maybe a cheaper rate if they just try and play a bunch of people against each other and do fee-for-service. But the quality of care that you get is so much lower. And so that causes all sorts of problems down the line. When you give people this dedicated service resources, whatever those resources are doing, whatever you do, whatever those resources are, that is the end result, the quality of care that gets delivered is so much higher, and the customers see that the retention is higher, and obviously our margins are also protected.

And Richard, we innovated this program a couple of years ago, and we now have over 4,000 employees, and the majority of those employees operate on this program.

Can you talk a little bit about retention of employees? I know on the home health, they've been impacted by essentially people leaving the workforce. Can you talk a little bit about your ability from a labor perspective and maybe what your retention is? Because there's some questions out there with people wondering why you're not seeing the same situation on labor as others.

Yeah. And once again, I'll take the first crack at the answer and then I'll pass it over to Anthony, especially about when it comes to the retention metric. First of all, when it comes to employees, I'd like to think we take good care of our staff. You know, for one, we pay about 10%, 15% hourly. Our hourly wage is about 10%, 15% higher than street. We also incentivize employees to do their best in the field, and then based on the customer satisfaction scores, we then give them bonuses. You know, just about every full-time employee in the company gets to participate in the company equity plan. We invest considerable amounts into employee education. So when you take all of these different factors and you put them together, we're a little bit different than a traditional company. I think our Glassdoor and Indeed ratings speak for themselves. We have the highest Glassdoor rating in the industry, hovering at about 4.2, 4.3. And when employees are happy, you know, we find that they do a better job in the field and they also refer us to their friends. And that helps us in terms of recruiting. In terms of, you know, employee retention and, you know, we go about looking at it from a very different metric than many other employees. And I'll go ahead and pass that over to Anthony to talk a little bit about, you know, what we look at.

Yeah, real quick. So traditional companies look at retention in, in a days or months, years, but in a timeframe that's, that doesn't make any sense to us. We look at it as dollar figures. So how much revenue does the average employee bring in, in various different categories relative to what the cost was to bring them on and kind of what is the return on the initial higher value. So that's how we assess and we monitor everything in our company. And we are, we are getting better, not worse in that category. And we have a very unique model, which allows us to increase revenue per employee relative to what the onboarding, the initial expense is for every single one of those employees. Now, part of the reason why and part of the reason we're able to pay better than most in the industry is related to your previous question. When you have dedicated staff that are paid on an hourly basis and we can control our margins. We then can pay a higher rate than people who are traditionally on a fee-for-service concept. So like the home health agencies that you made an example of, they're usually almost 100% fee-for-service. And so they have lots of volatility in demand and idle time, and thus their margins are compressed and they can pay relatively little. When you have our model where you have a dedicated healthcare resource, you can simply pay more because your margins are protected. It's a very different model, which goes all the way down to your compensation for your employees.

And the important thing is that it's not just pay. It's several different things that we look at when it comes to our employees, our staff, that we take into consideration. We have teams of people with a human resource that focus on employee satisfaction. And it's something that we look at very, very closely. And when you take several different factors and you put them together, hopefully you have a satisfied workforce that wants to stay with the organization, and then hopefully they also want to refer people to our organization.

The next question comes from Pito Chickering of Deutsche Bank.

Please go ahead.

Hi there. This is Kieran Ryan, owner of Pito. Thanks for taking the question. Looking at margins in 3Q, you know, came in pretty strong, a little above 8%. Given the upside to revenues, I thought maybe there could be even a little bit more upside there. Based on what you said around fuel and labor costs tracking in line with your expectations, is it fair to think about these new contract upstart costs as being kind of the main gross margin swing factor for 3Q and then also for the step up into 4Q?

Yeah, that's exactly what you're looking at. As we said in our release, mass COVID testing revenue at the same time last year was about 35% of revenue, and now it's in mid-single digits. That basically means a lot of new contracts were implemented during the course of third quarter. Three particular contracts, two hospitals and one municipality, were very sizable and what I would call long-term agreements that have initiated. And there is a startup cost associated with contracts of that type. And it's something that usually we would seal for about 60, sometimes 90 days, but then we have multiple years' rewards from that initial investment. So excluding those initial startup costs that we had for the three large customers, EBITDA margins would have been considerably higher. But I look at that actually as a good expense. And I'd be happy to see that on a quarterly basis.

That means we're signing more long-term profitable contracts.

That's helpful. Thank you. And then just a quick follow-up. I think you've said in the past that you've seen LPNs tracking at about 65% to 70% of the cost of RNs, just broadly speaking. Obviously, that's going to vary a lot across regions, I would think. But is that generally still the right level? And is there any changes in that hiring environment you can call out over the last three months? Thank you.

Yeah, I'll let Anthony or Norm or Andre speak to, you know, the actual percentage for up to the cost of LPNs. But in reality, we have hundreds of physician assistants, nurse practitioners, registered nurses, and LPNs. You know, Andre or Anthony, are you familiar with where the LPNs are tracking compared to our rents?

Is that something that you're at liberty to talk about?

Yeah, I think that the number that you gave at 65% is close. That's close. I don't know the precise percentage, but I think it's quite close.

And I would probably also guess that it is somewhat geographical based as well.

Certainly there is differences, you know, a big difference between, say, New York City or in, you know, Nashville, Tennessee, and the labor rates, but usually they're relatively the same on a relative basis. And, you know, I think the key thing and part of the reason why our model, I believe, has been more successful is there's just so many more LPNs and there are RNs and so many more RNs than there are, you know, APPs, you know, independent licensed practitioners.

The next question comes from Mike Lassmore of Northland Capital Markets. Please go ahead.

Yeah, thank you. Congrats, Stan. And hello, hello. Congrats on your, both on your new roles. Sounds exciting.

Thank you.

Yeah, so on the mobile transport segment, that was up nice sequentially in the quarter. Can you talk a little bit about what drove that? And then, you know, just kind of a new baseline to think about?

Yeah, Anthony, you want to jump on that?

Yeah, there's been a combination of our ability to acquire licenses and then capitalize on those licenses. So as an example, I gave you the example of acquiring a SCT license, which is specialty care transport license in New Jersey with a company called Exceptional Medical Transport. We were immediately able to take that Exceptional Medical Transport and service our existing Jefferson Health customer. And so those kind of models are a lot of what we've seen. We've seen the growth where we look at our existing customer base. And we say, listen, there's revenue that we're not able to capture because we don't have either a competency capability or a licensure or maybe all of the above. And we go out there and find a value buy to service that. But that's generally speaking, our at least tuck in acquisition strategy follows, follows that marks kind of cross the board. And I would say that, yeah, I think Andre, you can speak more into this new baseline going forward, but you know, the revenue that we have on transport is, reoccurring and is all part of long-standing multi-year contracts.

I'll just add to what Anthony said. On the higher level of transportation, like ACT, that created an increase in average price per trip for those contracts that are not in the leased-out program of about 20%. This In 21, the average cost per trip was about $303, and this year it's about $374. So it's about a 23% increase just based on the fact that we have this higher level of transport that we can do with those stocking acquisitions.

Okay, that's great. And then in terms of just the spending environment among customers, It sounds like it's pretty healthy overall, but can you just kind of characterize kind of what you're hearing from municipal governments in terms of, you know, interest in new programs or expanding programs and, you know, kind of their view on what maybe the next year might look like?

Yeah.

You know, there's tremendous focus nationally today surrounding population health. I think the country is finally at a state where they're realizing in order to keep Medicaid and Medicare costs down, you have to be proactive in terms of making healthcare accessible to everyone. We play a large role in that. We have a program that is extremely cost effective and has documented proven results. So, we think population health, government-based type programs will continue to increase. We have not seen any signs of slowdown, just the opposite. We have some new contracts that we're planning on for the next quarter. And I'm really excited about it. I think the country is finally taking some proactive measures in getting in front of the problem versus just simply reacting to the problem. And I'm also very proud of the fact that we have a program that caters to those specific needs, a program that is very affordable, a program that simply makes sense because we leverage medical clinicians that are properly trained using the absolute state-of-the-art equipment. And then combine that with telemedicine, you really have something that's very different, a huge differentiator. You're combining the best of medicine with the best of technology to ultimately help drive good, positive outcomes.

And that's what we build our business on. The next question comes from David Grossman of Stiefel.

Please go ahead.

Thank you. Good afternoon.

I think both you and Anthony have mentioned the idea of landing and expanding within your customer base. Can you give us any insight into what the same-store sales growth is trending in terms of percentages, just to give us help us dimension, you know, kind of your ability to successfully expand within the base?

Yeah, I don't know if we've published actual numbers, David, but I will tell you, I've always found it much more difficult to secure same-store sales than go out there and just keep selling and keep turning customers over. I'm not really aware of any what I call material programs that we've lost in the last couple of years. Our programs are very sticky. A lot of that is based on the technology that we integrate. We're a very integrated organization. We integrate with most of the major EMR products that are out there. Once you go through that effort, you tend to be a long-term partner of that institution. And I would say a very large number, I don't think we disclose the actual percentage, of our growth is from same-store sales throughout the country. And we continue to sign up new customers but I'm really most proud of the fact that we don't lose existing customers and our existing customers come back to us with new ideas that they want to implement. We're very often their go-to organization when they have those new ideas. We float around some concepts of accomplishing those tasks. We turn that into a proposal. A lot of times in our business model, I think we do something unique that a lot of people don't, which is that we'll launch a program and as long as compliance signs off on it, we won't charge anything or we'll just charge costs for 30, 60 days so the customer can see the results. And if they like the results, we'll then engage into a more long-term contract. So we don't do the high pressure, sign three, five-year contract and take risk type of a sale. It's a soft sale. Try it, you know, 30 days, 60 days. See if you like the results. If you like the results, you know, let's go ahead and then engage into a more longer relationship. But I would, you know, once again reiterate that, you know, the overwhelming majority of our growth has been through same-store sales. But at the same time, ever since Lee Beanstock joined our organization, From Google, you know, we have been doing a great job getting new leads in through the door, responding to new RFPs, getting new contract signs as well.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Stan Wachowski for any closing remarks.

That is really it. I really want to thank everyone for joining this evening. I know it's late, and it has been truly an honor to work with so many of these wonderful analysts and people from the financial community. I really do believe DACO is doing something wonderful. We're doing it differently, and I think our results are speaking for themselves. I've always said, you know, judge us by our results, not our PowerPoints. And I hope, you know, one day we'll get there. And I just want to express my appreciation for everyone's support. Thank you all for joining this evening.

And this will conclude this phone call. Thank you, everybody.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.