DocGo Inc.

Good afternoon ladies and gentlemen and welcome to the DocGo Third Quarter Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star followed by zero for the operator. This call is being recorded on Thursday, November 7, 2024. I would now like to turn the conference over to Michael, Vice President Investor Relations. Please go ahead.

Thank you, operator. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. All statements made in this conference call, other than statements of historical fact, are forward-looking statements. The words may, will, plan, potential, could, goal, outlook, design, anticipate, aim, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions may be used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and we cannot assure you that we will achieve or realize our plans, intentions, outcomes, results, or expectations. Forward-looking statements are inherently subject to substantial risks, uncertainties, and assumptions, many of which are beyond our control and which may cause our actual results or outcomes or the timing of results or outcomes to differ materially from those contained in our forward-looking statements. These risks, uncertainties, and assumptions include but are not limited to those discussed in our risk factors and elsewhere in DACO's annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports and statements filed by DACO with the SEC to which your attention is directed. Actual outcomes and results or the timing of results or outcomes 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. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided directly as part of this call or included in our earnings release or the current report on Form 8-K that includes our earnings release which is posted on our website, dot go dot com, as well as filed with the SEC. The information contained in this call is accurate as of only the date discussed. Investors should not assume that statements will remain relevant at an operative and operative at a later time. We undertake no obligation to update any information discussed in this call to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events except as to the extent required by law. At this time, it is now my pleasure to turn the call over to Mr. Lee Beansdok, CEO of Lee Beansdok. Lee, please go ahead.

Thank you, Mike, and thank you all for joining us today. We had a strong performance across all customer verticals in the third quarter, recording $138.7 million in revenue and $17.9 million in adjusted EBITDA. One of the major highlights from the quarter is the tremendous progress we have made building our CareGap closure programs with multiple payers. We are seeing very strong leading indicators with these programs, once again, more than doubling the number of assigned lives on a sequential basis from Q2 to Q3, and that figure now exceeds 500,000 patients. As of today, we have doubled the average weekly number of CareGap visits completed when compared to our last earnings report. By year end, we project that we will exit the year at a run rate of 1,000 visits per week. In just the last two months, we have built new hubs up and down the West Coast to service this demand from San Diego to Los Angeles to Sacramento, and we are also preparing for further expansion in the Northeast. Today, we fine-tuned our 2024 guidance to $620 to $630 million in revenue and $70 to $75 million in adjusted EBITDA, while increasing our expectation for cash flow from operations to $90 to $100 million, up from $80 to $90 million. Several of our migrant-related programs have extended beyond our original expectation, and we now expect migrant-related revenues of $360 to $390 million in 2024, up from our previous forecast of $320 to $350 million. Offsetting that amount is an expected decrease in our non-migrant municipal population health programs by an equal amount, which effectively lowers our base business forecast for 2024, consisting of transportation and non-migrant mobile health to $240 to $260 million, down from our previous forecast of $280 to $300 million. I want to be clear. This adjustment has no impact on our consolidated revenue expectations for 2024, just the underlying breakdown between migrant and -migrant-related revenues. To provide a specific example, our contract with HPD, which wound down by approximately 50% in May, was expected to largely conclude in late Q3. Now we expect it to end in late December. As the migrant-related programs wind down, we plan to apply those resources to new -migrant-related programs. It is simply a matter of timing. Regarding 2025, today we issued consolidated revenue guidance of $410 to $450 million, which includes an expected migrant-related revenue contribution of $50 million. I would like to emphasize that our migrant-related work in 2025 is healthcare-focused and completely aligned with our population health vertical service offerings, like infectious disease screening, behavioral health assessments, vaccinations, and urgent care. In sum, we are meeting or exceeding our consolidated financial objectives across all three customer verticals and cannot be more excited about both our operational execution during the quarter and the strength of our pipeline. Once again, we continue to make substantial progress with our cash collections, generating approximately $31 million in cash flow from operations during the period. Our total cash and cash equivalence balance is now over $108 million, up from $86 million last quarter and $59 million in Q1 of this year. Throughout 2023 and in early 2024, we had a very substantial working capital outlay to support the migrant-related programs. Now that trend has reversed and we are seeing very strong cash flow as a result and that trend should continue into early 2025. With our strong balance sheet, we have the resources to support our growth initiatives, execute on opportunities in our robust pipeline, make additional share repurchases, fund new strategic relationships, and repay our line of credit. As I usually do, I would now like to spend some time covering our three key customer verticals, payers and providers, municipal population health, and hospital systems. In our payer and provider customer vertical, as I mentioned above, we are aggressively ramping up our infrastructure to meet the strong reception that we are experiencing for these services. In the news just last month, one of the largest payers in the country announced a significant drop in its Medicare advantage star ratings, which according to analysts could reduce its 2026 EBITDA by as much as 50%. This is a crucial topic on the mind of every payer in the country and we believe our care gap closure programs are an ideal solution to help improve plan ratings and potentially have a material positive financial impact for our customers. We know the demand is there. Now we are laser focused on the build out to support it. As previously mentioned, we anticipate exiting 2024 at a thousand visit per week run rate and our care gap closure program, which will set us up to meet or exceed our goal of 65,000 visits in 2025. Additionally, we started enrolling PCP patients in Q3 and have agreements in flight with our payer partners that will position us to grow PCP patients to our target of 10,000 in 2025. By the end of 2025, we also continue to expect reaching our goal of monitoring 70,000 patients in our virtual care management programs. Our mobile health plan partnerships program create a virtuous cycle where everyone who participates benefits. Patients benefit from convenient delivery of high quality care in the home, ensures benefit from healthier patients and the opportunity to increase their heated scores and star ratings, and DOTGO continues to fulfill our mission of bringing high quality care to all. Importantly, these programs also position DOTGO to expand to value-based care arrangements with our insurance partners over time, which is a key initiative to support our long-term growth and vision. To give an example of how our plans are coming to fruition, we've been providing a transitional care management readmission reduction program at a single hospital in Southern California for L.A. care, a payer that manages 2.5 million lives. Based on our successful delivery of a greater than 50% emergency department reduction for this hospital's patients, we just signed an expansion deal with L.A. care to provide our transitional care management program at additional hospitals to offer care gap closure services for L.A. care members and launch a mobile health program to help improve the management of some of their most complex high-risk member populations. In our municipal population health vertical, we saw a number of positive indicators in Q3. We are preparing to expand our mobile x-ray program for the City of New York this fall, and we extended the street health outreach and wellness contract for a fourth year, which will enable us to continue operating this award-winning mobile health care program for unhoused and underserved populations in New York City. Additionally, just this week, we received an expansion with the New Mexico Department of Health, which brought in the scope of our initial contract for clinical services at their public health offices. Collectively, we continue to leverage our clinical expertise and mobile health care approach to bring care to people outside of traditional health care settings. In Q3 alone, we provided treatment across over 215,000 medical and behavioral health encounters, including x-rays, vaccinations, urgent care, depression screenings, and more. Within this customer vertical, we have also made considerable progress with our Project Prime initiative, whose goal is to identify large government contractors with existing projects who may benefit from subcontracting municipal population health components of their work to DOT-GO. We believe this is a very substantial opportunity, and we expect to begin generating revenue from this initiative in early 2025. In our hospital vertical, we have a number of small to medium-sized contracts that have been signed or are very close to being signed, which give us a good line of sight to reach our 2025 growth estimates. In addition to new contracts, we have also recently expanded in the Northeast with a major customer and continue our build-out in the Dallas market. We received exceptional customer feedback from our newly launched contracts in Dover, Delaware, which is great to and encouraging as we grow our presence in that market. We have also made significant enhancements to our technology so that customers can now track a network of providers within our proprietary technology platform, in addition to having the ability to dispatch both medical transportation and mobile health resources, a combination we believe is unique within our industry. We have long believed that our proprietary technology has potential as a market where we do not have a physical presence, and we expect that to begin in the fourth quarter. Before I hand it over to Norm, I also wanted to take a moment to discuss the addition of Dr. Stephen Klasko as our new chair of the board. As the former CEO of Jefferson Health and a special advisor at venture capital firm General Catalyst, Dr. Klasko brings extensive healthcare experience and a vast network that can help DOT-GO in a variety of ways. He is also a vocal advocate for healthcare at any address and pioneering AI technologies that can potentially optimize patient care and increase operational efficiency. We look forward to benefiting from his guidance and vast industry knowledge. We could not be more excited to have Dr. Klasko on board, and we are off to a great, great start. I will now hand it over to Norm to cover the financial results. Norm, please go ahead.

Thank you, Lee. Good afternoon. Total revenue for the third quarter of 2024 was $138.7 million, a 26% decrease from the third quarter of 2023, but in line with our expectations, driven by the anticipated wind down of migrant-related projects. Mobile health revenue for the third quarter of 2024 was $90.7 million, down 35% from the third quarter of 2023, and also driven by the planned wind down in migrant-related work. As we discussed on previous earnings calls, these migrant-related revenues began to decline sequentially in Q2, reflecting the wind down of some sites in New York City which began in mid-May. These migrant-related revenues are expected to continue to decline sequentially as we go through the rest of 2024 and into 2025. On a -to-date basis through September, mobile health revenues have increased 20% in 2024. Transportation services revenue increased to $48 million in Q3 of 2024, about 2% higher than the transport revenues we recorded in the third quarter of 2023. We saw our largest gains in both large markets such as the UK and in some smaller markets like Tennessee and Delaware. For the first nine months of 2024, transportation revenues were up 9% from the prior year period. Historically, we've had periods of growth that were greater than our 15% annual target, while more recently we've been digesting this strong growth. We have several recent contract wins that give us confidence in maintaining our 15% annual revenue growth expectation going into 2025. Net income was $4.5 million in Q3 of 2024, compared with net income of $4.6 million in the third quarter of 2023, as we were able to successfully offset the impact of the decline in revenue, which significantly improved gross margins. Adjusted EBITDA for the third quarter of 2024 was $17.9 million, up from $16.7 million in last year's third quarter. The adjusted EBITDA margin was .9% in Q3, up from .9% in the third quarter of 2023. This was the fourth consecutive quarter of double-digit adjusted EBITDA margins. Total gap gross margin percentage during the third quarter of 2024 was 33%, up strongly from .2% in the third quarter of 2023. The adjusted gross margin was 36% compared to .5% in the third quarter of 2023. As many of our mobile health projects have matured throughout 2024, we've seen solid improvements in subcontract costs. During the third quarter of 2024, subcontracted labor accounted for 33% of total labor costs, as compared to 41% in the third quarter of 2023. Subcontracted labor has declined sequentially since peaking in the total labor costs. During the third quarter of 2024, adjusted gross margin for the mobile health segment was 38.8%, compared to .8% in the third quarter of 2023. Adjusted gross margins for the mobile health segment have now improved for four consecutive quarters. In the transportation segment, adjusted gross margins were .7% in Q3 2024, down from .7% in Q3 of 2023. But transportation margins improved by 160 basis points from their Q2 2024 levels. However, they were still impacted by residual subcontractor costs in one of our markets. Still, as the third quarter came to a close, these subcontractor costs had been nearly eliminated as we were able to fill staffing gaps via newly hired field personnel. Looking at operating costs, SG&A as a percentage of total revenues came to .7% in the third quarter of 2024, higher than the .8% seen in the third quarter of 2023. However, in absolute dollar terms, operating expenses declined 14% year over year, due in part to targeted reductions in force during the first half of 2024, with operating expenses falling to their lowest quarterly levels since the first quarter of 2023. We continue to actively manage our operating expenses as the migrant programs wind out. However, given the expectation for sequentially lower revenues, we expect that SG&A could increase as a percentage of revenues over the next few quarters, which is reflected in our adjusted EBITDA margin expectation of 8% to 10% in 2025. The biggest financial highlight for us in the third quarter relates to our balance sheet, where we took another big step forward. As of September 30th, 2024, our total cash and cash equivalents, which include restricted cash, was $108.6 million as compared to $85.8 million as of the end of the second quarter of 2024. As of the end of Q3, our total cash balance was more than $40 million higher than it was a year earlier. The increase in cash was driven by solid collections during the third quarter, which also resulted in a decline in our accounts receivable when compared to both those of the end of the second quarter and the levels that we saw at the end of 2023. At quarter end, we had approximately $170 million in accounts receivable from the various migrant programs compared to $185 million in accounts receivable from the various migrant programs as of the end of Q2. As these migrant-related programs continue to wind down over the remainder of 2024, our balance sheet is expected to continue to benefit as we collect this AR and bring our -to-day sales outstanding, or DSO, more closely in line with historical levels. As we collect older, larger invoices and as our cash outflows decrease in line with lower migrant project expenditures, we expect to see a continued increase in our cash balance. We now expect to generate cash flow from operations of $90 million to $100 million in 2024. Given that we've generated $57 million in cash flow from operations through the first nine months of the year, we are looking at an additional $33 million to $43 million in cash flow from operations in the fourth quarter. For comparison purposes, we generated $37 million in operating cash flow in the second quarter and another $31 million in the third quarter. Our increased cash balances will allow us to invest in some of the opportunities we're currently evaluating to grow our business. At this point, I'd like to briefly turn the call back over to Lee.

Thank you, Norm. Before I turn the call back to the operator for Q&A, I wanted to close by sharing that Q3 marked my one-year anniversary as CEO of Doc-O. Our company has accomplished incredible things over the last 12 months, including transporting over 1.1 million patients and facilitating care through more than 820,000 mobile health interactions. Bringing care to this many people is a clear manifestation of our mission to bring high quality, highly accessible care to all. Doc-O's vertically integrated mobile healthcare offering powered by a -in-class proprietary technology platform and compassionate clinical providers has an incredible product market fit. We enjoy strong relationships with an enviable roster of customers and have a patient net promoter score of 85 that speaks volumes about the quality of our service delivery and have a positive employee-centric company culture as evidenced by our awards for workplace excellence. I know we will continue building on this strong foundation to expand our impact in the months and years ahead. And now I'd like to turn the call back to the operator for Q&A. Operator, please go ahead.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. Your first question comes from Sarah James of Cantor Fittsgrove. Please go ahead.

Hi guys, this is Gaby on for Sarah. Congrats on the quarter. I just wanted to start off with you had a really strong EBITDA beat and can you give a little bit more color on what drove that? And it sounds like you have a lot of plans for expansion and that the care gap closure progress is going super well. So is there anything we should worry about on the expense line while you grow that business?

Sure. Hey Gaby, it's Norm. I'll take the first part of the question. So as far as the EBITDA beat, yeah, I would point to the gross margin line. We generated a blended gross margin of 36% in the quarter. Now, while that's not out of the ordinary, if you look at things historically, we've done that before. It was the highest margin that we've had since the fourth quarter of 2022 when we had some COVID revenue and other things like that that spiked that number up. We've always said that our expectation for a blended gross margin is somewhere in the 33, 35% range. There are a couple of ins and outs. There are things that helped us this quarter. Some of which were non-recurring, some of which were just a matter of, in the case of, I'll talk about mobile health margins. Mobile health margins were 38.8%. And those were helped along by the fact that the first programs, the first sites that were wound down as part of the migrant programs were the ones that tended to be the lower margin sites. Now, that wasn't necessarily by design, but that's sort of the way that played out. So we had a more favorable mix within the migrant program. And then in general, we had a pretty good mix within mobile health in general. So I would say where we benefited was from gross margins that were maybe a little bit higher than we would expect. That was a big part of it. Otherwise, the SG&A was reasonably well controlled. And as we mentioned, down 14% year over year, we've been doing a lot of cost cutting, a lot of rationalization, and some of that came to fruition as well.

Gaviel, it's Lee. I'll touch on next year as part of your question. So I think we're going to continue to invest in our rapid growth and rapid expansion that we shared, particularly in the payer programs. We're expanding, as I mentioned, across the West Coast. And we're always going to be investing, very focused in investing next year, and putting out a great quality product and a great patient experience. And absolutely ensuring that our customers, our incredible customers, and our payer partners, and our municipal partners, and our hospital systems are incredibly delighted and happy with our services. And we're always going to index towards that. And we're going to be investing in that. So that was reflected in our EBITDA percentage range guidance for next year as well. Those investments are reflected there.

Okay, awesome. Thank you, guys.

Your next question comes from Pito Chikaring of Tite-Zib. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my questions. Looking at the 2025 guidance, last quarter you got to do, I think, $40 million of base business revenues, a 10% base margin. Now I think you added $50 million of migrant revenues in the guidance, which I think implies that the base business is growing lower. And then the margin guidance, I believe, was a floor of 10%. And now it's an 8% to 10% range. So I guess the question is, what have any changed from the guidance commentary from the last quarter call?

Absolutely. It's Lee. I'll take that question. Thank you for it. So for next year, we wanted to put out guidance so that we can give direction on where next year is going to go and also include what we expect the migrant contribution will be. I want to also really emphasize that that work is really encompassed in our population health work. It's all medical related. We are winding down the HPD sites that included some of the ancillary services that will all be wound down by the end of this year. So going into next year, it's going to really focus on services related to infectious disease control and screening, vaccinations, urgent care, depression screenings, other behavioral health resources that we're providing. And that's really what the work is going to be focused on for next year. And then we also wanted to share that essentially as that work continues into next year, it continues to utilize resources that eventually we will transition over to the base business growth. And so that's what you see there as the resources are transitioning away from the migrant related work, that's going to continue on to transition over to the base business and all the payer programs and all the growth opportunities that we're expanding on right now. So that's what next year essentially will look like. And that also the EBITDA range that I mentioned to Gabby as well on her question, that reflects a lot of the investments we're going to be making in that expansion, particularly on the payer programs, on our PCP program, as well as some of the investments we're going to be making on the municipal and hospital system side. And again, that encompasses rapid expansion and also great quality of service. And so we incorporated that into our adjusted EBITDA percentage range.

Okay. So just so I make sure that I understand this, last quarter is 10% on the 400 million. Now it's a higher revenue below margin. That's because a migrant is basically sort of at a lower margin is taking those resources away. And therefore, until we divert that away, that's a drag on next year's EBITDA.

That's correct. And then also, keep in mind that again, we're investing into the expansion into new markets for some of our payer program partners. And we have a multiple number of opportunities, national scaling opportunities you're going to see a scale into additional markets next year as well.

Yeah. And it is, Noel, I think it's a little bit, it's a little bit more nuanced. You know, we've talked about our cost cutting programs, we're trying to right size the business to make sure that we keep SG&A at a certain percentage of revenues. As we go through this on a very granular bottom up way, you know, we're finding there are some costs that we might want to keep in place so that, you know, when we, when Lee talks about investment, it doesn't just mean going out and spending additional money. In some cases, it means leaving part of our cost structure in place so that we can, that we can continue to grow. So for example, you know, taking people who are working on the migrant programs who are, you know, very, very talented and very good people, and then moving them over to other parts of the organization to help build out the payer programs or some of the other stuff that we're doing. So that technically represents, you know, a cost that's already here that it's sticking around, but it's being redeployed. So as we look at that, we do our bottom up granular projecting, it looks like, you know, we should build in a little bit of conservatism around where we think that you've done marginally.

Okay, great. And then a quick follow up, looking at the CareGap Closure contracts being signed, you know, that's growing rapidly. How are those margins versus corporate averages? And as you invest in the business, is that going to drag in margins as that keeps growing? Thank you.

Absolutely. So we do price the contracts in line with our historical margins on all the CareGap Closure programs. We're negotiating custom rates. And so we are preserving the margins at a gross margin level and endeavoring to do that. But it will cost us money on the expansion. Like we've seen with previous projects in previous years, when we are doing rapid expansion, it does cost us investment as we're ramping up, we're training people, we're opening up new bases, we're making sure that essentially we're overstaffed in some cases to make ensure the absolute exceptional quality that we want to deliver for the very large national payers. So we're making sure that it has all the resources it needs to be successful, to deliver a spectacular patient experience, and then also very meaningful results for the payers. And then over time, we optimize and we take out some of those costs. So all of that is baked in into the guidance. And that's kind of the granularity that we wanted to share on the call.

Great. Thanks so much.

Your next question comes from Ryan McDonald of Newham. Please go ahead.

Thanks for taking my questions. Lee, maybe just first on the clarification on 25. I think you, in your prepared remarks, you talked about sort of a non-migrant municipal population health business, sort of a lower expectation of that in the 240 to 260 range versus previous forecast of 280 to 300. Can you just clarify what you were talking about there? Right. So we,

Ryan, it's great to speak with you. So the base business we shared is going to be in the 240 to 260 range, which was revised from what we had shared in previous calls, again, reflecting some of the migrant related revenues sticking in until the end of this year, whereas we thought it was going to set more in the Q3 range. In terms of the additional programs, a lot of the programs that we're rolling out now in the municipal healthcare space are related to population health, bringing services, again, in line with what we've been doing all along at the company, bringing services to underserved populations, uninsured populations to our veterans, partnering with the Indian health system, with state and municipal population health systems to bring services like mobile x-ray, vaccinations, behavioral healthcare, infectious disease screening, annual wellness visits to our municipal partners, particularly those that are really looking for a solution to bring care into underserved communities. And those are the same programs that we're scaling right now into next year.

Got it. Thanks. So, okay. So it's just because of the maybe more accelerated wind down, you're going to collect more of that in 24 and less than what you initially expected in 25.

Correct. Oh, are you talking about, no, in 25, 24 that was the 248 to 260. Our range for next year we shared, our revenue expectation is 410 to 450.

Yes,

yes. Incompeting all of the programs, encompassing all the programs that the company's working on.

Okay, that's helpful. In terms then, I wanted to ask about the, you made a comment about in the payer business, with the issues with the star ratings and then sort of that creating an opportunity for you to more rapidly scale up in the northeast. Can you talk about sort of how the pipeline has grown or expanded since we've sort of got the star rating news? And it seems obviously CareGraph closures, I think, could be some low-hanging fruit for these payers to help improve their ratings in the future. But what sort of direct kind of response have you gotten from perspective health plans and payers sort of following that update?

Thanks. Yeah, Ryan, that's exactly right. So really since that update, which came as a flurry through the Q3 earnings calls of a lot of the payers, that we learned essentially that payers need to close these care gaps. They're weighing on their financials and they're weighing on the access that their patients have. And their patients have gaps in care that need to be addressed. Otherwise, the patients can get sicker, chronic conditions can get more acute. And obviously as that happens, it's horrible for the patients, their health outcomes get worse, but also obviously becomes more expensive for the payers as their members essentially are increasing their utilization of the health plan, getting sicker. And so our modality, our whole program is to be proactive, is to go into those homes and close those care gaps. Or in many cases, we go into a patient's home, as an example, we'll do a diabetic retinal exam or a bone density scan or a colon cancer screening. And indeed we find that the patient is at risk for a break, for a fall and break or at risk for vision impairment or blindness. And obviously we're working on making sure that the follow-up care as well, working with the plans to make sure the follow-up care is there. So again, the patient condition does not precipitate. All of that is perfectly aligned with what really the payers need right now, which is to close those care gaps, decrease utilization, improve health outcomes, which ultimately will be better financially for them, will increase their profitability. So we've seen since that happened, we've seen two things. We've seen our traction with different payers increase. So we're signing newer or adding newer payer partners that we don't have today into the pipeline. And we're seeing the payers we already work with send us more patients to address. So we're seeing both. That's why we're seeing the acceleration. We're investing very heavily into that right now.

Excellent. Great to hear. Thanks for taking on the questions.

Thank you, ladies and gentlemen. That concludes our question and answer session. I will now turn the conference back over to Lee Beanstock, CEO, for closing remarks. Please go ahead.

Thank you. Thank you so much. Thank you to everyone for joining us on the call and we look forward to the next one. Be well.

This concludes today's conference. Thank you for attending. You may now disconnect your lines.