DocGo Inc. (NASDAQ:DCGO) Q2 2023 Earnings Call Transcript

DocGo Inc. (NASDAQ:DCGO) Q2 2023 Earnings Call Transcript August 7, 2023

Operator: Good afternoon, and welcome to the DocGo Second Quarter 2023 Earnings Conference Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Cole, Head of Investor Relations. Thank you. Please go ahead, sir.

Mike Cole: 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 facts are forward-looking statements. The words 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, results or outcomes and may involve and are subject to certain risks and uncertainties and other factors that may affect DocGo’s business, financial condition and other operating results. These include, but are not limited to, the risk factors and other qualifications contained in DocGo’s annual report on Form 10-K, quarterly reports filed on Form 10-Q and other reports and statements filed by DocGo 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 to the most directly comparable GAAP financial measures are provided directly as part of this call or included in our earnings release, which is posted on our website, docgo.com as well as filed with the Securities and Exchange Commission. The information contained in this call is accurate as of only 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, whether as a result of new information, future events or otherwise, unless required by law.

At this time, it is now my pleasure to turn the call over to Mr. Anthony Capone, CEO of DocGo. Anthony please go ahead.

Anthony Capone: Thank you, Mike, and thank you all for joining us today. We had an excellent second quarter, and momentum has accelerated substantially, setting us up for strong growth ahead. Not only did we set a record high for quarterly revenues, but even more importantly, we delivered increasingly positive patient outcomes to individuals with the greatest need. As a result of strong demand across the board, we are raising our full year 2023 revenue guidance from $500 million to $510 million to $540 million to $550 million and increasing our adjusted EBITDA guidance from $45 million to $50 million to $48 million to $53 million. The rapid acceleration of revenue growth is driven by multiple factors, including the continued rollout of our medical transportation contract with health and hospitals, and the new mobile health contract with the housing and preservation department to provide primary care, urgent care, behavioral health, social work and other supporting services to migrant populations in New York.

In addition, we were just recently awarded mobile health contracts for flu vaccination programs in South Carolina and a municipal Employer Health deal in Orange County. And while the associated revenues are minimal over the immediate term, they have the ability to grow substantially. These are the types of programs that we expect to help us establish a greater mobile health prevalence in relatively new geographies, which we aim to build upon over time. Now the increasing guidance is prudent and reflects a combination of new contract wins and current run rate of existing contracts. Not necessarily the full potential as they scale. All indications point to a substantial acceleration over the immediate term. And as we gain additional visibility we will update guidance, if applicable, over the balance of the year.

At its current growth rate, we anticipate that it is possible for us to achieve the maximum value of the contract less than estimated $120 million that is associated with subcontracting services, which will not flow through our financials. It’s important to highlight that no other company we’ve ever encountered has the workforce, technology and experience to rapidly deploy mobile health programs at this scale in response to an unprecedented emergent crisis, not to mention the balance sheet to support the accelerated launch of such programs. Both our customer and employee satisfaction are at all-time highs. On a scale from negative 100 to 100, our on-demand customer NPS for Q2 was an 89. Additionally, over the trailing 12 months, our employee retention has improved by over 100%.

This doubling of retention is further reinforced by more than 240 promotions we have made just this year, helping to support clinicians who operate today as individual providers to grow into meaningful management careers. With an industry-leading Glassdoor score of 4.2 and an Indeed score of 4.3, it’s clear that our employees love working at DocGo. At this time, I’m going to hand the call over to Lee Bienstock, our President and COO, to provide some operational details. Lee please go ahead.

Lee Bienstock: Thank you, Anthony. Before I jump into those operational details, I am very pleased to report that we reached a significant milestone during the second quarter. We have surpassed the 300,000-patient interaction through our Street Health outreach and wellness program in partnership with New York Health and hospitals. This is one of our flagship programs that brings health care and mental health services to the unsheltered homeless population, and we are extremely proud of this accomplishment. The $432 million mobile health contract with HPD that Anthony referred to earlier, had a relatively small impact in the second quarter, but we believe it has tremendous potential over the remainder of the year and well beyond.

This is a contract that was issued to DocGo under an emergency authorization after DocGo had already successfully worked with the city across numerous contracts spanning multiple years building our track record and the city’s trust. Due to DocGo’s innovative clinical delivery model, our technology and highly sophisticated operational models, we are able to provide these services both cost efficiently and with high quality. During the quarter, we made substantial progress in further evolving our business model and launching care gap closure programs with four new major payers. Before I dive into those details, I think it’s important to understand the evolution of our approach in the payer space. Initially, these relationships often started quite simply as an in-network provider of basic health care services, which were vulnerable to swings in demand.

We viewed this as a way to help prove DocGo’s clinical ability to our payer partners. And these relationships are now evolving into specific care gap closure programs that aim to provide preventative care and treat at risk in chronically ill patients. These new agreements come with the predetermined pay rate per visit and guaranteed minimums, where DocGo is assigned a list of at-risk and chronically ill patients for our national operations center in Tuscaloosa, Alabama to contact and schedule specific medical services. Simply put, patients are now assigned to us rather than DocGo waiting for the patients to contact us. These services include bone density tests, diabetic retinal exams and mobile EKGs, just to name a few, And collectively, we expect these four payers to assign us 73,000 patients needing care gap closure and primary care services.

We believe preventative care saves lives improves program quality measures and helps keep patients out of the hospital. This is an area that we are extremely excited about, and we expect to report further traction with these high-profile partners in the near future. One reason we are seeing such strong demand in our mobile health segment is the highly compelling results coming out of our early partnerships. On our post-discharge program with L.A. Care, we saw that over 50% of patients had incorrect or missing discharge medications and orders, which is similar to the national average. The average wait time for these patients to get follow-up visits with their PCPs and specialists takes three weeks, whereas we deploy to address these issues much quicker and proactively.

And another example, in the last 60 days, we’ve completed over 200 diabetic screenings, which includes diabetic eye exams, blood glucose and blood pressure control screenings with a large Medicaid plan through a program we just launched. Over 20% of these patients had A1C levels over nine when we saw them, indicating poor control of diabetes and a risk factor for complications, including potential renal failure, blindness and neurologic damage. We were able to help these patients in collaboration with their PCPs or provide additional treatment or medication changes. This data and impact we are seeing is reinforcing our belief that DocGo is uniquely positioned to drive improved patient outcomes while reducing costs to payers. We have also experienced exciting growth in our virtual care management program and currently partner with eight customer clinics to provide care for all phases of virtual care management.

including remote physiologic monitoring and principal care management. And within the last 6 weeks, we have experienced a 300% increase in the number of patients monitored. We’ve now entered the contracting phase with 6 large nephrology practices, which were introduced through our strategic partnership with Fresenius Medical Care. These practices represent hundreds of nephrologists that monitor tens of thousands of patients. And over the second quarter, we boasted a greater than 90% patient compliance with our established clinics, far above the industry average. On the medical transportation side, I am also pleased to report that in June, each of our geographic regions were both profitable and growing. We have taken great strides to eliminate unprofitable medical transportation business lines and we intend to continue our efforts to transition the majority of this business to our innovative least hour model by the end of the year.

Not only were we able to significantly enhance profitability in this segment, we were able to do so while increasing revenues 105% compared to the prior year period. Medical transportation remains in strong demand, and we believe it presents us with an excellent opportunity to prove ourselves with health care systems and then potentially expand these relationships with our mobile health offering. Our backlog currently stands at $325 million over approximately 3 years, up from $205 million on May 8 of this year when we gave our last report. Both the increase in backlog and guidance are being driven entirely by growth in our mobile health segment. Before I hand it over to Norm, I want to take a minute and reiterate the fact that we have a large volume of new contracts and partnerships that are just recently signed or about to launch, and we are investing for tremendous opportunity ahead.

We believe we have strategically positioned DocGo to leverage cash flows from our core municipal contracts to fund this growth internally, and we are seeing that strategic plan come together beautifully. I will now hand it over to Norm Rosenberg, our CFO, to review the financials. Norm?

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Norman Rosenberg: Thank you, Lee, and good afternoon, everyone. Total revenue for the second quarter of 2023 amounted to $125.5 million, the highest quarterly revenue total in DocGo’s history, representing an 11% increase in the first quarter and a 15% increase from the second quarter of 2022. Last year’s second quarter included an estimated $28 million in mass COVID testing revenues. By contrast, mass COVID testing revenues represented a relatively insignificant portion of total revenues in 2023’s second quarter. Removing these testing revenues from both periods and recurring revenues increased by more than 50% and compared to the prior year period. Mobile Health revenue for the second quarter of 2023 amounted to $80.1 million, up nearly 10% from the first quarter and 8% lower than last year’s second quarter.

However, once again, looking at recurring mobile health revenues by removing mass COVID testing revenues of less than $1 million for the second quarter of 2023 and $28 million for the second quarter of 2022, and mobile health revenues increased by 33% compared to the prior year period. Medical Transportation revenue increased significantly to $45.4 million in Q2 of 2023, up 13% from the first quarter and more than double the transport revenues we recorded in the second quarter of 2022. Nearly every core transportation market witnessed both year-over-year and sequential revenue growth, continuing the momentum from the second half of last year. In the second quarter, Mobile Health revenues accounted for about 64% of total revenues and transport for the remaining 36%.

Based upon the first 5 weeks of the third quarter, it appears that mobile health could account for over 70% of revenues in the third and fourth quarters of this year. We reported net income of about $1.3 million in Q2 2023 compared with a net loss of $3.9 million in the first quarter and net income of $11.8 million in the second quarter of 2022. Last year’s second quarter included approximately $4.4 million in nonrecurring income relating to the remeasurement of warrant liabilities and finance lease obligations. Adjusted EBITDA for the second quarter of 2023 amounted to $9.1 million as compared to adjusted EBITDA of $5.6 million in the first quarter and $12.3 million in last year’s second quarter. Total gross margin during the second quarter of 2023 was 33.4%, up more than 500 basis points from the 28.1% gross margin we recorded in Q1 of this year and as compared to 35.9% in the second quarter of 2022.

During the second quarter of 2023, gross margins from the Mobile Health segment was 34.9%, significantly better than the 27.7% gross margin that Mobile Health reported in the first quarter of this year and compared to 39.9% for the second quarter of 2022. In the Transportation segment, gross margins continued to expand, increasing to 30.7% in Q2 2023 up from 28.9% in the first quarter and from 20.2% in Q2 of 2022. As expected, gross margins were sequentially higher in the second quarter than in the first quarter as we witnessed an easing of some of the margin headwinds we encountered in the early part of this year, particularly in relation to the start-up cost on some mobile health projects. However, we did experience some project startup costs during Q2 as well in both mobile health and the transportation segments.

While we anticipate that gross margins will continue to improve sequentially as we moved into the third and fourth quarter of this year, overall margins could be impacted by the timing and size of newly launched and ramped up projects. Now looking at operating costs. Operating expenses as a percentage of total revenues amounted to 32.1% in the second quarter of 2023 compared with 34.2% in the first quarter and 29.1% in the second quarter of 2022. One of the drivers of our operating expenses was an increase in stock-based compensation expense, the large majority of which was options as opposed to restricted stock units as we seek to refine our compensation structure in ways that create greater alignment between the interest of shareholders and employees at all levels of the company.

Looking at the year-over-year comparison without depreciation and stock comp expenses and operating expenses as a percentage of total revenues amounted to 26.3% in the second quarter of 2023, up slightly from 25.4% in the second quarter of 2022. As we expect to see revenues increase in the second half of 2023 when compared to the first half of 2023, we expect to see operating expenses decline as a percentage of total revenues, leading to operating margin expansion in the second half of the year. In addition to these scale-related benefits, we are making progress across many of our business lines with our margin enhancement projects, as we have detailed over the past couple of quarters. Now turning to the balance sheet. As of June 30, 2023, our total cash and cash equivalents, including restricted cash, was $123.8 million as compared to $127.5 million as of the end of Q1.

While our margins are improving, as I described earlier, we continue to experience working capital requirements as we build out our business with larger, more creditworthy municipal customers, such as New York City, which has received a credit rating upgrade in 2023. These customers have longer payment terms and a longer payment cycle in the initial stages of a project. We expect to use our balance sheet to invest in the growth of our business. When investing in these growth initiatives, we aim to balance our desire to generate financial returns with our need to provide societal returns by positively impacting the lives of as many people as possible. Despite these working capital demands, which are likely to persist as we stay in rapid growth mode, we had the biggest collections month in our history in June, which allowed us to keep our overall cash balance at quarter end very close to the levels of the end of Q1.

This also resulted in a 10% decline in accounts receivable when compared to the levels at the end of Q1. Coupled with the sequentially higher revenues in Q2, we saw a nearly 20-day drop in our days sales outstanding, or DSO, back to the levels to which we had grown accustomed. Looking a bit deeper at our accounts receivable portfolio. At June 30, more than 50% of our total accounts receivable portfolio were current defined as being less than 30 days old. That compares to only about 30% that was below 30 days as of the end of the first quarter. Our accounts receivable portfolio is growing more healthy every quarter. Now turning to our outlook for the second half of 2023. We anticipate continued strong demand from our customers for both mobile health and Transportation Services segments.

We are very encouraged by our performance so far in Q3. And as we have carried over the revenue momentum from the latter stages of Q2 into July, which was by a wide margin our highest revenue month-to-date. As Anthony mentioned, given the current strong revenue momentum, coupled with enhanced visibility to the end of the year, we are raising our revenue guidance for the full year to a range of $540 million to $550 million compared with our most recent revenue guidance in the $500 million to $510 million range. The raised revenue guidance range would represent year-over-year top line growth of about 23% to 25% compared to 2022 full year numbers on an as-reported basis. However, when removing the $75 million of mass COVID testing from our 2022 revenue baseline and considering that we’re not expecting any material mass COVID testing revenues in 2023 and we expect to be looking at top-line growth year-over-year of approximately 50%.

We’re also raising our guidance for adjusted EBITDA into a range of $48 million to $53 million, up from our original guidance range of $45 million to $50 million, and we still expect to exit 2023 at a gross margin of approximately 37% as our margins are expected to improve sequentially over the end of the year. The revenue and EBITDA guidance implies expanding EBITDA margins in the second half of the year compared to the first half. There are two elements to this forecast. Firstly, as we’ve been saying for a couple of quarters now and as we witnessed in Q2, we expect sequentially higher gross margins as we continue to work on the factors that temporarily depress gross margins in the first quarter of this year. Secondly, we anticipate that the pace of growth in operating expenses will be well below the sequential revenue growth rate, particularly in the areas of compensation, both on a cash and a stock-based compensation basis, leading to the expected margin expansion as [greater] [ph] top line scale is achieved.

Now I’d like to turn the call back over to Anthony.

Anthony Capone: Thank you, Norm. Before we turn it over to Q&A, I very briefly wanted to mention the recent New York Times article that was critical of our partnership with New York City to provide health care and basic services to migrant populations in upstate New York. Understand the core ethos of DocGo was to provide high-quality health care for those that needed the most. Oftentimes performing seemingly impossible tasks for our customers through rapid deployments in response to unprecedented events. In the early days of this migrant work, we were launching projects on extremely short timelines. All of this was to avoid families and children from sleeping on the streets without access to health care and basic necessities.

Every day, DocGo saves lives, treating and transporting thousands and thousands of patients. One of the many key facts left out of the New York Times article was the latest weekly polling of over 500 migrants in our care, which shows that more than 85% of them believe they’re being supported and their needs are being met. And city officials are well aware of this program’s success as exemplified last week when Mayor Adams reiterated his confidence in our partnership during a press conference where he praised our work, describing it as a Herculean effort to help the city with this humanitarian crisis. I am tremendously proud of the work we are doing with the city and our partners upstate especially all the amazing hard work being performed by local CBOs whom we work with daily.

We are all working hard to preserve these migrants basic human dignity and help change their lives for the better. To the thousands of DocGo employees listening, over 2,000 of which are shareholders, the work you do matters. Every day, your efforts are helping some of the world’s most vulnerable and helpless citizens find safety, support and a better life. You should be proud of the work you do. I certainly am. I will hand it back over to the operator for questions.

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Q&A Session

Operator: [Operator Instructions] The first question that we have comes from Richard Close from Canaccord Genuity. Please go ahead.

Richard Close: Yes. Thanks for the questions. On the $325 million backlog, just to be clear, does that include any of the New York City asylum contract? Or is it just a partial part of that contract? Just to clarify that would be helpful.

Norman Rosenberg: Richard, this is Norm. Let me take a moment really to sort of walk you through how we look at our backlog, the way the backlog typically works. So what we will do is we’ll start with — when we talk about starting with about 205 million from the last time, understand that a good amount of that $205 million came out of backlog and into actual revenue during the quarter. So the incremental increase is really more than from $205 million to $325 million. It does include a lot of that particular contract, but it includes probably a dozen different items that became backlog during the period.

Richard Close: Okay. That’s helpful. And I was wondering on the care GAAP programs, pleased to see that you’re being, I guess, assigned lives there rather than having to go out and generate lead flow and whatnot. Can you talk a little bit about expected revenue contribution from those care GAAP programs either for 2023 or once you like fully ramp?

Anthony Capone: Richard, it’s Anthony. So the reimbursement for those average is around $250 per care gap closure. What is still to be seen, and we’ll disclose significantly more details in our subsequent earnings call is how many of the patients were — become compliant with our program in closing these care gaps. That’s really going to be the determining factor. But we announced it’s about 73,000 lives that are being assigned to us about $250 as the average per individual care gap close. Some of them have multiple gaps that need to be closed, so multiple visits. The piece that we’ll be proving out throughout this quarter is how many of them were able to actually close.

Norman Rosenberg: And there’s nothing material really in our guidance.

Anthony Capone: That’s an important factor is that there’s really no material amount in our increased guidance attributed to these care gap closure programs.

Operator: Thank you. The next question we have comes from Sarah James from Cantor Fitzgerald. Please go ahead.

Sarah James: I was hoping to get a little bit more color on the revenue guidance boost. I know you guys mentioned in the release here that it was a prudent look at run rate and new. But for your contract that you recently signed like the New York HPD or some of the others that are more fee-for-service, how should we think about what’s assumed in your 2023 guidance as far as the ramp in this?

Anthony Capone: It’s really what we’re doing today, extrapolated out unless, of course, we have something which is guaranteed. And so we have a specific launch date in the future. So we do have contracts that have a scaling timeline where it says, okay, on this date, you will increase by this number of ambulances or increase by this number of mobile health units, in which case, that will then go into an increased revenue guidance. But it’s either, a, for sure a launch date or b, simply taking what we are doing today as of a couple of days ago and drawing that out to the end of the year. When we have a higher confidence but not certainty in future revenue, that’s when we’ll add that to the backlog versus increasing the guidance.

Sarah James: Great. And then can you talk a little bit more about what the future could look like for the care gap closure program. So for these attributed lives. Is there the potential to turn these into ones where you might have chronic care management on an ongoing basis or maybe one day look to underwrite the risk of any attributed primary care Life. What is the future of that program look like?