DocGo Inc. (NASDAQ:DCGO) Q3 2023 Earnings Call Transcript

DocGo Inc. (NASDAQ:DCGO) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Greetings, and welcome to the DocGo Third 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, Director of Investor Relations. Thank you, sir. Please go ahead.

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 fact are forward-looking statements. The words may, will, plan, potential, could, [Technical Difficulty], 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 may cause our actual results or outcomes or the timing of the 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 DocGo’s annual report on Form 10-K, quarterly reports 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 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. 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 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 Bienstock, CEO of DocGo. Lee, please go ahead.

Lee Bienstock: Thank you, Mike, and thank you, all, for joining us today. The third quarter marked our strongest growth since inception, and I’m extremely proud of the focus our team has brought through expanding our suite of services, our operational execution and our financial performance. Both during the quarter and subsequent to quarter end, we continue to expand with our current customers while also signing new customers and winning RFPs. Most importantly, our team continues to strive to increase access to care for those who needed most. During the third quarter, we surpassed 7.5 million total patient interactions since inception while leveraging a workforce that has now grown to over 6,000, more than double since I joined the company.

Our services are in strong demand across the board. And as a result, we are increasing our full year 2023 revenue guidance to $615 million to $625 million, up from $540 million to $550 million. And we are increasing our full-year 2023 adjusted EBITDA guidance to $50 million to $55 million, up from $48 million to $53 million. While our migrant work has received much of the media attention in Q3, it barely scratches the surface of what DocGo accomplished last quarter. To give a sense of the full picture in Q3 alone, DocGo transported over 158,000 patients. Our patient engagement team conducted outreach to over 50,000 patients. We’ve provided RPM, VCM and CIED monitoring for over 46,000 patients and increased our staffing headcount by over 26% during the quarter due to increased demand for our services.

We also increased our clinical capabilities to close over 30 different care gaps in patients’ homes, including bone density measurements, colon cancer screenings, diabetic retinal screenings and annual wellness visits. DocGo is bringing care to patients where and when they need it. And we are gratified to see that many of our customers recognize the value of our services and routinely expand our assignments. I’m excited by all our efforts to serve patients with our insurance partners, government and municipal population health programs and hospital system customers. I’d like to share our impact, progress and future opportunities across all 3 of these key areas. First, with our insurance partners and at-risk provider groups, the market opportunity with major insurance companies and value-based care partners, like the deals we’ve signed with health care partners, EmblemHealth and others, is one area where we have made great progress.

We entered this space with pilot programs late last year, and the majority of those partnerships we’ve launched have expanded over the past 6 months, driving more expansive commercial rollouts. Last quarter, we announced that we expected to be assigned 73,000 patients to close care gaps and provide primary care services under these agreements with four payers. We have already been assigned 59,000 of these patients and have expanded our clinical offerings to encompass a wide range of primary care services, including annual wellness visits for Medicare members and pediatric checkups, including childhood vaccinations and nutritional counseling for Medicaid members. We expect strong growth in the number of patients assigned and view this as a significant opportunity for DocGo with years of growth potential ahead.

In our population health programs, our work with migrant related services has continued to grow substantially during the quarter, and we’ve launched four new sites in the last six weeks alone. We expect to continue to work closely with our partners at the city to provide asylum seekers the medical care, behavioral health care, basic necessities and support services help transition them out of the program and into a position of self-sustainability as quickly as possible. Contrary to early negative media, we recently shared that the contract has been registered and payments have commenced. In addition, a recent independent report by the New York State Office of Temporary and Disability Assistance found that our programs were working as planned and asylee needs are being met.

We believe this report accurately reflects DocGo’s efforts and program quality as well as our commitment, diligence and dedication helping to improve the health, safety and overall well-being of all those in our care. Submissions for municipal and corporate RFPs remained a core focus and a material opportunity for the company. We recently learned that we were not awarded a large federal border control RFP, but we have many other opportunities we are excited about. Going forward, we intend to speak about this channel as a portfolio of opportunities without as much granular detail on any one specific RFP. We intend to pursue Mobile Health, both medical and behavioral health, medical transportation and municipal opportunities, both within our current footprint and with an eye towards expanding into new states, all aligned with our growing skill set.

For our partners with hospital systems and medical transportation, we are also seeing substantial new contract wins. To share a few. We recently announced our contract with Main Line Health systems in the Northeast, which we expect to represent approximately $23.5 million in revenue potential over three years, and we have plans to further grow this relationship in early 2024. Additionally, we won a large medical transportation contract valued at $34 million over the next five years in the U.K. and our large New York Health and Hospitals contract we announced early this year is now fully rolled out as planned. We are very pleased with how this segment is performing and expect to see continued strong organic growth in the coming quarters. At this time, I’ll hand it over to Norm to cover the financials.

Norm, please go ahead.

Norman Rosenberg: Thank you, Lee, and good afternoon. Total revenue for the third quarter of 2023 amounted to a company record of $186.6 million, which was 49% higher than our last record, such as the quarter ago in Q2, and it represented a 79% increase from the third quarter of 2022. Mobile Health revenue for the third quarter of 2023 was $139.3 million, up 74% in the second quarter and 82% higher than last year’s third quarter. While most of the revenue gains were related to the expansion of our migrant services contracts, we experienced growth across several projects. Some of our migrant services programs include the provision of what we call Total Care Services, which include shelter and related items in addition to core medical services.

These non-medical services are expected to account for a smaller proportion of DocGo’s overall revenue base in future quarters as our newly awarded or launched contracts tend to be more focused on medical related services. Transportation Services revenue increased to $47.2 million in Q3 of 2023, up 4% from the second quarter of this year and more than 70% higher than transportation revenues in the third quarter of 2022. Nearly every core transportation market witnessed year-over-year revenue growth, continuing the momentum that began in the second half of last year. In the third quarter, Mobile Health revenues accounted for approximately 75% of total revenues and Transportation was approximately 25%. This breakdown is closer to our expected mix of revenues than what we have seen in the prior three quarters.

Based upon early indications in Q4, it appears that Mobile Health will likely continue to account for over 75% of total revenues in the fourth quarter of this year. As of the end of the third quarter, our revenue backlog, defined as remaining revenue from projects that have been awarded, but have not yet been fully rolled out, stood $430 million, up from $325 million at the end of Q2. We recorded net income of approximately $4.6 million in Q3 of 2023, compared with net income of $1.3 million in the second quarter and net income of $2.5 million in the third quarter of 2022. Adjusted EBITDA for the third quarter of 2023 amounted to $16.7 million, up 84% from adjusted EBITDA of $9.1 million in the second quarter and nearly double the $8.4 million in last year’s third quarter.

The adjusted EBITDA margin in Q3 was 9% compared to 7.3% in the second quarter and 8.1% in the third quarter of 2022. Total gross margin percentage during the third quarter of 2023 was 29.5%, down from 33.4% in the second quarter and 31.7% in the third quarter of 2022. Gross margins in the third quarter were negatively impacted by the increase in revenues and the associated project ramp-up costs that resulted from the recent launch and ramp-up of new projects. As previously discussed, our revenue increased approximately $60 million just since the end of the second quarter. We took the opportunities that were presented to accelerate our growth with the anticipated trade-off of temporarily low gross margins. While we had previously anticipated that gross margins will continue to improve sequentially throughout 2023, we had indicated that overall margins could be impacted by the timing and size of newly launched and ramp-up projects.

This is exactly what occurred in the third quarter of 2023. However, it is worth noting that gross margins were still more than 100 basis points higher than the recent low point on the first quarter of this year. Specifically, when we witnessed accelerated revenue growth, we tend to see higher than normal labor costs due to higher-than-planned overtime rates and a greater dependence on relatively more expensive subcontracted labor. During Q3, our company-wide overtime rate was 17%, well above our targeted rate of 5% to 10%. Subcontracted employees accounted for close to 50% of total field labor costs. We typically aim for this number to be closer to the 25% area. During the third quarter, gross margins from the Mobile Health segment were 28.8% compared to 34.9% in the second quarter and 34.8% in the third quarter of 2022.

In the Transportation segment, gross margins expanded for the fifth consecutive quarter, increasing to 31.7% in Q3 of 2023, up from 30.7% in the second quarter and 23.2% in Q3 of 2022. Looking at operating costs. Operating expenses as a percentage of total revenues amounted to 24.8% in the third quarter of 2023, down significantly from 32.1% in the second quarter and compared to 27.7% in the third quarter of 2022. Looking at the same comparison without depreciation and stock comp expenses, operating expenses as a percentage of total revenues amounted to 20.7% in the third quarter of 2023, down from 26.4% in the second quarter and 23.7% in the third quarter of 2022. As revenues have increased, we have seen operating expenses decline as a percentage of total revenues, leading to operating margin expansion.

Therefore, despite lower gross margins, adjusted EBITDA margins were higher in Q3 than in either Q2 or Q3 of last year, as I mentioned earlier. Now turning to the balance sheet. As of September 30, 2023, our total cash and cash equivalents, including restricted cash, was $67.3 million as compared to $123.8 million as of the end of Q2. The decline in the cash balance is primarily related to an increase in our accounts receivable, reflecting the increase in revenues in Q3, which was on top of the sequential growth in revenues in Q2. This revenue increase was primarily driven by our government business, including our migrant related work, which features a lengthy initial payment cycle. However, since the end of the third quarter, we have now begun to receive payments for this work performed.

And as we reduce these accounts receivable, we expect near-term collections to be enough to drive our total cash balance higher in subsequent periods despite our ongoing working capital needs. In order to bolster our working capital, subsequent to quarter end, we drew down on our revolving credit facility in the amount of $25 million. This leaves us with another $65 million in available credit. We view this credit as being short-term in nature. As our largest outstanding invoices are paid back, we plan to pay down the amounts outstanding. However, we do expect the recent working capital demands to persist as we stay in growth mode with an increasing payroll and as we are paying sizable invoices to our vendors, all well in advance of receiving payments from these customers.

Turning to our outlook for the remainder of 2023. We anticipate continued strong demand from our customers for both Mobile Health and Transportation Services. We’re very encouraged by our performance so far in Q4. As so far, early indications reflect that we have carried over the revenue momentum from Q3, where we witnessed higher monthly revenues and extended margins throughout each month in the third quarter. While revenues in Q3 were much higher than initially anticipated. We use this outperformance as an acceleration, not as an aberration. During Q3, we got to a point on our growth curve that we had originally assumed was at least another quarter or two out. But we do not believe that this is one-time revenue. As such, as Lee mentioned earlier, we are raising our revenue guidance for the full-year 2023, and we now expect that revenues will be in the range of $615 million to $625 million, compared with our most recent increase in revenue guidance into the $540 million to $550 million range.

The original revenue guidance for 2023, I’ll remind everyone, was $500 million to $510 million. The increased revenue guidance range would represent year-over-year top line growth of about 40% on an as-reported basis. However, when we’re moving to $75 million of mass COVID testing from our 2022 revenue baseline and considering that we have not received any material mass COVID testing revenues thus far in 2023, and then we would expect to be looking at top line growth of nearly 70% when comparing full-year 2023 with full-year 2022. We are also increasing our guidance for adjusted EBITDA into the range of $50 million to $55 million, up from our recent guidance of $48 million to $53 million, which had already been raised last quarter from our initial 2023 guidance range of $45 million to $50 million.

With respect to 2024, it’s too early for me to provide any specific details at this time. However, we expect a strong finish to 2023, which is implied by our guidance, and we believe that our backlog numbers gives us solid visibility into continued growth in 2024. At this point, I’d like to turn the call back over to Lee.

Lee Bienstock: Thank you, Norm. My goal as CEO is to usher in a new era of operational excellence, maturity and vision as DocGo becomes laser-focused on what I consider to be our three greatest growth opportunities. My vision for the future of our company is clear. We help our three customer verticals, health systems, municipalities and insurers keep patients out of the hospital. First, as I mentioned at the top, care gap closure and additional opportunities with major insurance companies and value-based care provider groups, the early data points are exciting, and we are working on numerous opportunities that we expect to expand our number of assigned patients, our geographical presence and scope of services. Our remote patient monitoring and chronic care management solutions fall under this effort as well.

We believe our in-home and virtual medical visits combined with remote monitoring and care management allows us to successfully care for some of the most complex patients which drive the highest cost. We intend to bring this capability to our health plan partners with innovative programs where we can potentially share in the savings we deliver. Second, readmission avoidance programs with major hospital systems. These programs have historically yielded strong results for our customers, and we intend to aggressively pursue growth opportunities in this vertical. And lastly, continued emphasis on our RFP channel and what we believe to be large market opportunities. We have made great strides in the last year enhancing our overall ability to identify and compete for these types of projects, and we expect to continue winning larger and larger contracts over time.

The common thread in those three markets is that we have the customer data to support the value proposition that DocGo offers. Now we just have to go out and grow it, and we are going to focus on doing exactly that. We believe we have multiple greenfield opportunities in front of us within the three verticals I’ve mentioned throughout this call, and my goal as CEO is to lay the foundation for significant growth at DocGo for many years to come. At this time, I’ll hand it over to the operator to open up Q&A. Operator, please go ahead.

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Q&A Session

Operator: Thank you, sir. We will now be conducting a question-and-answer session. [Operator Instructions] The first question we have comes from Sarah James from Cantor Fitzgerald. Please go ahead. Sarah, please go ahead.

Sarah James: Sorry about that. I wanted to talk about Norman comments on operating expense ratio. I appreciate the comments on scale, but I wanted to understand if this implies this is the new run rate? Or is there other moving pieces like timing of investment spend that benefited the quarter?

Norman Rosenberg: Sure, Sarah. I would say that predominantly what you saw during the quarter reflects the new run rate, meaning, given that we would expect that revenues would stay at this level or grow from this level, this becomes a new revenue baseline. We don’t see anything that really is going to drive SG&A substantially higher, other than, obviously, the typical normal increases that you would see from quarter-to-quarter as we continue to build out our infrastructure, because remember, we’re catching up. Now we’re a $186 million revenue company in the quarter. So you’re dealing with now almost $725 million, $750 million annual run rate of revenue. And we’ve always been in a position where we have to allow our infrastructure to sort of catch up.

But other than that, there’s nothing specific that we can look at. There’s no big marketing program that’s on the horizon or anything like that beside the ordinary. So we would anticipate that we’d probably be able to stay at these kinds of ratios. I would just caution that it’s not something that continues to go. We’re not going to get to a point where SG&A is going to be 10% of revenue. There’s likely a point at which there’s a step function of SG&A. But otherwise, you should be able to see the same kind of leverage in coming quarters as what you saw in Q3.

Sarah James: Great. And then one more. You guys mentioned that payments are being made on New York HPD. Can you give us a sense of where cash or receivables fit on that now that we’re through October? Is it still lagged versus a normal contract? Are you guys all caught up?

Lee Bienstock: Yes, hi Sarah, it’s Lee — go ahead, Norm.

Norman Rosenberg: Yes. Sure. Sorry, I think we’re still catching up a little bit. I think there are a couple of things to look at when we talk about a lag though. There’s — looking at the invoices from the date of service to where we are today, in which case, I would say that’s a little bit more of a lag than what we typically see. But the real factor there is when the contract gets registered for all of these municipal contracts, and this is why we made such a big deal about the contract being registered. That’s why we mentioned it in an 8-K. No contract — even if it’s fully signed, no contract is paid for until where the services are not paid for until the contract is registered. Thankfully, this contract has been registered.

When I look at where we are in the payment cycle vis-a-vis the registering of the contract, and we’re fully within the typical range of what we’ve seen across different municipal agencies and a bunch of different municipalities. We’ve been in the municipal business for 3.5 years now. So none of that is out of the ordinary. It’s just that it’s a very big number.

Sarah James: Thank you.

Lee Bienstock: Yes. And Sarah, the only thing to add there, as Norm was saying, I think this is — our experience has been this where we go back and forth with the invoice and get the invoice in the right cadence of the way the municipalities like to see it, and then payments happen in a fairly regular fashion from there on. So pretty indicative of where we’ve been, in previous contracts same here, but as Norm said, it’s a larger number this time around.

Operator: Thank you, sir. The next question we have comes from Richard Close from Cannacord Genuity. Please go ahead.

Richard Close: Yes. Thanks for the question. Maybe just a follow-up on that on Norm. Can you just sort of walk us through your thoughts on accounts receivable and how we should think about that number in the fourth quarter? And I know you’re not giving 2024 guidance, but just sort of the trajectory of that number?

Norman Rosenberg: Yes, sure, Richard. And let me take it up for you and give you insight as to how we look at managing our AR portfolio from the top down. So if you look at the number itself, it’s a very, very large number, right? We’re over $200 million in AR. If you look at it from — there’s three different ways of looking at it, obviously. So you can look at it in terms of days sales outstanding, now it’s over $200 million of AR. But now we’re at a point where we’re doing close to $200 million, $186 million, almost $190 million in quarterly revenue. So in terms of just the raw calculation of days sales outstanding, while it’s higher than it was at, let’s say, the last quarter end at $630 million, it’s actually lower than it was at March of 2023.

So that’s a little something to take into account. It’s still a number that’s big, that’s very large. And the thing that we look at is across the different buckets — the different aging buckets of our accounts receivable is whether or not we’ve seen any deterioration in our portfolio. And thankfully, we have not. We actually spent sort of — behind the headlines or underneath the headlines, we actually did very well in collecting some of our relatively aged receivables during this quarter, both on the Transportation side and Mobile Health. The next thing that we like to look at is the makeup of the portfolio in those different buckets. So when I look at what is current, right, which is typically defined as 0 to 30 days. So at March, just to give you a little bit of a baseline or a comparison, at the end of the first quarter, only about 25%, 26% of our AR portfolio was under 30 days.

As of June 30, that number was about 56%. And now because of the fact — obviously, it’s sort of the way the math works because of the fact that so much of this revenue is stuff that happened during this quarter. As of September 30, nearly two-third. So about 63%, 64% of our AR is current. Also when I look in the other side of the equation, when I look at the over $90 million, it’s a lower number than what we’ve seen. When I look at over $180 million, maybe 10%. And I will say in this business, especially on the ambulance side, we still collect quite a bit of what’s over 180 days old. We often will collect things even out to $360 million and plus. So I guess my summary of the answer there is that the AR is very, very large. We would expect it to start to come down because we would expect to get on a better payment schedule, let’s say, with some of our larger customers like HPD or other municipal.

But at the same time, we’re growing revenues by quite a bit. So that’s going to continue to put pressure on the overall number. But the thing that we look at most closely is how the buckets break down and that’s being pretty well managed.