DocGo Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 11 speakers on the call.

Operator

Greetings, and welcome to the DOC Go First Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mike Cole, Director of Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

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.

Speaker 1

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 outcome 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 Dawko's Annual Report on Form 10 ks, 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. 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, .go.com, as well as filed with the Securities and Exchange Commission.

Speaker 1

The information contained in this call is accurate as of only the date discussed. Investors should not assume that statements will remain relevant and offered 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 Beanstalk, CEO of Dotco.

Speaker 1

Lee, please go ahead.

Speaker 2

Thank you, Mike, and thank you all for joining today. I'm extremely pleased with our Q1 performance and our operational execution on all fronts. We are making considerable progress expanding our care gap closure programs with major insurance companies. We're proud of the diverse set of population health services we're providing underserved communities and our medical transportation business with hospital systems remains strong and is growing nicely. We recorded $192,100,000 in revenue, had record adjusted EBITDA of $24,100,000 We served a record number of medical transportation patients, launched our primary care offering, introduced a new mobile X-ray program and continued to hire top talent for our leadership team in Q1.

Speaker 2

To start, I would like to discuss our updated guidance for 2024. On our last earnings call, we provided guidance for 2024 with expected annual revenues in a range of $720,000,000 to $750,000,000 and adjusted EBITDA of $80,000,000 to 85,000,000 dollars Given the accelerated timing of the wind down of migrant related projects and associated revenues, we are updating our revenue and adjusted EBITDA guidance. We now anticipate full year 2024 revenues of $600,000,000 to $650,000,000 This includes migrant related revenues of approximately $320,000,000 to $350,000,000 and revenues from our base business lines going forward, our medical transportation business and our non migrant mobile health business of $280,000,000 to $300,000,000 This reduction in guidance comes solely from the accelerated wind down of certain migrant services projects. The base business performed at expected levels in Q1 and should track in line with original guidance throughout the year. Breaking this base revenue down further, we expect non migrant mobile health revenues of approximately $105,000,000 dollars and transportation revenues of $195,000,000 at the high end of the range.

Speaker 2

EBITDA for the full year in a range of $65,000,000 to $75,000,000 representing an 11% adjusted EBITDA margin. We have embarked upon a program to optimize our operating expenses so that we can maintain adjusted EBITDA margins as the migrant related revenues wind down. I would also like to provide some color beyond 2024. Looking ahead to 2025, we plan to grow our base revenue from $280,000,000 to $300,000,000 to $400,000,000 and expect $50,000,000 in adjusted EBITDA. We anticipate that $400,000,000 in revenue to break down as follows: Roughly $175,000,000 in non migrant mobile health and $225,000,000 in transportation.

Speaker 2

Breaking it down by customer vertical, we expect $250,000,000 from hospital system customers, dollars 100,000,000 from municipal customers and $50,000,000 from payer and provider programs. While it is possible that some of the current migrant related projects could carry over into 2025, any migrant revenues in 2025 would be incremental to this base amount. Our 2025 base revenue goal would represent an increase of over 30% from 2024 and as usual, I'd love to share some drivers from our 3 customer verticals that are helping support this growth. 1st, our work with insurance companies continues to accelerate and we now have Care Gap closure focused contracts with 2 out of the 5 largest health insurance companies in the country. We are actively planning expansions with payers in California and New York with more in the pipeline.

Speaker 2

We have an innovative care to those lacking access to a traditional primary care provider. In fact, we're excited to announce that this past quarter, Daco has launched its mobile and virtual PCP offering to better meet the needs of the patients we see every day. And we are working to bring this new offering to more patients through our health plan partnerships. We believe that by serving as the patient's PCP with our unique in home and virtual model, we can help better coordinate their care and improve health outcomes. We're excited about what our innovative approach to primary care can do for our patients.

Speaker 2

For example, one of our first PCP patients was discharged from a rehab center in December and needed cataract surgery, but was recovering from a stroke at home and lacked a relationship with a PCP who could provide a clearance exam for her surgery. We deployed our combined virtual and in home PCP offering to provide her with a full exam, including labs and an EKG. After we completed all the necessary testing, we followed up in her home again and cleared her for her overdue eye surgery. This was a procedure she desperately needed to improve her quality of life and it wouldn't have been possible without our visits. We now have a total of 8 different payer contracts in place, allowing us to leverage our mobile capabilities to provide greater access to healthcare for traditionally hard to reach populations and providing a platform for future revenue growth.

Speaker 2

We also continue to make progress with our remote monitoring and virtual care management offerings. We have signed new patient monitoring contracts with 2 large cardiology practices in Ohio and Delaware and launched 2 new virtual care programs in New Jersey and Pennsylvania. To give a sense and an example of how we scale this business, Last year, a 3,000,000 member health plan contracted with Dotco to see members across multiple states and lines of business, including their Medicare, Medicaid and commercial exchange health plans. They assigned .go around 25,000 members with known gaps in care, including no recent hemoglobin A1c or blood pressure tests, overdue diabetic eye exams, kidney health evaluations and bone density screenings. In less than 5 months, we saw over 1400 members with in home and virtual visits and helped improve quality metrics by closing over 3,500 heated stars related care gaps.

Speaker 2

Based on these results, the health plan is expanding the number of patients that's assigning .go by 50% in 2024. Our goal to scale our insurance and patient monitoring business for 2025 is to complete over 65,000 care gap closures, to enroll 10,000 PCP patients and monitor over 70,000 patients. These metrics are all in line with our current partnerships and pipeline of future partners. 2nd, our transportation service vertical saw record trip volumes in Q1, in part due to our large health system partners the U. S.

Speaker 2

And the U. K. Experiencing higher patient volumes. We pride ourselves on being able to support capacity management efforts by collaborating closely with our hospital partners. Concurrently, we have fully deployed our leased hour program with Mainline Health in Pennsylvania.

Speaker 2

We've been awarded a leased hour 9 11 contract in Dover, Delaware and have launched medical transportation at Letix Hill Hospital in Manhattan. We continue to grow our event medical services, including a new contract with Ballpark Commons in Wisconsin and our work with New York City Football Club. In addition, we are increasingly expanding our mobile health footprint within this customer base. While mobile health services are still a relatively small component of the equation today, they have the potential to grow substantially over time given our ability to help our customers keep lower acuity patients out of the emergency room, which is exactly what our health system customers want. And 3rd, within our municipal population health business, we debuted an exciting new mobile X-ray program, which we expect will initially be used to help diagnose tuberculosis in underserved populations, but we believe has much broader utility beyond that.

Speaker 2

We introduced our first mobile x-ray unit at the National Tuberculosis Coalition of America's Annual TB Conference in Baltimore, Maryland and believe this program has considerable growth potential in the near term as many geographies across the country are experiencing a sharp increase in cases of TB. We're already seeing strong municipal interest in this offering and look forward to sharing additional updates as this program expands. Going forward, our growth will be driven by our pipeline of municipal RFPs for larger, more sustainable behavioral health and population health programs. The noise surrounding our market related work wound up clouding the core story of Daco. My job is to remind everybody what that story is.

Speaker 2

We have built our proprietary technology platform to efficiently and profitably deploy thousands of clinicians and hundreds of mobile units daily to bring care to patients wherever they may be. In a post pandemic world that is coming to the realization that telehealth alone is insufficient to truly impact patient outcomes, our combination of technology and caring hands on clinical services allows us to do what telehealth alone cannot. We're able to meet patients on their terms in person, expanding access and helping keep people out of the hospital, which at the end of the day is what everyone wants. We've created a differentiated model, a differentiated product and a differentiated patient experience. There is a tremendous market, a world of partners and millions of patients that need us.

Speaker 2

With that, I'll hand it over to Norm to cover the financials.

Speaker 3

Thank you, Lee, and good afternoon. Total revenue for the Q1 of 2024 was $192,100,000 a 70% increase in the Q1 of 2023. Mobile Health revenue for the Q1 of 2024 was $143,900,000 nearly double the levels of the Q1 of 2023. We experienced growth across several projects, business lines and geographies. However, the bulk of the year over year revenue gains related to the migrant related projects we operated in New York for both HPD and H and H.

Speaker 3

Transportation services revenue increased to $48,200,000 in Q1 of 2024, 20% higher than the transport revenues we recorded in the Q1 of 2023. Nearly every transportation market witnessed year over year revenue growth continuing the momentum that began back in the second half of twenty twenty two. In the Q1, mobile health revenues accounted for about 75% of total revenues and transport for 25%. Net income was $10,600,000 in Q1 of 2024 compared with a net loss of $3,900,000 in the Q1 of 2023 reflecting higher revenues and wider gross margins. Our effective tax rate for the Q1 was approximately 33%, which we believe is a good assumption for future periods.

Speaker 3

Adjusted EBITDA for the Q1 of 2024 was $24,100,000 the highest quarterly adjusted EBITDA figure we've ever recorded and more than 4 times the $5,600,000 in last year's Q1. The adjusted EBITDA margin was 12.6% in Q1, up from 5% in the Q1 of 2023. Total gross margin percentage during the Q1 of 2024 was 35%, up significantly from 28.1% in the Q1 of 2023. Gross margin in the Q1 of 2024 represented a continued rebound from the subpar levels of the 1st and third quarters of last year, which had been negatively impacted by the increased costs that resulted from the launch and ramp up of new projects. During the Q1, while we were able to largely maintain Q4 2023 revenue levels, we were able to improve margins further by bringing overtime costs and subcontracted labor expenses more closely in line with the targets we have communicated in our recent earnings calls.

Speaker 3

We saw solid sequential improvements in both of these key metrics. During the Q1 of 2024, subcontracted labor accounted for 31% of total hours worked as compared to 41% in the Q4 of 2023. Overtime accounted for 7% of total hours worked in the Q1 of 2024 compared to 9% in the Q4 of 2023 and down from our peak of 16% back in the Q3 of 2022. Both of these metrics have continued to trend lower in the Q2 to date, which bodes well for Q2 margins. During the Q1 of 2024, gross margin for the Mobile Health segment was 35.5% compared to 27.7% in the Q1 of 2023, which had been impacted by those project launch and ramp up related costs.

Speaker 3

While there were some new project ramp ups in Q1 2024, these impacts were outweighed by an ongoing margin improvement on some of our more mature projects. We aim to generate a blended gross margin of 40% or better in our Mobile Health segment, so we still have some more work to do, but the improvements we've seen in the past 6 months have been very encouraging. In the Transportation segment, gross margins were 33.7% in Q1 of 2024, up from 28.9% in the Q1 of 2023. Transportation gross margins continue to benefit from increased scale, improved utilization and easing of fuel price pressures and a higher value mix of trips along with a continued shift toward higher margin leased hour programs. The Q1 of 2024 marked the 4th consecutive quarter of transportation gross margins in excess of 30%.

Speaker 3

We expect that transportation gross margins will stay right around the current level despite some anticipated wage pressures in certain geographies as the market for EMTs remains tight. Now looking at operating costs. SG and A as a percentage of total revenues was 26.7% in the Q1 of 2024, much lower than the 34.2% in the Q1 of 2023. As revenues increased over the second half of twenty twenty three and on into 2024, we saw SG and A decline as a percentage of total revenues leading to operating margin expansion. We also executed a targeted reduction in force during Q1, which resulted in some cost savings that will be realized as we move into Q2 and beyond.

Speaker 3

Turning to the balance sheet. As of March 31, 2024, our total cash and cash equivalents including restricted cash was $58,900,000 as compared to $72,200,000 as of the end of 2023. Our accounts receivable continued to increase, reflecting the spike in revenues that we witnessed over the second half of twenty 23 and in early 2024. While we collected significant amounts during Q1, particularly in late February, we saw a slowdown in collections over the final 3 weeks of the quarter before payments started to flow again early in Q2. Looking at our project with New York City's Department of Housing Preservation Development, HPD, as of today, we have collected nearly 65 percent of the year end 2023 accounts receivable for this particular project.

Speaker 3

Offsetting these collections though are the the At quarter end, we had approximately $210,000,000 in accounts receivable from the various migrant programs, representing about 75% of our total company accounts receivable. While the wind down of migrant related programs will have an impact on revenues, our balance sheet is expected to benefit substantially in 2024 as we collect this AR leading to an improvement in cash flow from operations. In addition to working capital uses during Q1, we used our cash balances to execute our stock buyback program. During the quarter, we repurchased about 1,300,000 shares via open market purchases for an aggregate amount of approximately $4,900,000 To this point in Q2, in accordance with the terms of our automated 10b5-1 trading plan, we have repurchased an additional 1,400,000 shares for an additional $4,900,000 Having spent approximately $10,000,000 on our repurchase so far this year, we still have another $26,000,000 remaining under that program. As Lee mentioned, we now expect lower migrant related revenue this year due to the anticipated accelerated wind down of certain migrant projects.

Speaker 3

However, the collection of receivables mentioned above will lead to an improvement in our working capital situation As we collect older, larger invoices and as our cash outflows decrease in line with lower migrant project expenditures, we would expect to see an increase in our cash balance. We therefore now expect to generate cash flow from operations of $70,000,000 to $80,000,000 in 2024, which is higher than the range that we originally guided to when we reported our 2023 results at the end of February. At this point, I'd like to turn the call back to the operator for Q and A. Operator, please go ahead.

Operator

Thank you, sir. At this time, we will be conducting a question and answer session. The first question that we have comes from Ryan MacDonald of Needham. Please go ahead, sir.

Speaker 4

Hi, thanks for taking my questions and congrats on a nice quarter and great to see sort of a clearing of the decks here as we think about the core business moving forward relative to migrant contracts. Maybe just to clarify, so as you're thinking about going into 2025, your expectations are for sort of the core business to be around $400,000,000 of revenue with $50,000,000 of EBITDA. Are you expecting any migrant contract related revenue at all? It sounded like that would be in addition to it, but are you still expecting any migrate contracts at all in your initial 25 expectations? Thanks.

Speaker 2

Thanks, Ryan. Thanks, Ryan. Appreciate the question. So we really wanted to break out the base revenue, and that's the $400,000,000 that you're alluding to, which is going to grow into 2025. Any migrant related revenues into 2025 would be incremental to that.

Speaker 2

So it's certainly possible depending on the nature of the crisis, depending on the nature of the deployment and the needs of the city, it's possible that it could continue on into 2025, but that would be incremental to the $400,000,000 base business.

Speaker 3

Ryan, it's Norm. I'll just add to that. We want to make sure that we're clear about it. The numbers that we're sharing for 2025 do not represent guidance, right. They just represent sort of a scaling for everybody so that they can do their modeling as to what we think are so to speak base revenues are.

Speaker 3

As we get closer to 2025, we'll have better visibility into what actually might be added to that via the migrant related revenue and that would constitute our actual guidance for the period.

Speaker 4

All right. That's super helpful clarification. And then as we think about the core business and sort of the breakdown of the 2025 numbers, you said $250,000,000 from hospital systems, dollars 100,000,000 from municipal, dollars 50,000,000 from payer and provider programs. Can you give us a sense of there are a lot of great initiatives you were talking about within there, but give us a sense of what the respective growth rates sort of of those end markets are as you're thinking about this year into next year? Thanks.

Speaker 2

Sure. So I think, the growth of these of those three segments really going to be driven by where the pipeline of those businesses are. You alluded to the hospital business. That business is the medical transportation business that we have today. And that business is expected to grow in the 15% range into 'twenty three and from 'twenty four to 'twenty five.

Speaker 2

In addition to that, we're going to add more mobile health programs with our health system partners, which is where you see the growth also coming from in 2025. And that will come from hospital systems that are already partnered with us as well as a pipeline of hospital systems that are new potential partners for us that we're working with every single day. On the municipal business, shared a bit, but we're going to be growing that business through what we call population health, long term sustainable RFPs and opportunities with municipalities. And really the characteristics we're going to look for there are really that they're long term nature, they're long term programs in nature versus less crisis response. They incorporate our core services, our core medical services such as vaccination deployment, behavioral health care services and other infectious disease services that are in our core competencies and also incorporate aspects of our technology and our innovative delivery model.

Speaker 2

And so we're going to be evaluating RFPs going forward under those three criteria. And again, we have our pipeline of RFPs, which we shared on previous calls that we're going to continue to pursue and we're going to look for RFP opportunities that embody those characteristics. And then on the insurance side with our payers and our provider partners and the monitoring business, that business as we shared is the smallest business of ours today. It's the fastest growing business in our portfolio. And that's going to grow based on expanding the current payer relationships that we have as well into new geographies and then expanding via new payer partnerships that we have in our pipeline.

Speaker 2

And I would say, that has the highest growth rate, but still off the smallest base.

Speaker 4

A lot of great opportunities, Lianne. Again, really appreciate all the additional color here on the call today. Thanks.

Speaker 2

Thanks, Ryan.

Operator

The next question we have comes from Richard Close of Canaccord Genuity. Please go ahead.

Speaker 5

Yes. Thanks and congratulations on the quarter. Just with respect to the migrant, just to clarify, appreciate the details in terms of the expected revenue contribution. What I'm curious on is NYC Health and Hospitals. I believe that's a separate contract for migrant work.

Speaker 5

And are you saying you're expecting that to wind down or go away? Maybe some details with respect to that would be helpful.

Speaker 3

Sure. Richard, let me walk through that with you. Just to start at a high level, essentially, we're taking down the estimate around the migrant related revenues by about $100,000,000 or so, give or take, when you compare our last guidance to the current guidance. Just about every dollar of that relates to HPD. And that's because of 2 different factors.

Speaker 3

Number 1, you have the transition away from some of the sites here in New York City, the so called downstate sites. And then the anticipated now anticipated wind down of the upstate sites as well, which granted is a projection. There is not a calendar yet for that, but we're projecting that. As for the H and H part of the business, when I look at the old what I'll call the old projection versus the current projection, it's pretty much flat. The H and H related migrant work is obviously, there are going to be some sites that close, other sites that are a little bit longer.

Speaker 3

But with the ins and outs, essentially, that number doesn't move very much. And I can break that out for you. I mean, we assume that the H and H will be roughly $180,000,000 for the full year, while the HPD related items will be about $150,000,000 and that's down from a previous expectation about $250,000,000 So the entire delta really is explained by the various HPD various elements of the HPD programs and contracts.

Speaker 5

Okay. But is there a end date on H and H or I apologize if I just missed that.

Speaker 2

Sure. So there isn't currently an end date on the H and H work. We'll continue to support Health and Households. They're one of our long standing partners. We've been working with them for years on a myriad of different healthcare deployments and needs.

Speaker 2

So there's no end date on that. Obviously, as we know more and more in terms of how those projects shape up, we're going to update. But right now, there's no end date on that. We did all of those H and H projects did go out for bid. We were originally providing services under an emergency procurement.

Speaker 2

And then those services went out to bid and we did initiate new contracts there and those will run for a year roughly from now or the past few months. But depending on the need, we'll continue to provide those services, but no end date scheduled right now. But as we know more and more heading into 2025, of course, we'll update you.

Speaker 5

Okay. That's helpful. And then maybe a follow-up to Ryan's question with respect to 2025, just to be clear on this norm. The $400,000,000 is sort of a target, and it sounds like that's like business that's already under contract, you're currently executing and some expect to growth or ramp up of certain contracts like the managed care contracts, for example. Is that correct or is there some sort of go get in that 400,000,000

Speaker 3

dollars Yes. Well, I think that any time that you're talking about revenues that are anywhere from 6 to 18 months out, there's going to be some go get in there. And a lot of it has to do with the goals that have already been disseminated here internally. But essentially what that breaks down to and we talked about $225,000,000 of that would be transport. So if you compare that to maybe $195,000,000 or $200,000,000 this year, you get that growth, low double digit growth.

Speaker 3

On the payer programs and the things in that category, we're probably trending to $25,000,000 or 30,000,000 this year. So you're talking about nearly doubling that to about $50,000,000 that's based on a couple of factors. It's based on targets and goals as far as the number of patients we would expect to have, number of agreements that we would expect to have. And then in the hospital system, because we look at that as not a as a vertical as opposed to a segment, we're assuming, as Lee mentioned, maybe 10% of that number of the 250 we said from hospitals are not transport, but our mobile health. And those are based on some deals that are in the some of them are in the signing phase and some of them are a little bit further up the funnel.

Speaker 3

But a lot of that is spoken for, but sure, there's definitely some go get in there. But every dollar of go get revenue that's in there is applied against something in the funnel.

Speaker 2

Yes. The only thing I'd add Richard is really it's a combination of the base business, the contracts we have and all the partners we have right now to date, as well as it's based off of the pipeline we have for this year and for next year. Pipeline of all the various different partners in all the stages of that pipeline that we have this year and next year.

Speaker 3

Yes. But here's an important thing for everyone really to know, we've something we talk about here internally. The people who are going to be out there going last 2 last 2 years have been focused on some of this migrant revenue. So there's definitely while there was definitely an opportunity cost over the last couple of years, there's a call it an opportunity benefit as we go forward, as we focus on building out that base. So we're not turning down migrant work, but in terms of business development activity, in terms of other operational activity, the focus will clearly be on the base.

Speaker 5

Okay. Thank you very much.

Operator

The next question we have comes from David Larsen of BTIG. Please go ahead.

Speaker 6

Hi. Can you talk about the payer facing business? Maybe talk about the demand that you're seeing for care gap closures.

Operator

How is

Speaker 6

your competition in the space? It sounds like you have

Speaker 3

a very

Speaker 6

unique solution that would be attractive to health plans. And then maybe can you talk a little bit about the virtual primary care business? It seems like plans could probably benefit from that as well. And I think all of this probably drives improvement in STARS ratings, which is obviously very important to health plans. So any more color there would be very helpful.

Speaker 6

Thank you.

Speaker 2

Of course. Thanks, David. Great to hear from you. Appreciate the question. So absolutely, as you described, we're absolutely seeing demand for CareGap.

Speaker 2

This is really being driven by the health plans really investing deeply on improving their quality scores, improving their HEDIS STARS measures and really making sure that they're investing in impacting their member and their patient, their member base, their health outcomes. And we see a tremendous opportunity for us to engage these health plans, many of which have millions of members to reach those members that have gaps in care and have accessibility issues. I think our competition primarily are sort of your brick and mortar clinics where the health plans traditionally have tried to funnel or tried to direct patients into those clinics to be able to close those gaps in care. Obviously, we take a very different approach. Instead of calling a patient and saying, we need you to come into our clinic for a bone density scan or we need you to come into the office for a diabetic eye exam, we call the patient and say, hey, we're in your neighborhood.

Speaker 2

We understand you need a care gap closed. You need a colon cancer screening. We're in your neighborhood. We'll come to your home. How does tomorrow sound?

Speaker 2

How does next week sound? And we feel like we have a really differentiated patient experience that I think is proving successful and very valuable and patients love it. So that's really where we see the demand. That's kind of the competition. So of course, there are other mobile providers out there, but we have a really unique really unique service delivery model that combines our tech platform.

Speaker 2

We're able to efficiently optimize the field clinicians that we have. We provide them with the technology they need and then we marry them up with a we partner them with an advanced practice provider that's directing the clinical encounter remotely. So really unique model and obviously bringing care to patients and meeting them where they are is way more likely to be helpful in improving health outcomes. In terms of the virtual care, in terms of the primary care practice business, the PCP business that you mentioned, we really feel there as well that we have a differentiated model. So you can imagine when we go and close gaps in care, when we engage patients in their home and we form that relationship, there's an opportunity for us to become their primary care provider.

Speaker 2

And there's an opportunity for us to help quarterback their care, to help coordinate their care and impact their care, in a much more profound deeper way. And so we feel like we have opportunity there. And so as we engage patients, close care gaps is going to be an opportunity for us to become their primary care provider because perhaps they don't have access to 1, but they haven't seen 1 in over a year, they have a hard time getting to their PCP or they have a hard time getting an appointment with the PCP. We have our unique model where we essentially bring the PCP to them. And so as we go and close care gaps, there's going to be sort of that natural funnel where we can then become their PCP as well.

Speaker 2

And then as we're helping coordinate care, as we're closing gaps in care, you can imagine we'll be successful in impacting STARS ratings, quality score metrics and obviously that betters the patient, that betters the plans and ultimately helps lower costs for the overall system and we will participate in that. So we're excited about that funnel. We think the value prop is certainly there. The patient experience is certainly there. It's a really differentiated offering, from what's out there today and we're excited to scale it and invest in it.

Speaker 6

Okay. That's very helpful. And then just one quick follow-up on the primary care business. Like the virtual primary care businesses that I'm aware of are very like fast growth businesses, PlusCare within Accolade, I think is their highest growth segment. LifeMD, very high growth.

Speaker 6

Would there be like what would the revenue model be? Could it be like $100 a month direct to consumer? And then I mean I think that would be $12,000,000 a year in revenue if you assume 10,000 patients. And then or would you potentially bear risk and collect a percentage of premium? Or is that sort of still in development and you'll sort of see where the need is in the market?

Speaker 2

Yes. So I think it's important to know, we really feel like our differentiation is the virtual when it's effective and then the ability to go in person when it's needed. And in many cases, it just simply is needed. And I think a lot of healthcare companies are finding that out where they're doing telehealth only. They really are needing that in home clinical care.

Speaker 2

So we really feel like that's our differentiation, not just on the virtual side, but we are adding to the equation the in person. And in some cases, we'll do virtual, but when it's needed, we're able to go in person. I think our monetization of this really is exactly as you described. I think initially, we're going to be having a per member or per patient per month essentially fee that gets charged either to the health plan or commercial payer. And then eventually, once we have the data, once we feel comfortable, some of the contracts we're signing do have the ability for us to enter into risk sharing, initially upside only and then eventually full risk when we feel comfortable, when we feel like we are indeed impacting patient outcomes and lowering total cost of care.

Speaker 2

But we are structuring things in a way that it is a step function, not all at once.

Speaker 6

Okay. Thanks very much. I'll hop back in the queue.

Speaker 2

Thanks, Dave. Appreciate it.

Operator

Next question we have comes from Pito Chickering of Deutsche Bank. Please go ahead.

Speaker 7

Hi, there. You've got Kieran Ryan on for Pito. Thanks for taking the question. Just wondering, is there any way you can anything you can say to maybe help us understand what the margin is on your base revenues today or in 2024 just as we think about kind of bridging to that 12.5% for 2025 on the $400,000,000 in revs $50,000,000 in EBITDA? Thanks.

Speaker 3

Sure. So on the it's Norm. So on the gross margin side, the transport business, we break out pretty easily. So that's about $33,000,000 and change. So that's we're running.

Speaker 3

Obviously, the EBITDA margin on that, depending on how you allocate the overhead is a different number. But when you look at mobile health, it's we'll start with the gross margin, probably about 35% and change. Actually, if you break out migraine, that number might be a little bit higher. Some of the migraine revenues, especially the programs that are going to be the first ones that go out the door, happened to be lower margin. So I think the mobile health base margin, base gross margin is in the high 30s.

Speaker 3

The way we get there though is we talk about having a blended gross margin of let's say 35 points and then SG and A as a percentage of revenue is about 23 points. And then you get to year 12 or 22.5 points. The tricky thing is that you've got 3 different categories of SG and A. So we have the global health SG and A, which is pretty variable. So that should come down along with when the revenues come out for the migrant piece.

Speaker 3

The transport revenues are also with transport SG and A is generally connected on a variable basis. The issue for us is going to be whether the work that we have to do that has really started and is already underway is making sure that we right size our corporate expenses. So how do we manage our corporate expenses in such a way that we scale it for a company that's, let's say, dollars 400,000,000 or so in revenue or a little bit more than that as opposed to $600,000,000 or $700,000,000 But that is going to be the work that has to get done scale and right size the rest of the business. But that's kind of how we get there. 35% gross margin on a blended basis, right about where we are now.

Speaker 3

And then about 23 points on the SG and A side, getting you to an adjusted EBITDA margin of about 12%, 12.5%. Percent. So the margin characteristics will be very similar actually to what we have here in Q1.

Speaker 7

Right. So that would imply there's probably not much change to your expectation that quarterly gross margins this year stay relatively consistent with 4Q 2023?

Speaker 3

Yes. I mean, we're very encouraged because not only do we have a continued improvement in gross margin on the sequential and of course a year over year basis. But I can say, I mean that number is pretty neat and clean. There wasn't a lot of adjustments of expenses or anything like that. There wasn't any reversal of accruals or the typical accounting stuff that you could have in a quarter that take your margins up or down.

Speaker 3

There was very, very little that was non recurring in nature. That was pretty much a pure clean margin that we saw this quarter. Now obviously, there are always factors that will put some pressure on margins from time to time. But at the same time, there are factors that move in the other direction. So we think we ought to be in this general area for quite some time.

Speaker 3

As I pointed out during the call, things like over time continue to trend in a positive direction even better than they were in Q1. Things like the subcontracted labor as a percentage of hours or cost or however you want to look at it are also trending in a positive direction. So when we look at those KPI, the signal is flashing green. So that's good.

Speaker 8

Thanks.

Operator

Thank you, sir. The next question we have comes from Sarah James of Cantor Fitzgerald. Please go ahead.

Speaker 9

Thank you. So just to clarify on that last question, it sounds like as you step out of the HPD revenue that we shouldn't expect any mix shift in expenses between the buckets of cost of revenue and G and A, that you guys have a similar enough mix on that business to your core, that those ratios would stay pretty consistent. Is that right?

Speaker 3

Sarah, on an overall basis, that's correct. Realistically, in terms of timing, it happens to be that the first projects or the first sites that are going to be transitioned happen to be the ones that have the lower gross margins. So you'd see a little bit of an improvement technically. But again, we didn't choose it wasn't like we cherry picked those sites or anything like that. It just happens to be that way.

Speaker 3

And at certain regions, in certain sites tend to be a little bit less profitable. But on an overall basis, when you look at the sort of the blended projects, they don't have a dramatically different margin profile from the rest of the business.

Speaker 9

Okay, great. And is there anything that you can offer us to help on seasonality this year kind of as that contract winds down, but you're contrasting it with growth in some of your other units? How should we think about the contribution of first half versus second half?

Speaker 3

So I would look at I mean, there will be a seasonality or at least a fluctuation, not really seasonality per se, but a fluctuation on a sequential basis. And essentially what I would look at is that overall revenue is going to blended revenue would trend lower, because while the core revenue is going to grow sequentially, I feel pretty good about that. And then if you line up what we did in Q1 with what our full year projections are that we've shared for the core business, they would pick up sequentially as we go throughout the year. And that's based on certain projects we have that are about to launch both on the transport side and on the non migrant mobile health side. But that's not going to outweigh or that will be outweighed by the decline in HPD revenue.

Speaker 3

So we're looking at HPD revenue coming down by a pretty significant amount in Q2 and then maybe dropping by half again in Q3. And then by Q4, there's almost immaterial contribution from in our guidance and our projection from that particular contract. So that's going to be a big enough delta that it will outweigh the increase in the core revenue. So if I was looking at our overall revenue number sequentially, the way it lines up at the moment is that you'd have Q1 will end up serving as a high watermark for revenues for us on a quarterly basis in 2024 And it will drop into Q2, drop further into Q3, probably dropping further into Q4 depending on the timing of when some of that other revenue picks up.

Speaker 9

Great. Last question. Could you give us any details on the payable build in the quarter, accounts payable?

Speaker 3

The accounts payable? Yes. Sure. So an interesting thing that we look at is we've mentioned that we collected actually collected quite a bit of money during the quarter. Yet obviously what you've seen is continued pressure on the working capital side.

Speaker 3

But if you look at the balance sheet, which was included both in the release and in our 10 Q, which was filed today as well, right after the close. So you'll notice that obviously not only did the AR go up, but certain payable levels went down, I. E. The prepaid expenses and things of that nature. So I would estimate just to walk everybody through it.

Speaker 3

I would estimate to be collected from the various migrant and related programs, we probably collected about $120,000,000 during the quarter. But at the same time, obviously, there's a lot of large payroll against that. And then we paid out payables to the extent of almost $80,000,000 $90,000,000 almost $90,000,000 on those projects. And one thing we were discussing here internally is that we can't we're not in a position where we can just match up the payment of the payables with when we get the money. We have to pay the in order to get paid, in many cases, we have to have receipts that show that we paid the underlying providers.

Speaker 3

So we can stretch it a little bit, but we really don't have the luxury of turning that working capital cycle around. We're in a negative working capital cycle on these migrant revenues and that's always going to be the case. And the other thing is that a lot of these vendors are very important to us and they're very important vendors and they're not they're small companies, but already owned companies in some cases, private companies, they can't afford to wait 4, 5, 6 months before they get paid, even if we were to choose to do that. So when you're dealing with these kinds of revenues, there's always going to be a lot of working capital pressure, and that's what came up during the Q1 again.

Speaker 9

Very helpful. Thank you.

Operator

Thank you. The next question we have comes from Mike Latimore of Northland Capital. Please go ahead.

Speaker 10

Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on if the noise around the migrant care affecting your other deals in NYC or State?

Speaker 2

Sure. Happy to answer that question. I think I heard it clearly. Could you just repeat the last part of the question?

Speaker 10

Whether the noise around your migrant care is affecting your other deals in New York City or State?

Speaker 2

Yes. So the noise, I think, that certainly has something we monitor. We are in close communication with all of our current partners and everybody in our pipeline. Whenever there is some noise or something misleading gets printed, we're very proactive. We call all of our current partners and prospective partners, and we clarify.

Speaker 2

And obviously, the partners that are working with us today know the quality of our work and really value our partnership. And so we're able to really address that noise. And that's one of the things frankly that we're looking forward to moving past. I think a lot of the migrant related revenues unfortunately became politicized, and as a result created some noise, created some noise in the market with our investors and created noise potentially in the market with customers, which I think we've handled very, very well. So it's something we're paying close attention to.

Speaker 2

We have had one partner that wanted to pause until the noise subsides. We're in close communication with that partner. But the rest of our partners are all working closely with us. We continue to address any of the noise that it comes up and that has not been an issue. And with our prospective pipeline, we update everybody as we go.

Speaker 2

And we really feel like our value proposition for prospective partners and the quality of our work with all the partners we have today really speaks for itself. And one of the great things we have the opportunity to do is any prospective partners, we actually put in contact with our current customers as references. And we've done that very, very successfully. Our current customers are great references for us, speak to the quality of our work and what it's like to work with us and partner with us. And we've utilized that as well to help in the sales process.

Speaker 10

Got it. And could you also give some color on the ratio of operating cash flow to EBITDA you might expect this year?

Speaker 3

Yes, sure. So as you heard or hopefully heard, we actually even as we took the even as we took the assumption of EBITDA down by a little bit, we're actually taking the cash flow from operations number. And to be clear, when we talk about cash flow from operations, that's that GAAP line item that you have in your statement of cash flows. And we're saying that now we expect that that number is going to be between $70,000,000 $80,000,000 actually a little bit higher than the EBITDA that we have. Now typically, we should be running at we are taxpayers, so that's part of the factor.

Speaker 3

We should be running at a I don't know, all things being equal, maybe 80% or so of the adjusted EBITDA turns into operating cash flow. What we have built in is that if we are going to have a decline in this migrant revenue base, then obviously that's going to result in as we model it out, that's going to result in the collection of receivables that is going to be faster than what we pay out as we go through the year. So we're going to be collecting on older invoices here over the next 2, 3 months. But then at the same time, we're paying out less money. Sort of a reversal of some of the working capital issues that we've had in the last 3 to 4 quarters.

Speaker 3

So for example, in Q1, if you look at that if you look at our statement of cash flows, I think the number was negative $10,000,000 in change in the Q1. In the it was about $10,000,000 or so that was used in operations. That number on a full year basis should be somewhere in the $70,000,000 to $80,000,000 range as compared to adjusted EBITDA in the $65,000,000 to $75,000,000 range. So for the year, we would expect it to be a little bit more than 100%, acknowledging that a lot of that has to do with the fact that we're going to get some positive working capital changes here in Q2, Q3 and Q4.

Speaker 10

Got it. Fine. Thank you.

Operator

Thank you. The final question we have comes from David Grossman of Stifel. Please go ahead.

Speaker 8

Thank you. Sorry, just 2 really quick ones. One is, I'm on the road, so I'm not in front of screen here, but did you give the core growth rate that you're expecting for 2024? So when you back out migrant work in 2024 and 2023 with the core growth rate, is this what the assumed growth rate is that underlies the guide?

Speaker 3

I'm sorry, you're asking about the non migrant revenue for 2024? Right,

Speaker 10

Right.

Speaker 3

Yes. So the assumption on non migrant revenue for 2024 is roughly $300,000,000 which is Right.

Speaker 8

And what does that look like from a growth perspective year over year?

Speaker 3

So year over year, if I just look at those line items, it's pretty flat. The reason for that is that while you're going to have transport growing by from about 100 low 180s to the mid to high 190s, so maybe by 10 percent or so on the transport side. On the non migrant mobile health, we had a couple of large municipal projects that were, I'll call them COVID adjacent. They weren't testing projects, but they were vaccination related projects that we had in the 1st 3.5 months of 2023. That was probably $25,000,000 or so and maybe another $5,000,000 or $10,000,000 of other projects that expired in the early part of 2023.

Speaker 3

So that when you look at that, then that number came down by a little bit. If you take that out, then it's up by a bit. So on a blended basis, we did about $300,000,000 of what you would consider those core revenues last year and would expect to do $300,000,000 this year.

Speaker 8

Got it. Thanks. And then just on the segment margins, did you provide is that in the queue, the segment EBITDA margins, any chance between transport?

Speaker 3

The same way we've broken it out because we have the corporate And I know that you guys apply you apply the breakdown of the corporate piece. But yes, that's all I'm

Speaker 1

Great.

Speaker 3

All right, guys.

Speaker 8

That's it for me. Thanks again. Yes.

Speaker 3

Yes.

Operator

Thank you, sir. Ladies and gentlemen, we have reached the end of our question and answer session. And I would like to turn the call back over to Beanstalk for closing remarks. Please go ahead, sir.

Speaker 2

Thank you. And thank you all for joining today. We're looking forward to speaking with you again soon on all our progress. Be well.

Operator

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.

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Earnings Conference Call
DocGo Q1 2024
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