DocGo Inc. (NASDAQ:DCGO) Q1 2024 Earnings Call Transcript May 10, 2024
DocGo Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the DocGo First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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. 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 fact, are forward-looking statements. The words may, will, plan, potential, could, goal, outlook, design, anticipate, aim, believe, estimate, expect, intend, guidance, confidence, target, project and other similar expressions may be used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance, and we cannot assure you that we will achieve or realize our plans, intentions, outcomes, results or expectations. Forward-looking statements are inherently subject to substantial risks, uncertainties and assumptions, many of which are beyond our control and which may cause our actual results or outcomes or the timing of results or outcomes to differ materially from those contained in our forward-looking statements.
These risks, uncertainties and assumptions include, but are not limited to, those discussed in our Risk Factors and elsewhere in 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 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 $192.1 million in revenue, had record adjusted EBITDA of $24.1 million. 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.
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 million to $750 million and adjusted EBITDA of $80 million to $85 million. 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 million to $650 million. This includes migrant-related revenues of approximately $320 million to $350 million and revenues from our base business lines going forward, our medical transportation business and our non-migrant Mobile Health business of $280 million to $300 million. 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 million and Transportation revenues of $195 million at the high end of the range. We now see adjusted EBITDA for the full year in a range of $65 million to $75 million, 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 million to $300 million to $400 million and expect $50 million in adjusted EBITDA.
We anticipate that $400 million in revenue to break down as follows: roughly $175 million in non-migrant Mobile Health and $225 million in Transportation. Breaking it down by customer vertical, we expect $250 million from hospital system customers, $100 million from municipal customers and $50 million 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 three customer verticals that are helping support this growth. First, our work with insurance companies continues to accelerate, and we now have care gap closure focused contracts with two out of the five largest health insurance companies in the country.
We are actively planning expansions with payers in California and New York with more in the pipeline. We have an innovative model that engages health plan members to address gaps in care with convenient home visits and provide ongoing care to those lacking access to a traditional primary care provider. In fact, we are excited to announce that this past quarter, DocGo 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 are excited about what our innovative approach to primary care can do for our patients.
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.
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-million-member health plan contracted with DocGo to see members across multiple states and lines of business, including their Medicare, Medicaid and commercial exchange health plans. They assigned DocGo around 25,000 members with known gaps in care, including no recent hemoglobin A1C or blood pressure test, overdue diabetic eye exams, kidney health evaluations and bone density screenings. In less than 5 months, we saw over 1,400 members with in-home and virtual visits and helped improve quality metrics by closing over 3,500 HEDIS, Stars-related care gaps.
Based on these results, the health plan is expanding the number of patients assigned to DocGo 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. Second, our transportation service vertical saw record trip volumes in Q1, in part due to our large health system partners in the U.S. 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 Main Line Health in Pennsylvania.
We’ve been awarded a lease hour 911 contract in Dover, Delaware and have launched medical transportation at Lenox 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 third, 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.
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 migrant-related work wound up clouding the core story of DocGo. My job is to remind everybody what that story is. 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. With that, I’ll hand it over to Norm to cover the financials.
Norman Rosenberg: Thank you, Lee, and good afternoon. Total revenue for the first quarter of 2024 was $192.1 million, a 70% increase from the first quarter of 2023. Mobile Health revenue for the first quarter of 2024 was $143.9 million, nearly double the levels of the first quarter 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, both HPD and H&H. Transportation services revenue increased to $48.2 million in Q1 of 2024, 20% higher than the transport revenues, we recorded in the first quarter of 2023. Nearly every transportation market witnessed year-over-year revenue growth, continuing the momentum that began back in the second half of 2022.
In the first quarter, Mobile Health revenues accounted for about 75% of total revenues and Transport for 25%. Net income was $10.6 million in Q1 of 2024 compared with a net loss of $3.9 million in the first quarter of 2023, reflecting higher revenues and wider gross margins. Our effective tax rate for the first quarter was approximately 33%, which we believe is a good assumption for future periods. Adjusted EBITDA for the first quarter of 2024 was $24.1 million, the highest quarterly adjusted EBITDA figure we’ve ever recorded and more than 4x the $5.6 million in last year’s first quarter. The adjusted EBITDA margin was 12.6% in Q1, up from 5% in the first quarter of 2023. Total gross margin percentage during the first quarter of 2024 was 35%, up significantly from 28.1% in the first quarter of 2023.
Gross margin in the first quarter of 2024 represented a continued rebound from the sub-par levels of the first 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 first quarter, while we were able to largely maintain fourth quarter 2023 revenue levels, we were able to improve margins further by bringing overtime costs and sub-contracted labor expenses more closely in line with the targets we have communicated in our recent earnings calls. We saw solid sequential improvements in both of these key metrics. During the first quarter of 2024, sub-contracted labor accounted for 31% of total hours worked as compared to 41% in the fourth quarter of 2023.
Overtime accounted for 7% of total hours worked in the first quarter of 2024 compared to 9% in the fourth quarter of 2023 and down from our peak of 16% back in the third quarter of 2022. Both of these metrics have continued to trend lower in the second quarter to date, which bodes well for Q2 margins. During the first quarter of 2024, gross margin for the Mobile Health segment was 35.5% compared to 27.7% in the first quarter of 2023, which had been impacted by those project launch and ramp-up-related costs. 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 first quarter of 2023. Transportation gross margins continued 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 first quarter of 2024 marked the fourth consecutive quarter of transportation gross margins in excess of 30%. 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&A as a percentage of total revenues was 26.7% in the first quarter of 2024, much lower than the 34.2% in the first quarter of 2023.
As revenues increased over the second half of 2023 and on into 2024, we saw SG&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. Turning to the balance sheet. As of March 31, 2024, our total cash and cash equivalents, including restricted cash, was $58.9 million as compared to $72.2 million 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 2023 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% of the year-end 2023 accounts receivable for this particular project. Offsetting these collections, though, are the large amounts that we have invoiced for 2024 to date, the bulk of which has not yet been collected. At quarter end, we had approximately $210 million 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 1.3 million shares via open market purchases for an aggregate amount of approximately $4.9 million. To this point, in Q2, in accordance with the terms of our automated 10b5-1 trading plan, we have repurchased an additional 1.4 million shares for an additional $4.9 million. Having spent approximately $10 million on our repurchase so far this year, we still have another $26 million remaining under that program. As we mentioned, we now expect lower migrant-related revenue this year due to the anticipated accelerated wind-down of certain migrant projects. 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 million to $80 million 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&A. Operator, please go ahead.
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Q&A Session
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Operator: Thank you, sir. [Operator Instructions] The first question that we have comes from Ryan MacDonald of Needham. Please go ahead, sir.
Ryan MacDonald: Hi, thanks for taking my questions. 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 start and 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 million of revenue with $50 million 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 migrant contract at all in your initial ‘25 expectations? Thanks.
Lee Bienstock: Thanks, Ryan. Thanks, Ryan. Appreciate the question. So we really wanted to break out the base revenue and that’s the $400 million that you’re alluding to, which is going to grow into 2025. Any migrant-related revenues into 2025 would be incremental to that. 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 million base business.
Norman Rosenberg: 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 our, so to speak, base revenues are. 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.
Ryan MacDonald: Alright. 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 million from hospital systems, $100 million from municipal, $50 million 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.
Lee Bienstock: Sure. So I think the growth of those three segments is 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 ‘23 into – from ‘24 to ‘25. 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 ‘25. 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, I 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 in 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. 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 the new payer partnerships that we have in our pipeline. And I would say that has the highest growth rate, but still off the smallest base.
Ryan MacDonald: Yes, lot of great opportunities, Lee and again, really appreciate all the additional color here on the call today. Thanks.
Lee Bienstock: Thanks, Ryan.
Operator: The next question we have comes from Richard Close of Canaccord Genuity. Please go ahead.
Richard Close: 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. And are you saying you’re expecting that to wind down or go away? Maybe some details with respect to that would be helpful?
Norman Rosenberg: 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 million 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 two different factors. Number one, 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&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.
