Richard Close: And I guess, on a follow-up, if we can just sort of look at the gross profit margin and just go into maybe a little bit more detail on your comments there and thought process of that number going forward?
Norman Rosenberg: So — yes, sure. I mean as I mentioned in my prepared remarks, over the last couple of quarters, we’ve talked quite a bit about how it was our expectation that margins would grow sequentially as we went through the quarters. We had 28.1% gross margin. In Q1 I think it went to 33.4%, something along those lines in the last quarter, now we’re taking a step back. But what we have always maintained was that, that was assuming that the growth was happening at a pretty steady state. And what you saw this past quarter was a good bit more revenue than I think what we had anticipated a few months ago when we talked about growing that revenue, obviously — growing that gross margin on a sequential basis. And when we look at it, there’s no one particular project that is — we don’t — we haven’t replaced high-margin revenue with low margin revenue.
There’s none of that going on. It’s really all in the areas of labor, which is both a subcontracted labor percentage being higher than it would typically be, over time being higher than it would typically be. The good news there is that — those metrics, those KPIs, which leads to the margins improved sequentially as we went through the quarter. So it was at a certain level in July, it improved in August and improve began in September. So that’s — those are the things that are driving — And any time you’re going to add the new product — new project launches and therefore, a lot of revenue in a — one particular quarter, that’s going to be the pressure that you have. Having said that, without pinning down what I think Q4 gross margins will be, I will say that directionally, margins are higher than what you see this quarter.
What you see this quarter on the one hand, when it comes to revenue, that becomes on — our new revenue baseline off of which we think we can build. This is not any really nonrecurring revenue in the quarter. This is real recurring revenue. On the other hand, when you look at the gross margin number, I would say that, that was something that was temporarily lower than it really ought to be. It’s not our run rate of gross margin. It’s not the run rate of gross margin that we saw leading out of the quarter. So if I would typically take — I mean, if I would simply take the September month margin and apply that to Q4, that in and of itself would account for a higher gross margin. So that sort of plays into our expectation for the fourth quarter.
Operator: Thank you, sir. The next question we have comes from David Larsen from BTIG. Please go ahead.
David Larsen: Hi, congratulations on the good quarter. Lee, can you maybe talk a little bit about your relationship with the city and the state of New York and that contract itself? Can you just sort of refresh us on what exactly it is you’re doing for the migrants? How many of these migrants are families with children that you’re serving? And then it’s my understanding that the way the contract stands right now, it’s about a one-year contract through mid-2024. What are the odds in your view of it potentially extending? And then just lastly, I’m sorry for the long question. Have you been able to meet with the comptroller of New York? And I think it’s touching on the detail of the invoices, have you been able to address this concern? I’m in an airport, sorry for the background noise.
Lee Bienstock: No problem. Thanks, David. So I’ll start with the first part of your question, our relationship with the city. So we’ve been working with the city, as was mentioned, for over three years. We’ve been working on various different population health programs. We actually also provide, as I mentioned, the medical transportation for all 11 public New York City Health and Hospitals locations. So we’ve been working with the city for a number of different years. You’ve heard us talk about the SHOW program, which is the Street Health Outreach and Wellness program. You’ve heard us talk about our work with the Department of Home Services. You’ve heard us now talk about our work with Housing Preservation and Development. You’ve heard us talk about our work with New York City Health and Hospitals.
So we’ve been helping New York City across a wide range of population health and medical transportation needs since we started working with the city over three years ago, and we have provided care to millions of New Yorkers together. We’re very, very proud of that. In terms of the asylum seeker and migrant care work, it actually all started with the first buses arriving at Port Authority, and we actually provided the initial paramedic units at the Port Authority when the first buses started arriving from our southern border. That’s really how our work together started. We provided the paramedic teams, and we’re doing health screenings, infectious disease screenings and so forth for the asylum seekers as they’re arriving. And it’s essentially grown from there to all the services that we’ve been talking about.
And really, it’s grown to what we call our Total Care services and ranges from medical care that could be infectious disease screenings, urgent care and other medical care vaccinations as well. It encompasses behavioral health, which includes depression screening and other case management work and intensive social work as well and then encompass obviously, the other assets of the program in order to provide the total care that asylum seekers need when they’re arriving. All of the goal to help them land safely and then ultimately acclimate and what we say graduate out of the program. So those are the services we’ve been providing. The different sites have a different composition of services, but those are the comprehensive suite of services that we’ve been providing.
You asked about the — what percentage are families arriving with children. It’s actually a large majority of the asylum seekers in our care — are families with children composition. Most of the sites are families with children. And so we are providing services from ages two and pediatric care and up all the way to as old as 80 years old, we’ve been providing services. So the large majority of our families are children. Yes, and also, David, about the length of the contract, as you alluded, the contract — the HPD contract is of the asylum seeker work we’re doing, is 1 year long, which is actually fairly customary for our contracts with the city. Many of them have been extended. Many of them have been re-awarded. We do fully anticipate that portions will be put out for RFP and so forth, which is very, very customary to how we’ve been working with the city now for over three years, as I mentioned.
That contract with HPD was signed and initiated in May. And so if you follow that year-long chronology, you would have it until May of next year. But again, really, our goal is to provide the services that the city needs, the medical care and the behavioral health care the city needs as long as the city may need it. And our goal is to help the city in aiding the asylum seeker so that they can essentially live their lives, acclimate out of the program and receive the services that they need for however long as the city asked us to provide us, for however long the asylum seekers need it.
Operator: Thank you, sir. The next question we have comes from Mike Latimore from Northland Capital Markets. Please go ahead.
Mike Latimore: Great, thanks. Yes, congrats on the phenomenal revenue EBITDA growth here. I guess just back on the cash position for a second. Maybe just trying to see if you could bracket that a little more? I mean do you think that cash flow from operations might be above or below EBITDA in the fourth quarter? And then kind of by year-end — what month do you think it will get paid up to by year-end, let’s say?
Norman Rosenberg: Yes. So — it’s Norman, I’ll take that one. So — and this allows me to make a point that unlike previous quarters, we filed our 10-Q for the quarter already. We did that pretty much recurrently with the earnings release. So a lot of information is in the release anyway, but that — the more detail information is currently available. So as far as the cash flow from operations as it compares to EBITDA, so one thing that you’ll notice is that the impact that you saw in operating cash flow were entirely from the working capital side. Otherwise, in terms of what we like to call the P&L, operating cash flow, that number was already pretty close to resembling the EBITDA number. I guess the question is, when we’re going get to a point where working capital is no longer a drag on the operating cash flow.
