DocGo Inc (DCGO) 2022 Q3 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the DocGo third-quarter 2022 earnings conference call. As a reminder all participants are in listen only mode and the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mike Cole, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, aim, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions are used to typically identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and may involve and are subject to certain risks and uncertainties and other factors that may affect DocGo's business, financial condition, and other operating results. These include, but are not limited to, the risk factors and other qualifications contained in DocGo's annual report on Form 10-K, quarterly reports filed on Form 10-Q, and other reports and statements filed by DocGo with the SEC to which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements.

In addition, today's call contains references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures are mostly -- most directly comparable GAAP financial measures are included in our earnings release, which is posted on our website, docgo.com, as well as in our filings 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 in the future.

At this time, it is now my pleasure to turn the call over to Mr. Stan Vashovsky, CEO, Chairman, and Co-Founder of DocGo. Stan, please go ahead.

Thank you, Mike, and thank you all for joining the call today. The third quarter represented another period of strong operational execution as revenues increased 22% year over year to $104.3 million. Continued sales momentum and acquisition-based contributions have supported an increase in our full-year 2022 revenue guidance to a range of $430 million to $440 million, up from a previous range of $425 million to $435 million. We are also increasing our adjusted EBITDA 2022 guidance to a range of $41 million to $46 million, up from a previous range of $40 million to $45 million.

Overall, we did an excellent job transitioning our mass COVID testing customers to various other long-term mobile health programs. We estimate that mass COVID testing accounted for mid-single digit on a percentage basis of total revenues during the third quarter compared to approximately 35% of revenue in Q3 of 2021. And the last of these contracts concluded in September of this year. Many of these new programs are centered around population health, which has become a very hot topic with municipal, state, and federal programs. We are seeing substantial increased budgets in this segment and tackles low costs. Health Delivery Model is ideally suited to meet this need going forward.

At this time, I will turn the call over to our President, Anthony Capone, to discuss operational progress and our growth initiatives as we head into 2023. Anthony?

Thank you, Stan, and thank you all for joining the call today. On the operational front, this is an incredible exciting time at DocGo. Not only do we continue to grow our existing mobile health and medical transport businesses, but we are also developing new markets that we expect to contribute to our next leg of growth in 2023. DocGo has now solidified its offerings and gain sufficient experience in each service line to support a scalable growth strategy.

It's important to understand added essence why DocGo's mobile medical solution is a key part of society's future. In the past, doctors used to provide most care to patients in their home. This allowed for more comprehensive care, which factor the patients and environment and family directly into their treatment plants. Society moved doctors into hospitals not because it was better, but because it was more cost efficient. It became untenable that highly paid clinicians travel to everyone's homes.

DocGo's model solves this using well-trained (technical difficulty), cost-effective clinicians who bring care to patients where they are, when they need it, under direct video supervision of a remote advanced medical provider. It's cost-effective, but high-quality care delivery model allows society to return to the days of comprehensive holistic care at an affordable cost and is becoming increasingly recognized for its innovativeness.

Another example of DocGo's innovation is our show program with New York City, which was selected as a finalist for Fast Company's World Changing Ideas and is currently a finalist for the UCSF Digital Health Awards. DocGo's clinical innovation is going to accelerate even faster with the addition of Dr. Jim Powell, the new CEO of our managed clinical practice group. Dr. Powell is not only a renowned clinical innovator, but we believe is one of the best primary care doctors in the country. Lee Bienstock, who joined us as Chief Operating Officer from Google earlier this year, has pushed our growth efforts into high gear.

In the past quarter, we saw some great organic growth within both our mobile health and transport divisions. In August, we launched a pilot with Dollar General in Tennessee to provide primary and urgent care services to their customers via a mobile health clinic park in their store parking lots. While this is still early in the pilot phase, we are excited about the potential of this relationship, giving Dollar General's massive national footprint.

In September, we converted our last mass COVID testing contract into a community pharmacy program, which dispenses medications such as paxlovid. I'm pleased to announce that at this time, we currently have no active mass COVID testing contract. DocGo does have a number of standby mass COVID testing surge contracts, which could be activated in the event of a COVID surge. However, this resurgence is not planned for and is not part of our financial forecast.

In September, we also began providing healthcare to the arriving migrant population here in New York City that has been in the news lately. This migrant health progress has since grown into a long-term contract, where DocGo was managing a comprehensive set of services for asylum seekers within their shelters. It's important to note that all of these new projects come with initially higher expenses.

The initial launch expenses primarily driven by temporarily higher labor rates as well as costs associated with increased management oversight related to new project launches. These initial launch expenses begin decreasing after the first 30 days and slowly normalized after 90 to 120 days. In addition to organic growth, our acquisition strategy has proven to be quite successful.

Under the leadership of Ben Sherman, our EVP of Corporate Development, we acquired three high-potential companies in Q3. Our strategy and how we define synergy is, at day one post-transaction, the acquired entity has the ability to drive significant revenue from DocGo's existing customer base. A perfect example of this is Exceptional Medical Transport. Exceptional's largest customer is now Jefferson Health, with whom DocGo has had a strategic partnership for over three years. Another example is that one of government medical services largest customers is now in New York City Health and Hospitals with whom DocGo had built a robust relationship.

Our team has proven that we cannot only acquire licenses and capabilities at great value, but also execute against that potential value to capture an increasing portion of the addressable market. The foundation of our company though, is technology. We have spent over $3 million this year and over $1 million in the third quarter alone to build sophisticated proprietary technology that's used by our highly capable clinicians.

Our world-class engineering team under the direction of Hawk Newton, our Chief Technology Officer; and Aaron Severs, our Chief Product Officer, delivered some incredible tech this quarter. Not only did they get DocGo's B2C on-demand mobile healthcare app released into the iOS app store, but they also got DocGo's B2B mobile health app released into the Epic App Orchard.

Q4 in 2023 are going to be even more exciting as we enter into remote patient monitoring or the RPM market. In early October, we announced that we launched our first pilot program associated with this effort with West PACE out of San Diego. West PACE is a program focusing on person-centric care that reduces emergency room visits, unnecessary hospital admissions, and long-term nursing home placements, all while reducing the cost of care. Obviously, this aligns ideally with DocGo's model of care. And this is a relationship and an industry that we are tremendously excited about.

What makes the RPM market especially attractive to DocGo is our ability to not only monitor these patients who often have chronic issues, but to also utilize DocGo's mobile clinicians to avoid costly and unnecessary hospital admissions by treating that patient in the comfort of their own home whenever possible. Additionally, if medical transportation is required, we can provide that service as well.

Through our contract with payers, DocGo has the opportunity to service over 10 million covered lives. We plan to kind of leverage these relationships to capture additional RPM customers. DocGo is uniquely positioned to provide end-to-end solution to this industry, from monitoring, to telehealth, to home visits by over 4,000 clinicians, to patient transportation when needed. We plan on making considerable investments in this space, both via M&A and also by leveraging more than 50 people in our product engineering team to establish a significant presence in this market.

Last quarter, under the direction of Lee, we undertook a significant push to compete for larger RFP opportunities. The length of time to work through these types of RFPs process varies, but on average, most tend to run about six months. Given our pace of activity in this channel increased greatly earlier this summer, we expect to see benefit of those activities in early 2023. Some examples of the types of projects we are bidding on include providing mobile infectious disease response teams in a major metropolitan area providing medical transportation services for a major national payer, and separately, a large hospital network in the Northeast. As always, no assurances can be made that our efforts will be successful, but we are excited about the potential contribution from this channel next year.

The growing stable of payer relationships we have developed also has tremendous potential as we enter into 2023. In the third quarter, we announced a new agreement with Cigna to provide urgent care and annual physical type services to their member population at certain areas of New York and New Jersey. If successful, these are the types of relationships which have the potential to expand rapidly. Our goal is to continue nurturing these relationships from the current pilot phase to become trusted vendor of servicing their broad member populations across the US.

Over time, DocGo has demonstrated a consistent ability to get our foot in the door with high profile customers, deliver upon our goals, and grow these customers into significant revenue-generating relationships. As we approach 2023, this is exactly what we are working towards; continue to grow our core business while planting the seeds for significant growth opportunities in a low-risk manner. In that regard, we are in a great position.

At this time, I will hand it over to Andre to review the financials from this quarter. Andre?

Thank you, Anthony, and good afternoon. Total revenue for the third quarter of 2022 amounted to $104.3 million, representing growth of 22% as compared to the $85.8 million recorded for the third quarter of '21. The year-over-year revenue growth was driven by a combination of same store sales, new customer additions, and inorganic growth through the acquisition of licenses and capabilities in various markets.

Mobile health revenue for the third quarter of 2022 amounted to $76.6 million as compared to $67.9 million in the third quarter of '21, up approximately 13%. Less COVID testing-related revenues accounted for mid-single digits as a percentage of total revenue during the third quarter compared to approximately 35% of revenue in Q3 '21. Medical transportation revenue amounted to $27.7 million compared to $17.9 million in Q3 of '21, up approximately 55%.

Mobile health revenue amounted to 73% of total revenue during Q3 this year versus 79% in the prior year with transportation as the remainder. Revenue generated by the UK market grew by 15% to $3 million during Q3 of this year, representing approximately 3% of total revenue. Net income amounted to $2.5 million in the third quarter of '22, which represents a substantial improvement over net income of $800,000 recorded in the third quarter of the prior year. Excluding a loss of $1.8 million on the remeasurement of warrant liabilities in the third quarter of this year, net income would have been $4.3 million.

The net income improvement resulted from strong increase in revenues during the quarter, coupled with improved total gross margin, while certain overhead costs related to infrastructure provided leverage as it did not increase in the same proportion as the revenue growth. Total gross margin percentage during the third quarter of '22 amounted to 31.7% as compared to 30.1% for the same period of '21.

It is important to note that DocGo was able to drive year-over-year gross margin improvement despite the negative impact of inflation on the cost of labor and other cost of sales items, including fuel and medical supplies. The 1.6% increase in the total gross margin percentage was driven by the transportation segment, where gross margins increased from 7.1% during Q3 last year to 23.2% during our third quarter this year. The improvement was due to increased volumes and higher average trip prices, combined with lower average hourly wages, as recent market wage pressures began to subside, and asset company more effectively managed its staff to reduce overtime hours for field employees. These factors more than offset higher average fuel costs.

Gross margins from the mobile health segments were 34.8% in Q3 of this year compared to 36.1% for the third quarter of '22. The modest decrease was due to higher start-up costs associated with some of the company's new projects this year. As of September 30, 2022, our total cash and cash equivalents, including restricted cash, totaled $179.4 million as compared to $179.1 million as of the end of fiscal '21. The cash balance remained basically flat despite investing approximately $35.5 million in acquiring licenses and new service offerings in new markets.

During the first nine months of '22, positive net cash provided by operational activities amounted to $31.3 million (sic - see press release, "$37.6 million") versus $6.9 million in cash provided by operations during the prior-year period. Excluding vehicle finance expenses of $9 million, outstanding debt amounted to $2.1 million at the end of Q2 versus $1.9 million at the end of last year.

Because of the impact of inflation, as previously discussed, we have two major expense categories where inflation may significantly impact our results. Our 2022 guidance provided at the beginning of the year assumes that the average cost per hour of labor would increase by approximately 7% versus the already inflated 21 labor rates, and that the average cost of gas would be $4.30 per gallon.

During the third quarter of '22, the actual average hourly labor rate was higher than last year's actual rate but lower than our assumptions, while the average fuel cost per gallon, which moderated from the Q2 level, was significantly higher versus the prior year that's very close to our forecasted rates. During Q3 of this year, the negative impact of the increased gas cost was approximately 30 basis points on gross margin compared to the third quarter of '21 with a negative impact of only 2 basis points versus our assumptions for 2022.

As for the cost of labor, the year-over-year increase in average hourly rate was less than 2%, resulting in a negative impact of 36 basis points on margins during Q3 of this year. However, the actual average hourly rate was lower versus our 2022 assumptions, which resulted in a positive impact against our gross margin forecast of approximately 163 basis points.

Adjusted EBITDA during the third quarter of 2022 amounted to $8.4 million, just over 8% of revenue as compared to adjusted EBITDA of $4 million or 4.7% of revenue in the prior year. As a reminder, adjusted EBITDA is a non-GAAP measure, representing earnings before interest, tax, depreciation, amortization, stock-based compensation, warrant and finance lease liability revaluations, and other nonrecurring expenses. Please refer to our earnings release for a reconciliation of adjusted EBITDA to net income.

For the nine months ended September 30, 2022, total revenue amounted to $331.7 million, representing growth of 68% over total revenue of $197.4 million for the nine months ended September '21. Adjusted EBITDA for the nine months ended September 30, 2022, amounted to $34.5 million, representing a substantial improvement versus the adjusted EBITDA of $7.8 million for the comparable period last year. Net income for the nine months ended September '22 amounted to $23.6 million, representing a substantial improvement versus the net loss of $1.1 million for the comparable period last year.

In terms of our '22 outlook, we anticipate continued strong demand from our customers for both mobile health and transportation services. Given our strong year to date performance, as Stan mentioned earlier, we are increasing our revenue guidance to a range of $430 million to $440 million, up from our prior guidance of $425 million to $435 million. We are also increasing our adjusted EBITDA guidance to a range of $41 million to $46 million, up from our prior guidance of $40 million to $45 million. This guidance increase is due to a combination of organic growth and incremental acquisition activities. This represents revenue growth of 35% to 38% year over year, while adjusted EBITDA is expected to show improvement as a percentage of revenue to nearly 10% this year versus 7.9% during fiscal '21. In terms of segment revenues, we expect that the mobile health segment will continue to contribute approximately 75% of revenues with medical transportation as the remainder.

That concludes my remarks. At this time, I would like to turn it back to Stan for closing remarks. Thank you. Stan?

Thank you, Andre. Before opening the call for questions, I would like to comment on the planned Chief Executive Officer transition that we announced in today's earnings results press release. Effective December 31, I will be retiring and stepping down as CEO and Chairman of the Board of Directors. Our current President, Anthony Capone, will assume the CEO role at that time, and I have agreed to assist the company through the end of 2023 to ensure for a seamless transition. Long-serving Board member and Co-Founder, Ira Smedra, will assume the role of Chairman of the Board.

I am incredibly proud of what we have accomplished in the last seven years, and I firmly believe our best days are ahead. Many of us expected that Anthony would one day succeed to the CEO role, and his contributions as President have been a significant factor in our success to date. Anthony has been instrumental in integrating cutting-edge technology into our solutions that truly sets us apart and creates a sustainable advantage for us in the market. I have every confidence in the continued growth and success of this company.

With that, let's now open the call for questions. Operator?

Thank you. (Operator Instructions) Richard Close, Canaccord Genuity.

Ryan MacDonald, Needham.

Hey, can you guys hear me all right?

Hey, it's [purpose].

Okay, great. Yeah, this is Matt Shea on for Ryan MacDonald. I appreciate you guys taking the question and congrats on a great quarter and best of wishes Stan on whatever is next. But specifically to the quarter, it was -- yeah, specific to the quarter, it was great to hear about some of the RPM updates. I was curious with that Gary and Mary West PACE relationship. Would you be able to provide some color maybe on what services you're providing, maybe how you're getting reimbursed for those services? And then, how do you expect to kind of use the data and maybe any other insights developed from the relationship to guide your future RPM strategy or even any M&A in the space?

Yeah. Anthony, you want to take that question?

Sure, absolutely. It's a great question, indeed. Thank you, Matt, for joining us. So the relationship that we have with West PACE, which is (technical difficulty) [Emily] in Southern California area is focused initially on urgent care services. This is where you're trying to prevent their capitated population from being either readmitted or admitted to the hospital. And we do that by responding on scene, and we treat individuals on scene. That's following with our traditional model where we have that lower-level provider on-site and that higher-level provider remote. That's the same model that we use there, which is consistent throughout the whole country.

Similarly, the West PACE contract that we have as well follows our nearly majority of our contracts, while the same model on the pricing structure. That's where we bill at a hourly rate for our services. So they say I want one mobile health unit in this area, one in this area, one in that area, and they pay us a fixed hourly rate, which kind of helps us to protect our margin.

In addition to that, we also get -- in this case, and in many cases, we also get a bonus payments in the event that we can deliver successful patient outcomes. In this case, the successful patient outcome is actually reducing the readmissions or reducing the admissions to the emergency room versus the baseline. And actually, we announced in our last quarter -- we haven't actually got the all the data completed for Q3, but for Q2, we actually did get that bonus payment. We're actually able to reduce -- significantly reduce the rate of admissions, readmissions against the baseline. Now, all that data has been super valuable. It's actually what -- a lot of what motivated us earlier in the year to get into RPM, and the data which we received from that, we then took, packaged up into a white paper, and West PACE actually just presented that at their National PACE Conference.

So PACE, as many of you know, is one of the largest semi-public, semi-private healthcare organizations in the United States. And so the opportunity here is to take the exact same program we have with West PACE in Southern California and get the -- to get that launched at all of the PACE locations throughout the entire country. Now that the RPM data sits on top of that urgent care services, and it fits hand in hand, hand in glove with those. Now, rather than waiting, traditionally, you would wait for a patient to be able to trigger to you and say, okay, I need your urgent care services. Now, because we're monitoring them, we know; we can see elevated vitals and we have the ability ourself to be into initiated or a telehealth visit, and then subsequently, if necessary, we can respond rapidly on scene. So RPM has really become the foundation by which we can be in the kind of control seat of healthcare as opposed to sitting back and waiting for it to come to us. I hope that answers your question.

Got it. Okay, so sounds like it's a little bit more about helping create value-based care contract -- constructs rather than just billing Medicare for CPT codes. So that makes sense. Maybe changing gears. I think one of the other exciting updates was the Epic integration, allowing for now mobile health integration building on the transport stuff. It seems like a nice add-on.

We've heard from our checks that health systems are looking to build around their EHR. So seems like kind of a nice Trojan horse way to get in there. Wondering if this is increasing your ability to add on mobile health services to transportation contracts with existing health systems? And then maybe, with that in mind, is there any way to think about the percentage of health systems today that are transport customers that are also using mobile health services? Just trying to get a sense of kind of what that opportunity looks like for you guys. Thanks.

Yeah, thank you. Stan, you want me to take that as well?

As former CTO, who better to answer that question than you?

Thank you. Thank you, and congratulations to our tech team for really pushing through and getting finally fully deployed inside of the Epic App Orchard. And it is a pretty big differentiator. I was just on a call where I was going through that with a large health system, and the Epic App Orchard, because it's just such an ease of use, it's simply one more click to order that transition of care post-acute service as it is the transport. It's just physically very, very easy to do so.

We're now structuring all of our contracts such that they include mobile health services in them; doesn't mean that it's all guaranteed, but there's already a construct by which that the financial component, the ordering component, the clinical component is already built in there. That's our new contracts, all include that -- include that going forward. It is a very big differentiator, and part of the way that we do that is because we use this leased our model with the hospital.

We basically make sure the hospitals understand that they have leased clinician. Now, those leased clinicians can do anything that you want them to do, and I'm sure they can transport. That's their main function. But those leased clinicians that are happen to be in vehicles, ambulances, they can do anything else. They can do transition of care. They can be -- they could do post-surgery services, and they're yours because they're dedicated to you. We're leasing them to you. So you get creative and all the areas that they could benefit your health system. And so going forward, it's really -- we haven't found any health systems that don't want to also have that capability bundled in and now it is most abundant to Epic, and they can do that with just one simple additional click.

Sarah James, Barclays.

Congratulations on another great quarter. Stan, I'll be really sorry to see you go. But Anthony(technical difficulty) and you guys have had an impressive amount of new contracts coming online. How do you think about the strategy of pacing new contract adds? Are there any bottlenecks or balancing points to the pace of top line growth? And what is the implied ramp from the recently announced contracts annualizing as we think about a bridge from '22 to '23?

I'll start with that question and Anthony, maybe you can finish it. So we've navigated through lots of challenges over the last three, four years, and something that we've gotten quite proficient at is scaling large projects quickly. I think we are go-to for lots of municipalities, lots of large hospital systems throughout the country that need to launch a program and they like to do it in a big scale, and they wanted to do it quickly.

From a hiring standpoint, we have processes in place that allow us to hire, allow us to use third-party agencies if we need to. But we've -- multiple occasions have started projects up in weeks, what our competitors would take months, and they very often include hundreds of medical personnel. That's part of a little bit of our secret recipe. We ship tidbits with it with people. But nevertheless, it is somewhat proprietary.

I think we've demonstrated over the last, I guess, eight quarters now that we've been reporting our ability to scale and scale nicely in the most difficult of times. You first had during the COVID period where people didn't want to go to work, then you have the mass resignation period, and you have all these different cycles that we have lived through over the last several years. And we've been very fortunate with the dedication of our leadership to navigate through those challenges. Anthony, anything else you want to go ahead and add to that?

Yes, just that right now we don't have guidance yet for 2023. So I can't tell you exactly where the ramp will go to. But what I can tell you is that we have become, as Stan was saying, very proficient at taking a contract that is oftentimes relatively small and growing into something that is very large. We have a lot of historical precedent for that. And that's just based on the simple concept that we over deliver, and we are always rapidly available for whatever our customers' needs.

Great. On that topic, you guys mentioned the pilot that you're doing with Cigna, how do you think about what a typical evaluation period is before we could discuss expansion, and what types of benchmarks are your partners looking for to show performance and want to engage in expansion conversations?

Well, all of this year is really part of the evaluations for us. We're slowly dipping our toes in the water and really figuring out exactly how we want our B2C program to work. And as you know, almost all companies that went into B2C, they lose money and then they end up pivoting and becoming B2B organizations.

We don't want to make those mistakes. We have a pretty healthy company that is B2B today. We're very intrigued in a B2C future and a strategy, but we're going to do it very carefully where we are keeping a really close eye on the biggest factor, which is the customer acquisition cost, so I think our payer relationships like Cigna and several others in 2022 are really going to be there for the purpose of validating business processes and concepts and financial models. And only when we are happy with those results, will we go all in and we are preparing for that, going all in, because we're very satisfied with some of the results that we've seen year to date, and you'll see that sometime in hopefully, 2023.

Richard Close, Canaccord Genuity.

Welcome back.

(multiple speakers) Yes, sorry about that. Thanks for the question. So we've, you know, have had a lot of discussions with investors and there's somewhat or some confusion, I guess about the DocGo's story, and I thought it would be good maybe if you could talk a little bit about utilization. The soft utilization trends that many companies have called out, there's labor headwinds, shortages, retention, wage pressure, people have called out. And some investors asked me why doesn't DocGo see any of this? Can you talk a little bit about your business in terms of softer utilization trends and the labor headwinds and maybe why you're insulated?

Yeah, I'll start and then I'll transition it to Anthony, Richard. Fundamentally, we have a very different business model than our competitors. I mean, keep in mind, I've been in healthcare 30 years, and this is not my first rodeo. When starting mobile health, we knew from the very beginning that if you go to traditional fee-for-service where you're taking reimbursement from Medicare, Medicaid, commercial MA plans, you're going to be limited in exactly what you can collect and how you collect it. That is not a business model that we wanted to get into. And we've developed this concept of a lease, what we call our lease labor plan.

And what we do is we put together a full clinical program. We charge a daily amount per clinician. These are all dedicated staff trained for specific projects when we're out in the field. We then also have nominal up charges with different quality procedures or tests that we do. And then very often, based on outcomes, we'll also get a bonus payment, like Anthony mentioned earlier.

So we're not a traditional fee-for-service business. We are just -- our call at least our headcount on a month or quarter basis based on the contract, but these are dedicated staff. And then we put the responsibility of utilization on our customer, not on us. So if we have 15 physician assistants doing pre-op services in patients' homes on behalf of a hospital, the hospital is the one that loads of their schedule using our tech platform. The hospital is one that dictates who gets priority and who doesn't get priority. If we feel that we need to add staff, we'll add staff. We'll make a recommendation to add. If we see that the demand is lower, we'll make a recommendation to reduce that headcount in the following quarter.

So the entire business plan is very, very different. We're not a traditional fee-for-service. We also have the ability to renegotiate our rates much more frequently. If I'm a traditional fee-for-service company and I accept the reimbursement from United or Aetna. If my labor costs and my fuel costs go up, I have very limited ability to go to Aetna and United and renegotiate that reimbursement. Very different if I have a hospital that I work with where I could go to them at the end of the year, and I could adjust my pricing based on inflationary pressures.

So from the fundamental of the business, it's very different. We practically do no fee-for-service. We have a very different business model, one that is based on lease hour with additional up charges for different procedures that we do. It's a dedicated staff model. The hospitals, our municipalities, our commercial accounts that we work for, they really see us as an extension of their team, not as just a vendor. And I think that's another reason why we have very high customer renewal rates and success rates. So that I hope answers the question. Anthony, do you want to add to that?

The only point I would just simply add is the quality that comes from it, which Stan alluded to. I can't really overexaggerate how important that is. It is sure easier in a traditional model of fee-for-service to potentially get for like the end healthcare organization. You're contracting with maybe a cheaper rate if they just trying to play a bunch of people against each other and do fee-for-service. But the quality of care that you get is so much lower. And so that causes all sorts of problems down the line.

When you give people these dedicated resources, whatever those resources are doing, whatever you do -- whatever those resources are, that is the end result, the quality of care that gets delivered is so much higher. And the customers see that, the retention is higher and obviously, our margins are also protected.

And Richard, we had invented this program a couple of years ago, and we now have over 4,000 employees. And the majority of those employees operate on this program.

Can you talk a little bit about retention of employees? I know like on the home health, they've been impacted by -- essentially, people leaving the workforce. Can you talk a little bit about your ability from a labor perspective and maybe what your retention is? Because there's some questions out there with people wondering why you're not seeing the same situation on labor as others?

Yeah. And I'll -- once again, I'll take a first crack at the answers, and I'll pass it over to Anthony. So especially about when it comes to the retention metric. First of all, when it comes to employees, I'd like to think we take good care of our staff. For one, we pay about 10%, 15% hourly -- our hourly wage is about 10%, 15% higher than street. We also incentivize employees to do their best in the field. And then based on the customer satisfaction scores, we then can give them bonuses. It's just about every full-time employee in the company gets to participate in the company equity plan. We invest considerable amount into employee education.

So when you take all of these different factors and you put them together, we're a little bit different than a traditional company. I think our Glassdoor ratings speak for themselves. We have the highest Glassdoor rating in the industry, hovering at about 4.2, 4.3. And when employees are happy, we find that they do a better job in the field, and they also refer us to their friends. And that helps us in terms of recruiting.

In terms of employee retention, we go about looking at it from a very different metric than many other employees. And I'll go ahead and pass that over to Anthony to talk a little bit about what we look at.

Yeah, real quick. So traditional companies look at retention in days, months, years. But in a timeframe, that doesn't make any sense to us. We look at it in dollar figures. So how much revenue does the average employee bring in in various different categories relative to what the cost was to bring them on and kind of what is the return on the initial higher value. So that's how we assess. We monitor everything in our company, and we are getting better, not worse in that category.

And we have a very unique model, which allows us to increase revenue per employee relative to what the onboarding the initial expense is for every single one of those employees. A part of the reason why our partners and we're able to pay better than most in the industry is related to your previous question. When you have any dedicated staff that are paid on an hourly basis and we can control our margins, we then can pay a higher rate than people who are traditionally on a fee-per-service concept.

So like the home health agencies you made an example of, they're usually almost 100% fee-for-service. And so they have lots of volatility in demand and idle time. And thus their margins are compressed, and they can pay relatively little. When you have our model where you have a dedicated healthcare resource, you can simply pay more because your margins are protected. It's a very different model, which goes all the way down to your compensation for your employees.

And the important thing is that it's not just pay. It's several different things that we look at when it comes to our employees, our staff, that we take into consideration. We have teams of people with a human resource that focus on employee satisfaction. And it's something that we look at very, very closely. And when you take several different factors and you put them together, hopefully you have a satisfied workforce that wants to stay with the organization and then hopefully, they also want to refer people to our organization.

Pito Chickering, Deutsche Bank.

Hi there. This is Kieran Ryan on for Pito. Thanks for taking the question. Looking at margins in 3Q, you came in pretty strong, a little above 8%, given the upside to revenues, but maybe there could be even a little bit more upside there. Based on what you said around fuel and labor costs tracking in line with your expectations, is it fair to think about these new contract upstart costs as being kind of the main gross margin swing factor for 3Q and then also for the step-up in the 4Q?

Yeah, that's exactly what we've been looking at. As we said in our release, mass COVID testing revenue same time last year was about 35% of revenue, and now it's in mid-single digit. That basically means a lot of new contracts were implemented during the course of third quarter. Three particular contracts, two hospitals and one municipality, were very sizable and what I would call long-term agreements that have initiated. And there is a start-up costs associated with contracts of that type. And it's something that usually we would see of about 60, sometimes 90 days. But then we have multiple years rewards from that initial investment.

If right, excluding those initial start-up costs that we had for the three large customers, EBITDA margins would have been considerably higher. But I look at that actually as good expense, and I'd be happy to see that on a quarterly basis. That means we're signing more long-term profitable contracts.

That's helpful. Thank you. And then just a quick follow-up. I think you've said in the past that you see LPNs tracking about 65% to 70% of the cost of our ends. Just broadly speaking, obviously, that's going to vary a lot across regions, don't you think? But is that generally still the right level? And is there any changes in that hiring environment in call out over the last three months? Thank you.

Yeah. I'll let Anthony, or Norm, or Andre speak to the actual percentage for up to the cost of LPNs. But in reality, we have hundreds physician assistants, nurse practitioners, registered nurses, and LPN. Andre or Anthony, you'd be familiar with where the LPNs are tracking compared to our brands. Is that something that you're at liberty to talk about?

Yeah, I think that the number that you gave at 65% is close. I don't know the precise percentage, but I think that's quite close.

And I would probably also guess that it is somewhat geographical base as well.

Certainly, there's differences a big difference between, say, New York City or in Nashville, Tennessee in the labor rates but usually they're relatively the same on a relative basis. And I think the key thing and part of the reason why our model, I believe, has been more successful is there's just so many more LPNs than there are RNs and so many more RNs than there are independent licensed practitioners.

Mike Latimore, Northland Capital Markets.

Yeah. Thank you.

Hi, Mike.

And congrats, Stan and hello. Hello. Congrats on your -- both on your new roles. Sounds exciting.

Thank you.

Yeah. So on the mobile transport segment, that was up nice sequentially in the quarter. Can you talk a little bit about what drove that? And then just kind of a new baseline to think about?

Yeah. Anthony, you want to jump on that?

Yeah. There's been a combination of our ability to acquire licenses and then capitalize on those licenses. So as the example I gave you, the example of acquiring SCT license, which is specialty care transport license in New Jersey with a company called Exceptional Medical Transport, we were immediately able to take that Exceptional Medical Transport and service our existing Jefferson Health customer. And so those kind of models are a lot of where we've seen the growth where we look at our existing customer base. We say, listen, there's revenue that were not able to capture because we don't have either a competency capability or licensure or maybe all of the above. We go out there and find a value buyer to service that. But generally speaking, our at least tuck-in acquisition strategy follows that marks kind of across the board and I would say that. Yeah, I think, Andre, you can speak more to the new baseline going forward, but the revenue that we have on transport, it's reoccurring and is all part of long-standing multiyear contracts.

So I'll just add to it, Anthony, say, on the higher level of transportation like ACT, that created the increase on average price per trip. So those contracts are [already on the list of] our program. Also, about 20% this year versus last year, roughly speaking. And I think it's in the queue. When you get that tomorrow. In '21, the average cost per truck was about $303. And this year it's about $374. So it's about a 23% increase. Just based on the fact that we have this higher level of transport that we can do with those tuck-in acquisitions.

Okay. That's great. And then in terms of just the spending environment among municipalities, it sounds like it's pretty healthy overall. But can you just kind of characterize kind of the -- what you're hearing from municipal governments in terms of interest in new programs, expanding programs and now kind of their view on what maybe the next year might look like?

Yeah. There's tremendous focus nationally today surrounding population health. I think, the country is finally at a state where they're realizing in order to keep Medicaid and Medicare costs down, you have to be proactive in terms of making healthcare accessible to everyone. We play a large role in that. We have a program that is extremely cost-effective and has documented proven results. So we think population health, government-based type programs will continue to increase. We have not seen any signs of slowdown, just the opposite. We have some new contracts that we're planning on for the next quarter, and I'm really excited about it.

I think the country is finally taking some proactive measures in getting in front of the problem versus just simply reacting to the problem. And I'm also very proud of the fact that we have a program that caters to those specific needs. A program that is very affordable, a program that simply makes sense because we leverage medical clinicians that are properly trained using the absolute state-of-the-art equipment and then combine that with telemedicine. You really have something that's very different, a huge differentiator, combining the best of medicine with the best of technology to ultimately help drive good positive outcomes. And that's what we built our business on.

David Grossman, Stifel.

Thank you. Good afternoon. (multiple speakers) Hey, Stan, I think both you and Anthony, you mentioned the idea of landing and expanding within your customer base. Can you give us any insight into what the same-store sales growth is trending in terms of percentages? Just to give us -- help us to mention kind of your ability to successfully expand within the base.

Yeah, I don't know if we've published actual numbers, David, but I will tell you, I've always found it much more difficult to secure same-store sales then go out there. It may just keep selling; it keeps turning customers over. And I'm not really aware of any what I call material programs that we've lost in the last couple of years. Our programs are very sticky. A lot of that is based on the technology that we integrate.

We are a very integrated organization. We integrate with most of the major EMR products that are out there. Once you go through that effort, you tend to be a long-term partner of that institution. And I would say a very large number. I don't think we disclose the actual percentage of our growth is from same-store sales throughout the country. And we continue to sign up new customers. But I'm really most proud of the fact that we don't lose existing customers, and our existing customers come back to us with new ideas that they want to implement. We're very often their go-to organization when they have those new ideas. We float around from concepts of accomplishing those tasks. We turned that into a proposal. A lot of times deal -- in our business model, I think we do something unique that a lot of people don't, which is that we'll launch a program. And as long as compliance sign-off on it, we won't charge anything or we'll just charge costs for 30, 60 days. So the customer can see the results. And if they like the results, we'll then engage into a more long-term contract.

So we don't do the high-pressure signed three-, five-year contract and take risk type of a sale. It's a soft sale, a trial, 30 days, 60 days, see if you like the results. And if you like the results, let's go ahead and then engage into a more longer relationship. But I would once again reiterate that the overwhelming majority of our growth has been through same-store sales. But at the same time, ever since we've been stock joined our organization from Google, we have been doing a great job getting new leads into the door, responding to new RFPs, getting new contracts signed as well.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Stan Vashovsky for any closing remarks.

That is really it. I really want to thank everyone for joining this evening. I know it's late and it has been truly an honor to work with so many of these wonderful analysts and financial -- people from the financial community. And I really do believe DocGo is doing something wonderful. We're doing it differently, and I think our results are speaking for themselves. I've always said judge us by our results, not our PowerPoints. And I hope one day we'll get there. And I just want to express my appreciation for everyone's support. Thank you all for joining this evening. And this will conclude this phone call. Thank you, everybody.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.