Q2 2023 DocGo Inc Earnings Call
Yeah.
Good afternoon, and welcome to the Doc go second quarter 'twenty 'twenty earnings Conference call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Michael <unk> head 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 made in this conference call other than statements of historical fact are forward looking statements.
We anticipate believe estimate expect intend guidance confidence target project and other similar expressions may be used to identify such forward looking statements.
Forward looking statements are not guarantees of future performance results or outcomes and may involve and are subject to certain risks and uncertainties and other factors that may affect dockers business financial condition and other operating results. These include but are not limited to the risk factors and other qualifications contained in <unk> annual report on form 10.
Kay.
He reports filed on Form 10-Q, and other reports and statements filed by Doc go what do you see two whats your attention is directed actual outcomes and results may differ materially from what is expressed or implied by these forward looking statements.
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 <unk> dot com as well as filed with the Securities and Exchange Commission informed.
Asian contained in this call is accurate as of only the date discussed.
That's yours should not assume that statements will remain relevant and operated at a later time, we undertake no obligation to update any information discussed in this call whether as a result of new information future events or otherwise unless required by law.
This time it is now my pleasure to turn the call over to Mr. Anthony Capone CEO of Dr. Anthony. Please go ahead.
Thank you Mike and thank you all for joining US today, we had an excellent second quarter and momentum has accelerated substantially setting us up for strong growth ahead, not only did we set a record high for quarterly revenues, but even more importantly, we delivered increasingly positive patient outcomes.
To individuals with the greatest need as.
As a result of strong demand across the board we are raising our full year 2023 revenue guidance from 500 to 510 million to $540 million to $550 million and increasing our adjusted EBITDA guidance from $45 million to $50 million to $48 million to $53 million.
The rapid acceleration of revenue growth is driven by multiple factors, including the continued rollout of our medical transportation contract with health and hospitals and the new mobile health contract with the housing and preservation Department to provide primary care urgent care behavioral health social work and other supporting service system.
Current populations in New York.
In addition, we were just recently awarded mobile health contracts for flu vaccination programs in South Carolina, and municipal employer health deal in Orange County, and while the associated revenues are minimal over the immediate term they have the ability to grow substantially.
These are the types of programs that we expect to help us establish a greater mobile health preference in relatively new geographies, which we aimed to build upon over time.
The increasing guidance is prudent and reflects a combination of new contract wins in current run rate of existing contracts not necessarily the full potential as they scale.
All indications point to a substantial acceleration over the immediate term and as we gain additional visibility we will update guidance if applicable over the balance of the year and.
At its current growth rate, we anticipate that it is possible for us to achieve the maximum value of the contract less an estimated 120 million that is associated with sub contracting services, which will not flow through our financials.
It's important to highlight that no other company, we've ever encountered has the workforce technology and experience to rapidly deploy mobile health programs at this scale in response to an unprecedented emergent crisis not to mention the balance sheet to support the accelerated launch of <unk>.
Programs.
Both our customer and employee satisfaction are at all time highs.
On a scale from negative 100 to 100 or on demand customer M. P. S. For Q2 was an 89.
Additionally over the trailing 12 months, our employee retention has improved by over 100%.
This doubling of retention is further reinforced by more than 240 promotion. We've made just this year, helping to support clinicians who operate today as individual providers to grow into a meaningful management careers.
With an industry, leading glass door score of four point too and indeed score of 4.3, it's clear that our employees love working at Taco.
At this time I'm going to hand, the call over to Lee Bienstock, our president and CFO to provide some operational details Lee. Please go ahead.
Thank you Anthony.
Before I jump into those operational detail I am very pleased to report that we reached a significant milestone during the second quarter, we have surpassed the 300000 patient interaction through our St Health outreach in a wallet program in partnership with New York Health and hospital.
This is one of our flagship programs that brain health care and mental health services to the unchartered homeless population and we are extremely proud of this accomplishment.
The $432 million mobile health contract with H P. D that Anthony referred to earlier had a relatively small impact in the second quarter, but we believe it has tremendous potential over the remainder of the year and well beyond this.
This is a contract that was issued to dacko under an emergency authorization. After dacko had already successfully worked with the city across numerous contracts spanning multiple years building, our track record and the city's truck.
<unk> innovative clinical delivery model, our technology and highly sophisticated operational model, we are able to provide these services both cost efficiently and with high quality.
During the quarter, we made substantial progress and further evolving our business model and launching care gap closure programs with four new major payors.
Before I dive into those details I think it's important to understand the evolution of our approach in the payer space.
Initially these relationships often started quite simply as an in network provider of basic health care services, which were about which are vulnerable to swings in demand.
We view this as a way to help prove darcos clinical ability to our payer partners and these relationships are now evolving into specific care gap closure program that aims to provide preventative care and treat at risk and chronically ill patients.
These new agreements come with a predetermined pay rate per visit and guaranteed minimums, where dacko is assigned a list of at risk and chronically ill patients for our National Operation Center in Tuscaloosa, Alabama to contact and schedule specific medical services.
Simply put.
Patients are now assigned to us rather than dacko waiting for the patient to contact us.
These services include bone density test diabetic retinal exams and mobile Ekg's just to name a few and collectively we expect these for payers to assign US 73000 patients needing care gap closure and primary care services.
We believe preventative care saves lives improves program quality measures and help keep patients out of the hospital.
This is an area that we are extremely excited about and we expect to report further traction with these high profile partners in the near future.
One reason, we're seeing such strong demand in our mobile health segment is the highly compelling results coming out of our early partnerships.
On our post discharge program with L. A care, we saw that over 50% of patients had incorrect or myth or missing discharge medications in orders, which is similar to the national average the average wait time for these patients to get follow up visits with their P. C. P and specialist takes three weeks, whereas we deploy to address these issues.
Is much quicker and proactively.
And another example in the last 60 days, we've completed over 200 diabetic screening.
Which includes diabetic eye exams blood glucose and blood pressure control screenings with a large Medicaid plan through a program we just launched.
Over 20% of these patients had 81, a one C levels overnight when we saw them, indicating poor control of diabetes, and a risk factor for complications, including potential renal failure blindness and neurologic damage.
We were able to help these patients in collaboration with their P. C piece or provide additional treatment or medication changes.
This data and impact we are seeing is reinforcing our belief that <unk> is uniquely positioned to drive improved patient outcomes, while reducing cost to payers.
We have also experienced exciting growth in our virtual care management program and currently partner with eight customer clinics to provide care for all phases of virtual care management.
Including remote is physiologic monitoring and principal care management and within the last six weeks, we've experienced a 300% increase in the number of patients monitored.
We've now entered the contracting phase with six large nephrology practices, which were introduced through our strategic partnership with Fresenius medical care.
These practices represent hundreds of nephrologist that monitor tens of thousands of patients.
And over the second quarter, we boasted a greater than 90% patient compliance with our established clinics.
Far above the national far above the industry average.
On the medical transportation side I'm also pleased to report that in June each of our geographic regions were both profitable and growing.
We have taken great strides to eliminate unprofitable medical transportation business lines, and we intend to continue our efforts to transition. The majority of this business to our innovative lease our model by the end of the year.
Not only were we able to significantly enhance profitability. In this segment, we were able to do so while increasing revenues, 105% compared to the prior year period.
Medical transportation remains in strong demand and we believe that presents us with an excellent opportunity to prove ourselves with health care system, and then potentially expand these relationships with our mobile health offering.
Our backlog currently stands at $325 million over approximately three years up from $205 million on May eight of this year. When we gave our last report.
Both the increase in backlog and guidance are being driven entirely by growth in our mobile health segment.
Before I hand, it over to norm I want to take a minute and reiterate the fact that we have a large volume of new contracts and partnerships that are just recently signed or about to launch and we are investing for tremendous opportunity ahead.
We believe we are strategically positioning darko to leverage cash flows from our core municipal contract to fund this growth internally and we are seeing that strategic plan comes together you to flee.
I will now hand, it over to norm Rosenberg, our CFO to review the financial norm.
Thank you Lee and good afternoon, everyone.
Total revenue for the second quarter of 2023 amounted to $125 $5 million the highest quarterly revenue total endako history, representing an 11% increase from the first quarter and a 15% increase from the second quarter of 2020 to last year's second quarter included an estimated $28 million in mass Covid test.
Revenues by contrast mass Covid testing revenues represented a relatively insignificant portion of total revenues in 2020, Three's second quarter, removing these testing revenues from both periods and recurring revenues increased by more than 50% compared to the prior year period.
Mobile health revenue for the second quarter of 2023 amounted to $81 million up nearly 10% from the first quarter and 8% lower than last year's second quarter. However, once again looking at recurring mobile health revenues by removing mass COVID-19 testing revenues.
Less than $1 million for the second quarter of 2023, and 28 million for the second quarter of 2022, and mobile health revenues increased by 33% compared to the prior year period.
Medical transportation revenue increased significantly to $45 $4 million in Q2 of 2023 up 13% from the first quarter and more than double the transport revenues. We recorded in the second quarter of 2020 to nearly every core transportation market witnessed both year over year and sequential revenue growth continuing.
The momentum from the second half of last year.
In the second quarter mobile health revenues accounted for about 64% of total revenues and transport for the remaining 36%.
Upon the first five weeks of the third quarter. It appears that mobile health could account for over 70% of revenues in the third and fourth quarters of this year.
We reported net income of about $1 $3 million in Q2, 2023, compared with a net loss of $3 9 million in the first quarter and net income of $11 8 million in the second quarter of 2020 to last year's second quarter included approximately $4.4 million in nonrecurring.
<unk> income relating to the re measurement of warrant liabilities and finance lease obligations.
<unk> EBITDA for the second quarter of 2023 amounted to $9 1 million as compared to adjusted EBITDA of $5 $6 million in the first quarter and $12 3 million in last year's second quarter.
Total gross margin during the second quarter of 2023 was 33, 4% up more than 500 basis points from the 28, 1% gross margin we reported in Q1 of this year and as compared to 35, 9% in the second quarter of 2022.
During the second quarter of 2023 gross margins from the mobile Health segment was 34, 9% significantly better than the 27, 7% gross margin, but mobile health recorded in the first quarter of this year and compared to 39, 9% for the second quarter of 2022.
Transportation segment gross margins continued to expand increasing to 37% in Q2 2023 up from 28, 9% in the first quarter and from 22% in Q2 of 2022.
As expected gross margins were sequentially higher in the second quarter than in the first quarter as we witnessed some easing of some of the margin headwinds we encountered in the early part of this year, particularly in relation to the startup costs on some mobile health projects. However, we did experience some project startup cost during Q2 as well in both mobile health and the transportation side.
While we anticipate that gross margins will continue to improve sequentially as we moved into the third and fourth quarter of this year overall margins could be impacted by the timing and size of newly launched and ramped up projects.
Now looking at operating cost operating expenses as a percentage of total revenues amounted to 32, 1% in the second quarter of 2023, compared with 34, 2% in the first quarter and 29, 1% in the second quarter of 2022, one of the drivers of our operating expenses was an increase in stock based compensation expense.
A large majority of which was options as opposed to restricted stock units as we seek to refine our compensation structure in ways that create greater alignment between the interest of shareholders and employees at all levels of the company looking at the year over year comparison, without depreciation and stock comp expenses and operating expenses as a percentage of total revenues amounted.
26, 3% in the second quarter of 2023 up slightly from 25, 4% in the second quarter of 2022 as.
As we expect to see revenues increase in the second half of 2023, when compared to the first half of 2023, we expect to see operating expenses decline as a percentage of total revenues leading to operating margin expansion in the second half of the year. In addition to these scale related benefits, we are making progress across many of our business lines with our margin.
Asthma and projects as we have detailed over the past couple of quarters.
Now turning to the balance sheet as of June 32023, our total cash and cash equivalents, including restricted cash was $123 8 million as compared to $127 5 million as of the end of Q1.
Our margins are improving as I described earlier, we continue to experience working capital requirements as we build out our business with larger more credit worthy municipal customers, such as New York City, which has received a credit rating upgrade in 2023.
These customers have longer payment terms and the longer payment cycle any initial stages of a project, we expect to use our balance sheet to invest in the growth of our business when investing in these growth initiatives, we aim to balance our desire to generate financial returns with our need to provide societal returns by positively impacting the lives of as many people as.
Possible.
Despite these working capital demands, which are likely to persist as we stay in rapid growth mode. We had the biggest collections month in our history in June which allowed us to keep our overall cash balance at quarter end very close to the levels at the end of Q1. This also resulted in a 10% decline in accounts receivable when compared to the levels at the end of Q1 coupled.
Coupled with sequentially higher revenues in Q2, we saw a nearly 20 day drop in our days sales outstanding or DSO back to the levels to which we had grown accustomed.
Looking at the deeper at our accounts receivable portfolio at June 30, more than 50% of our total accounts receivable portfolio, where current defined as being less than 30 days old that compares to only about 30% that was below 30 days as of the end of the first quarter. Our accounts receivable portfolio is growing more healthy every quarter.
Now turning to our outlook for the second half of 2023, we anticipate continued strong demand from our customers for both mobile health and transportation services segment. We are very encouraged by our performance. So far in Q3 as we have carried over the revenue momentum from the latter stages of Q2 into July which was by a wide margin our highest revenue months.
To date.
As Anthony mentioned, given the current strong revenue momentum coupled with enhanced visibility to the end of the year. We are raising our revenue guidance for the full year to a range of $540 million to $550 million compared with our most recent revenue guidance and the $500 to $510 million range the raised revenue guidance.
Range would represent year over year top line growth of about 23% to 25% compared.
Compared to 2022 full year numbers on an as reported basis. However, when removing the $75 million of mass Covid testing from our 2022 revenue baseline and considering that we're not expecting any material mass COVID-19 testing revenues in 2023, we expect to be looking at topline growth year over year or approximately 50%.
We're also raising our guidance for adjusted EBITDA to a range of 48 million to $53 million up from our original guidance of range of $45 million to $50 million.
And we still expect to exit 2023, and a gross margin of approximately 37% as our margins are expected to improve sequentially over the end of the year.
The revenue and EBITDA guidance implies expanding EBITDA margins in the second half of the year compared to the first half there are two elements to this forecast firstly as we've been saying for a couple of quarters now and as we witnessed in Q2, we expect sequentially higher gross margins as we continue to work on the factors that temporarily depress gross margins in the first quarter of this year.
Secondly, we anticipate that the pace of growth in operating expenses will be well below the sequential revenue growth rate, particularly in the areas of compensation, both on a cash and stock based compensation basis, leading to the expected margin expansion as greater top line scale is achieved.
Now I'd like to turn the call back over to him.
Thank you norm.
Before we turn it over to Q&A I very briefly wanted to mention the recent New York Times article that was critical of our partnership with New York City to provide health care and basic services to migrant populations in upstate New York.
I understand the core ethos of dock go wish to provide high quality health care for those that need it the most often times performing seemingly impossible tasks for our customers through rapid deployments in response to unprecedented events.
The early days of this migrant work, we were launching projects on extremely short timelines.
All of this was to avoid families and children for sleeping on the streets without access to health care and basic necessities.
Every day that goes saves lives treating and transporting thousands and thousands of patients.
One of the many key facts left out the New York Times article was the latest weekly polling of over 500 migrants in our care, which shows that more than 85% of them believe they're being supported and their needs are being met.
And city officials are well aware of this program's success as exemplified last week when mayor Adams reiterated his confidence in our partnership during our press conference where he praised our work describing it as a herculean effort helped the city this humanitarian crisis.
I am tremendously proud of the work, we're doing with the city and our partners upstate.
Specially all the amazing hard work being performed by local Cbo's, whom we work with daily.
We are all working hard to preserve these migrants basic human dignity and helped change their lives for the better.
To the thousands of dock go employees listening over 2000 of which our shareholders.
The work you do matters.
Every day your efforts are helping some of the world's most vulnerable and helpless citizens find safety support and a better life.
You should be proud of the work you do.
I certainly am.
Okay.
I hand, it back over to the operator for questions.
Thank you Sir.
Ladies and gentlemen, we will now be Congress conducting a question and answer session.
If he would like to ask a question. Please press star and then one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
Press Star and then two if he would like to move your question from the queue.
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Please note participants are restricted to one question and one follow up question at a time.
The first question that would be half comes from comes from Canaccord Genuity. Please go ahead.
Yes, thanks for the questions.
On the 325 million backlog just to be clear does that include any of the New York City asylum contract or is it just a partial part of that contract just to.
Clarify that would be helpful.
Yeah, Hey, Richard This is norm, let me, let me take a moment really just sort of walk you through how we look at our backlog.
Yeah, you know the way the way the backlog typically works. So what we will do is we'll start with when we talk about starting with about $205 million from last time understand it.
Good amount of that $205 million came out of backlog and into.
And into actual revenue during the quarter. So the incremental increase is really more than the <unk> from the 250 to 325. It does include a lot of that particular contract, but it includes probably a dozen different items that became backlog during during the period.
Okay. That's helpful and I was wondering on the care gap programs I'm now pleased to see that your B and I guess.
<unk> blinds, there rather than.
You know having to go out and generate lead flow and whatnot can you talk a little bit about like expected revenue contribution from those care gap programs, either you know for 2023 or once you fully ramp.
Richard It's Anthony so the reimbursement for those averages around $250 per care gap closure.
What is still to be seen and we'll disclose significantly more details in our subsequent earnings call.
Is how many of the patients were become compliant with our program and closing these care gaps that's really going to be the determining factor, but you know we announced is about 73000 additional lives that are being assigned to us by $250 is the average per individual care gap close some of them have more.
Multiple gaps that need to be closed some multiple visits the piece that will be proving out throughout this quarter is how many of them were able to actually close.
And theres nothing material really in our guidance.
Guidance, that's an important factor is that there's really no material amount in our increased guidance attributed to these care gap closure programs.
Thank you. The next question we have comes from Sarah James from Cantor Fitzgerald. Please go ahead.
Thank you.
Okay.
More color on the revenue guidance.
I know you guys mentioned in the release here that it was a prudent look at run rate and now but for your contracts that you've recently signed like the New York HPV or some of the others that are more fee for service how should we think about.
What's assumed in your 2020 guidance as far as the ramp in that.
It's really what we're doing today extrapolated out.
Unless of course, we have something which is guaranteed and so we have a specific launch date in the future. So we do have contracts that have a scaling timeline, where it says okay. On this day you will increase by this number of ambulances are increased by this number of mobile health units in which case that will then go into an increased revenue.
Guidance, but it's either a a for sure a launch date or B simply taking what we're doing today as of a couple of days ago, and drawing that out to the end of the year.
When we have a higher confidence, but not certainty.
In future revenue, that's when we'll add that to the backlog versus increasing the guidance.
Great.
And then can you talk a little bit more about what the future could look like for the air gap closure program for these.
Attributed lives.
Is that the.
Tension to turn these into one where you might have chronic care management on an ongoing basis or.
And maybe one day left to it.
Alright, the risk of any attributed to connect care life, what does the future of that program.
Yeah, that's exactly right. So the contracts are written in such a way that majority of these individuals not only do they have.
Let me take a step back the reason why they're being assigned to a stock go specific niche is for individuals that.
Have care gaps because they havent seen their primary care provider in over a year and so that means they are in need of care and so when we go into the home we provide that carry up our that's a diabetic retinal exam or diabetic foot exam or their annual a one C. We also then separately.
Usually poly chronic and then we will offer if theyre meet the medical necessity to have that monitored RPM and then manage through CCM as well as potentially become their attributed PCP and once you become their attributed PCP. There are there is the possibility of potentially taking on.
Decreasing.
Increasing opportunities with that payer as you normally would as a PCP and that's obviously something that we'll evaluate in the future. It's not something that we're doing right now.
Our goal right now is to just simply close as many gaps as possible and then to enlist patients that will have the greatest need into our monitoring and management services.
Thank you Sir the next question we have comes from Ryan Macdonald from Needham and co. Please go ahead.
Hey, this is Matt Shea on for Ryan Thanks for taking the questions and congrats on a nice quarter here.
I wanted to follow up on some of the commentary throughout the call Anthony it it almost sounds like with some of these newer deals that are different than deals over the past, where you might start smaller and scale over time in a more regimented way with these set dates that you would scale up and curious if that's a conscious decision that you guys have been making in your new car.
Contract, meaning that you don't have to have such high upfront starting costs in <unk>.
In the event that it is how is that changing some of your expectations on what kind of hits to the margin line. These new and larger deals could have could we see in the future where some of these deals are more gross margin neutral to start rather than negative from day one.
I don't think the actual contracts and their ramp schedule have changed substantially.
From the past to now I think what has changed is we're seeing the benefits of our rapid normalization initiative, which we put into place in Q1 and kind of.
Worked out through Q2, and now are really getting to the end of phase one of our rapid normalization initiative, we're really seeing the benefits of the those because those are long standing contractual changes in the way that we work with subcontractors as well as things with our fleet and I reiterated through all of those points before but.
When we look at some of the new projects that we launched in Q2, they already started to reap the benefits of that rapid normalization project.
That was those improvements they span the entirety of the company. They weren't just onetime fixes we didnt put some band AIDS on some marginal issue is we fundamentally changed the way that we operate so now we can launch at the same speed, but without the same margin pressures that doesn't mean, there's no startup costs, we still have a phase two of the wrap.
Would normalization initiative, which will begin on.
In.
In later Q3, but we've mitigated them fairly significantly when you look at the marginal improvement from Q1 to Q2.
Almost 500 basis points. That's the majority of that is attributed to the success of.
The rapid normalization project.
Got it makes sense just wanted to check on that and then.
Touching on another win that maybe didn't get covered as much the Dara transport networks would love to hear a little bit more about that what it would take for you guys to kind of see the supply and demand sides of that network and then as it grows what kind of either revenue or margin expectations you might have for that.
Yes. Good question. So the Dara transport network, it's really something we launched with our existing customers. So we don't have plans right now to just turn that into a whole new separate product line, which is offered what it does is it truly differentiates us when we go into health systems, because we have the ability to not only be a provider, but we can work with their existing.
Providers, which makes the sell significantly easier and also gives them more reliance because they don't have to go doctor all or nothing you can say, okay, we're going to get <unk>, 70% of the work, but we wanted to keep these other two vendors or three vendors. We said that's fine we're not greedy we'll work with them. They can come on you'll have the same level of transparency and ease of ordering.
<unk> long term reporting we can all hold each other accountable.
And so when we go into a new customer that's one of the flagships that we launch with and then we go out and as well if they say wed like.
Got you and will bring other providers on on the platform and we do so in a way that really tries to make it fully integrated with these other providers systems.
So that we can.
<unk>.
There is the reality is they do transportation section there are significantly more demand than there is supply. So there is no reason that we cannot all work together still in a competitive environment to service patients in hospitals and to do so we need to all be in one system under one roof really with the Dara transport network is.
Thank you Sam.
Ladies and gentlemen, just a reminder, if you would like to ask a question. Please press star and then one now.
The next question, we have comes from Michael Latimore from Northland capital market.
Please go ahead.
Okay, great. Thanks.
Great results and outlook here.
I guess can you provide a little more clarity on the.
Decidedly care.
The deal what percent of the maximum amount of that deal is gone into backlog if you can share that.
Well I think the first thing is you've got to do is the number that everybody is looking at which is out there is about $430 billion. I think the first thing that you need to do is to modify that number.
Or put it into categories of the amounts that are going to be spent that represent actual recorded revenue right. So there's revenue recognition. Some of that has flowed through we estimate that the revenue to be captured.
Is somewhere in the area of about $300 million.
And I would say that maybe two thirds of that is baked into our backlog and.
And the rest of that becomes.
Well, a little bit of a modifier on that on that 300, and then theres a little bit that obviously has already been realized and we would expect to realize in Q3 and Q4, it's a little bit tricky and Anthony started to explain this earlier, but it's a little bit tricky to figure out how to put something in backlog versus putting something in the revenue guidance.
Essentially revenue guidance as a forecast is our best edge.
Indicated gas as to what we think revenues will be from different projects and then in the aggregate from now to the end of the year or over the full year, whereas backlog represents everything that is <unk>.
Consider it to be achievable that might not yet had been had been launched so.
With this as with many other projects youre going to have different phases of the project. So there are phases that are going on now.
Different sites that are being serviced so we can start to extrapolate that out and make that part of the revenue guidance and then we have other sites that haven't launched yet.
Those would typically fit into fit into the backlog, it's not exactly it's not 100% that way, but conceptually. That's what it is is looking at how the existing work is going to expand on one hand that becomes revpar. Our revenue guidance and then looking at other things that we expect to be launched at some point.
Which would go into backlog.
Alright, so the bulk of that number is backlog.
Alright perfect.
Then.
This is a large deal or a large potential deal. If you win another deal of a similar size you know border control or whatever how do you think about just handling that incremental demand and growth.
Do you feel like you can find enough.
Supply labor how are you.
Any challenges here like how would you prepare for something if you went to another deal about the size.
Yeah it.
It would be a myriad of different factors, Hey, hi, Mike its Lee.
I think it will be a myriad of different factors, obviously geography plays a big factor in that obviously, if we're going and scaling in a new geography with a new pool of clinicians and staff, obviously that affords us an opportunity to tap into additional <unk>.
Staff and additional resources and new geography, so that'd be the first pizza as an example, the example, you gave US the border patrol, that's obviously outside of New York, So that would that.
That would be scaling in a new area for us with a new set of staff. So that's the first piece. The second piece is I think we've really built out our management team to this point and norm touched on it with our SG&A investments, we really feel like we have a very strong management team that can scale.
The projects, we have in the new projects that we can bring on so we've really bolstered our management team, we've really bolstered our directors across the country and all of our geographies.
And those directors are very strong our management team is very strong and we feel like there's additional leverage there. There's additional scale there that that that investment in the management ranks can really go and taken scale from.
From here I'll, just add on what we said on the on the staffing side specifically the model that we came up with for staffing and grow with US is quite scalable because the agencies that we have on them. They represent many hundreds of thousands of total clinicians and providers around the United States, and so being able to tap into that.
That network, but doing so through our new contractual relationships that allows us to take only an increased start up cost for a short period of time is why we're highly confident that if awarded a large contract like that we can handle it.
Alright.
Thanks, a lot best of luck.
Thanks, Thank you.
The next question we have comes from David Grossman from Stifel. Please go ahead.
Thank you good afternoon.
Just I know you've had a lot of questions on the backlog of everything so I don't want a pizza figure it out but just to be clear when you look at the $3 25.
Do you want us to think about the convert revenue conversion to be fairly linear or just how do you want us to think about how that converts to revenue.
David This Anthony just for clarification, you mean convert as far as like a timeline like what do you think the chronology is $3 20 exactly right exactly yes.
So a large portion of the increase that you have there is going to be related to HPT contract and that you know that HPT contract through may of next year.
And so that's where it comes from now the previously.
Amount of backlog that we did have that was.
Close to a three year ramp and that was to your point, mostly linear but the increase in backlog not all of it but the majority of it is related to the HDD contract and that contract is from it was from May of 2023 to may of 2024, but even with a David its norm. So even within that there are going to be <unk>.
That are going to get in the way of of the linear function. So for an example, one of the big elements of our backlog going back a couple of quarters was the New York City Health and hospitals transport contract, which we knew was a certain amount of money over three year period, we did realize some revenue from that from that particular contract in the quarter, but it was mostly towards the back half of the quarter.
So when we look at Q3, we're going to get more revenue out of that project in Q3, because we have a full quarter's worth than we did in Q2, then it starts to become linear so but the thing that's going to get in the way of that being completely smooth and it's going to make it a little bit lumpy is that as these as these projects ramp in a mid quarter point of time.
And then youre going to Youre going to get some lumpiness in there where you have that first quarter or second quarter out as it as it convert from backlog into revenue, bringing up a relatively small number but then it's really going to accelerate.
So.
I'm not really asking to provide guidance for next year, but.
I think we all think about what the comparisons look like.
Particularly with this slightly contract.
A large.
First 12 months and I know, there's a renewal term but.
How do you how do you want us to think about what happens after may of 'twenty 'twenty four with that contract.
I would think about it from a human perspective.
Without going into a contractual relationship the vast majority I think 80, 586% of the individuals in our care are families with children and so you know.
The thought that these families with children will be just put on the street without care.
Services for social working for case management or loan no longer going to be needed seems extremely unlikely now I do think there may be a shift and you may see that single adults.
Maybe no longer have the same services provided to them, but I think it is extremely unlikely that the families with children, which again, it's over 85% of the individual's coming into New York are going to be left without these services at any point.
And where are they.
Okay.
Go ahead I'm sorry go ahead.
So I was just saying it just runs through May that's already going to get as part of 'twenty 'twenty four.
Right right right.
And when do they actually qualify or what.
As Medicaid.
Qualifications instead of political dynamic or is there some kind of path to you know for them to being treated under Medicaid.
There is yes, so once they've submitted their asylum application in New York through various circumstances that can become eligible for New York State Medicaid is just normal Medicaid recipients and it covers.
I'll, then Medicaid benefits primary care urgent care and the like.
Before they submit their asylum application they enter into a hospital then they are enrolled in what's called emergency Medicaid.
And that's really just covering kind of emergency situations.
But what we are working on with these.
These groups is to continue to be their care provider long past. This program. So when they come in we're working to make sure that they get access to health plans relative to what their eligibility is.
And then once that happens we can become their attributed PCP continuing to care for these people so long as they need that care.
Got it and then just one other question was.
You talked about margin improvement in the back half of the year and I I think I understand.
Those dynamics, but is it reasonable to think that the.
The exit rate.
In 2023 is a reasonable a predictor of what the margin starting point should be for 2024 or.
Are there seasonal and contractual dynamics that maybe that's not the right way to think about it.
No David I think your assumption is a good assumption if only because when we think about that exit rate, we're not thinking of it in terms of certain nonrecurring or seasonal items that are going to happen in the fourth quarter in December it's really simply a matter of looking out over the horizon trying to figure out when we get to.
So you use that term again, a more normalized margin. So if we were there.
As an exit rate for 2023 that that does become at least from a model standpoint that does become the starting point for 2024.
And you know in my head is that alright, and is phase two of the.
You know the changes that you're making in your model for the normalization project does those benefits get realized in <unk> or should we think of that as being a tailwind in 2024.
No I think youll see the benefits of those in the first half of 'twenty four.
Got it.
Great Alright, guys. Thanks very much.
Thanks, David Thank you.
The next question we have comes from Peter Chickering Deutsche Bank. Please go ahead.
Hi, there guys, you've got a cure and Ryan you're in for Peter Thanks for taking the question.
Just wanted to hit on the transportation side first is there is there any reason that the step up in <unk>.
Segment margins, there shouldn't be viewed as like a new run rate going forward with with potential to move even higher just as the.
At least our mix continues to rise.
Yes, that's certainly the driver of the margin on the medical transportation side with converting new console every new contract sign is at least our and even though those contracts were going back and converting those to least hour, which obviously is improving margins. So we expect it to stay where it is and increase as we as we better.
The mix on the transportation side, then it's really improving yeah. I mean, there's a lot of good things that are taking place sort of behind the scenes that are driving that number.
A lot of what you can see in our 10-Qs and other reporting so are our average price per trip is going up and it's not just the general inflation is because we're taking.
We're taking more AOS trips, our CCT trips with great BLS trips were taking higher acuity trips were really really good.
Call portfolio management, both in terms of what the portfolio trips looks like and what the portfolio of different markets look like so as you talked about we shut down the California transport market that alone gets our guests our market higher Lee alluded to this in his prepared comments a few minutes ago that we're looking at all of our transport markets in determining which ones have the scale that we need to.
With it.
And then have the margin profile to continue with it. So when you go through that kind of pruning process is sort of almost a self fulfilling thing where the margins go higher but it's a summary in summer to answer. Your question. Yes, we look at the number that we're seeing today as something thats, a launching pad for a better a better number going forward.
And it's really the result of a lot of a lot of different margin enhancing projects that have taken place over the last 12 to 18 months.
Great. Thank you and then.
On the on the RPM side I was just wondering if you had any any thoughts on just kind of your early after each there what kind of traction you're seeing with customers and just kind of how how big part of the discussions.
That service line is and some of these new deals that here.
Negotiating thanks, Yeah, Oh, absolutely can't Yeah, RPM continues to be a part of all the new deals on the on the mobile health side, particularly with the Carryout closure programs in our payer partnerships because ultimately what it's therefore is to lower the cost of care.
Provide proactive care keep patients out of the hospital. So as we go and do care gap closure that we talked about all the carryout closure services that we provide if we do see candidates. We do visit with patients that are good candidates for RPM platform. That's the time that we would enroll them were already in their home, we would enroll them in the program and then obviously, we'd begin monitoring them from there so.
And it's absolutely.
Symbiotic with our kick out closure programs with a lot of our mobile health deployments and that continues to be a big driver for us.
For the future we're excited about it.
Thanks, guys.
Yeah.
Thank you.
The next question is a follow up from Richard close. Please go ahead.
Yeah, Thanks for the follow up.
Norm is there any way you could give us what the transport volumes and the pricing that will be in the queue.
I don't know it off the top my head, but we'll put the Q in there.
It'll it'll be in the queue within 24 hours.
Just to give you an idea the volumes were up double digits, if I looked at Q2 versus Q2.
But I think maybe you can or yeah.
I think maybe even over 20%, but definitely double digits and a year over year.
Average price also went up I, just don't want to I don't want to quote the wrong number to you, but I can tell you directionally where it is.
And that'll be out there tomorrow.
Okay, and then with respect to free cash flow I'm, you know I appreciate the comments on the collections in the second quarter and Dsos and whatnot. So how are you thinking about free cash flow, maybe conversion of adjusted EBITDA to free cash flow for the year.
So.
First let's look at where we are at the halfway point and then we did include the cash flow statement as we typically do in the earnings release, so what I'd like to do given given the way working capital has had such an impact on our on our results on our operating cash flow I'd like to take the operating cash flow piece and split it into two pieces. So you have the.
The net income or net loss as a work and adding back the noncash items Thats. One piece and then you had the changes in working capital categories and that gives you a little bit of an idea of the working capital stuff is going to continue to be a drain if you look at the first half of the year.
All of the negative on the operating cash flow side and then some came from the the working capital categories. So we had a $40 $50 million increase today are versus the end of the year, we had a $14 $3 million decrease in accounts payable. So it really had a big negative cash cycle. There on the other hand, when you look at the cash flow that was generated from operations, what I'd like to call. It.
P&L cash flow I think it worked out to roughly $60 million in the first half of the year, which is kind of what we had been running at when we think of being able to generate $30 million to $40 million of operating cash flow. So if we were at a point, where we could get the working capital to be a net zero effect, that's kind of the cash flow generation that you are looking at so I would compare.
The 14 point.
7 million I think it was of adjusted.
The adjusted EBITDA.
That we generated in the first six months of the year with about $16 million of P&L cash flow rate absent the impact of the the working capital categories over that same period of time, so it lines up pretty well.
Okay. Thank you.
Thank you.
There are no further questions at this time I.
I would like to turn the floor back over to Anthony Capone closing comments. Please go ahead Sir.
Yeah.
Okay.
Thank you all for attending our earnings call. We appreciate you for those investors that are on a follow up questions. Please reach out to Mike Cole schedule one on one meetings.
Yeah.
Thank you, Sir ladies and gentlemen that does conclude today's conference.
Thank you for joining US you may now disconnect your lines.
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