DocGo Inc. Q3 FY2022 Earnings Call

Thank you for your patience. This is the conference operator. Welcome to the DocGo Third Quarter 2022 Earnings Conference Call. All participants are currently in listen-only mode, and this call is being recorded. After the presentation, there will be a chance for questions. Now, I will hand the call over to Mike Cole, Vice President of Investor Relations. Please proceed, 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 to the 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 digits 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 DocGo's low-cost 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.

Thank you, Stan, and thank you all for joining the call today. On the operational front, this is an incredibly 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 gained sufficient experience in each service line. To support a scalable growth strategy, it's important to understand the 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 homes. This allowed for more comprehensive care, which factored in patients' environment and family directly into their treatment plan. Society moved doctors into hospitals not because it was better, but because it was more cost-efficient. It became untenable to have highly paid clinicians travel to everyone's homes. DocGo's model solves this using well-trained, 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 a cost-effective but high-quality care delivery model that 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 he 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. This 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 parked in their store parking lots. While it's still early in the pilot phase, we are excited about the potential of this relationship, given 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 I’m pleased to announce that at this time we currently have no active mass COVID testing contracts. 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 is 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 expense is 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 fully normalize 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 on 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 New York City Health and Hospitals, with whom DocGo has built a robust relationship. Our team has proven that we can not 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 a million dollars 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 Seebers, our Chief Product Officer, delivered some incredible tech this quarter. Not only did they get DocGo’s B2C on-demand mobile healthcare app launched into the iOS app store, but they also got DocGo's B2B mobile health app into the Epic App Orchard. Q4 in '23 are going to be even more exciting as we enter into the RPM market. In early October, we announced that we launched our first pilot program associated with this effort with Westpac out of San Diego. Westpac 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 in 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 conditions 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 leverage these relationships to capture additional RPM customers. DocGo is uniquely positioned to provide an end-to-end solution to this industry for 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 on our product and 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 RFP processes 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 benefits 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 Sigma to provide urgent care and annual physical type services to their member population in 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 vendors 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 this over to Andre to review the financials from this quarter.

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%. Mass 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 amounts to 73% of total revenue during Q3 this year versus 79% in the prior year. 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 remeasure of warrant liabilities in the third quarter of this year, net income would've been $4.3 million. The net income improvement resulted from a strong increase in revenues during the quarter coupled with improved total gross margins while certain overhead costs related to infrastructure provided leverage as they 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 wages began to subside and as the company more effectively managed its labor to reduce overtime hours for field employees, these factors more than offset higher average fuel costs. 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 high startup costs associated with some of the companies new projects this year. As of September 30, '22, 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 operating activities amounted to $31.3 million versus $6.9 million in cash provided by operations during the prior year period. Excluding vehicle financings of $9 million of planning data amounted to $2.1 million at the end of Q2 versus $1.9 million at the end of last year. In terms 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. To lead the third quarter of '22, the actual average hourly labor rate was higher than last year's rate but lower than our assumptions, while the average fuel cost per gallon, which moderated from a Q2 level, was significantly higher versus the prior year but very close to our forecasted rates during Q3 of this year. The negative impact of the increase in gas costs was approximately 30 basis points on gross margins compared to the third quarter of '21, with the negative impact of only two basis points versus our assumptions for 2022. As for the cost of labor, the year-over-year increase in average hourly rates 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 slower 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 reevaluations, and other non-recurring expenses. Please refer to our release for an accrual of adjusted EBITDA. Net income for the nine months ended September 30, 2022, totaled $331.7 million, representing growth of 68% over total revenue of $197.4 million for the nine months ended September 30, '21. Adjusted EBITDA for the nine months ended September 30, '22 amounted to $34.5 million, representing a substantial improvement. The adjusted EBITDA was $7.8 million for the comparable last year. Income for the nine months ended September 30, '22 amounted to $23.6 million, representing a substantial improvement from net loss of $1.1 million for the comparable period last year. In terms of our 2022 outlook, we anticipate continued strong demand from our customers for post-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 to $440 million, up from our prior guidance of $425 million to $435 million. We are also increasing our adjusted 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 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 CEO transition that we announced in today's earnings results press release effective December 31st. I will be retiring, stepping down as CEO and Chairman of the Board of Directors. Our current president, Anthony Capone, will assume the CEO role at that time. I have agreed to assist the company through the end of 2023 to ensure a seamless transition. Long-serving board member and co-founder Iris Mera 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 set us apart and create 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.

The first question comes from Richard Close from Canaccord Genuity. Our next question is from Ryan MacDonald from Needham. Please go ahead.

Okay, great. Yeah, this is Matt Shea on for Ryan McDonald. Appreciate you guys taking the question and congrats on a great quarter. Best wishes Stan on whatever is next, but specific to the quarter, it was great to hear about some of the RPM updates. I was curious with that Gary and Mary Westpac relationship, would you be able to provide some color on what services you're providing, how you're getting reimbursed for those services, and then how do you expect to use the data and 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, and Danny, thank you, Matt, for joining us. So the relationship that we have with Westpac, which is in the 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. We do that by responding on scene and treating 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 Westpac contract that we have also follows our, nearly the majority of our contracts follow the same model in terms of the pricing structure. That's where we bill a fixed hourly rate for our services. 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 helps us to protect our margin. In addition to that, we also get bonus payments in the event that we can deliver successful patient outcomes. In this case, a successful patient outcome is actually reducing the readmissions or reducing admissions to the emergency rooms versus the baseline. We announced in our last quarter that for Q2 we were able to reduce the rates of admissions and readmissions against the baseline. Now, all that data has been super valuable, and it motivated us earlier in the year to get into RPM. The data we received from that we then packaged up into a white paper, and Westpac actually presented that at their national PACE conference. So the opportunity here is to take the exact same program we have with Westpac in Southern California and implement that across all the PACE locations throughout the entire country. Now that RPM data sits on top of that urgent care services and fits hand in hand. Rather than waiting for a patient to trigger to say they need our urgent care services, we know we can see elevated vitals through monitoring, and we can begin to initiate a telehealth visit. If necessary, we can respond rapidly on scene. So RPM has really become the foundation by which we can be in control of healthcare, as opposed to sitting back and waiting for it to come to us. Hope that answers your question.

Got it. Okay. So it sounds like it's a little bit more about helping create value-based care constructs rather than just billing Medicare for CPT codes. 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 seems like a nice add-on. We've heard from our checks that health systems are looking to build around theirs, so it seems like 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 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 what that opportunity looks like for you guys. Thanks.

Yeah, thank you, Stan. You want me to take that as well? As a former CTO, who better to answer that question than you. Thank you. Yeah, and congratulations to our tech team for really pushing through and getting that finally and fully deployed inside of the Epic App Orchard. 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. And we're now structuring all of our contracts such that they also include mobile health services. It doesn't mean that it's all guaranteed, but there's already a construct by which the financial component, the ordering component, the clinical component is already built in there. Our new contracts going forward all include that. It is a very big differentiator, and part of the way that we do that is because we use this least-hour model with the hospital. We basically make sure the hospitals understand that they have least clinicians. Now, those least clinicians can do anything that you want them to do. Sure, they can transport, that's their main function, but those least clinicians who are in vehicles, ambulances, can do anything else. They can handle transitions of care, they could perform post-surgery services, and they're yours because they're dedicated to you leasing them. So get creative in all the areas that they could benefit your health system. Going forward, I haven't found any health systems that don't want to also have that capability bundled in. Now, as most people are moving to Epic, they can do that with just one simple additional click.

The next question comes from Sarah James of Barclays. Please go ahead.

Congratulations on another great quarter, panel. I'll be really sorry to see you go, Stan. 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. We've navigated through lots of challenges over the last three to four years. Something that we've gotten quite proficient at is scaling large projects quickly. I think we are a go-to for municipalities and large hospital systems throughout the country that need to launch a program, and they like to do it big and quickly. From a hiring standpoint, we have processes in place that allow us to hire, allowing us to use third-party agencies if we need to. We've started projects up in weeks that our competitors would take months, and they often include hundreds of medical personnel. That’s part of our little bit of a secret recipe. We've shared tidbits 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. First, you had the COVID period, where people didn't want to go to work, and then you had the mass resignation period, and all these different cycles that we've lived through over the last several years. We've been very fortunate with the dedication of our leadership to navigate through those challenges. Anthony, anything else you want to add?

Yeah, 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. And 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 you could discuss expansion? And what types of benchmarks are your partners looking for to share performance and want to engage in expansion conversations?

Well, all of this here is really part of the evaluation for us. We're slowly dipping our toes in the water and figuring out exactly how we want our B2C program to work. As 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 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, keeping a 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 validating business processes and concepts and financial models. Only when we're satisfied with those results will we go all in, and we are preparing for that, going all in because we are very satisfied with some of the results that we've seen year to date. You'll see that hopefully in 2023.

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

Yeah, sorry about that. Thanks for the question. So we've had a lot of discussions with investors and there's some confusion about the DocGo story. I thought it would be good if you could talk a little bit about utilization. There's soft utilization trends that many companies have called out. There's labor headwinds, shortages, retention, wage pressure; people have called out. Some investors ask me why DocGo doesn't see any of this, and 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. Keep in mind, I've been in healthcare for 30 years, and this is not my first rodeo when starting mobile health. We knew from the very beginning that if you go into traditional fee-for-service where you're taking reimbursement from Medicare, Medicaid, and commercial 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. We developed this concept of a lease labor plan. 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 a specific project when we're out in the field. We then also have nominal upcharges for different procedures or tests that we do. And then very often based on outcomes, we'll also get a bonus payment like Anthony mentioned earlier. We're not a traditional fee-for-service business. We adjust our headcount on a month-to-quarter basis based on the contract. These are dedicated staff, and we put the responsibility of utilization on our customer, not on us. If we have 15 physician assistants doing pre-op services in patients’ homes on behalf of a hospital, it's up to the hospital to load their schedules using our tech platform. If we feel that we need to add staff, we'll add staff; we'll make a recommendation. Conversely, if we see that the demand is lower, we'll make a recommendation to reduce that headcount in the following quarter. The entire business plan is very different. We practically do no fee-for-service. We have the ability to renegotiate our rates much more frequently. If I'm a traditional fee-for-service company that accepted reimbursements from United or Aetna, if my labor costs and fuel costs go up, I have very limited ability to go to Aetna or United and renegotiate that reimbursement. It's very different if I have a hospital that I work with where I could go to them at the end of the year and adjust my pricing based on inflationary pressures. The fundamental difference lies in our model, which is based on lease hours with additional upcharges for different procedures. This results in a dedicated staff model. The hospitals, municipalities, and our commercial accounts see us as an extension of their team, leading to high customer renewal and success rates. I hope that answers your question. Anthony, do you want to add to that?

The only point I would simply add is the quality that comes from it, which Stan alluded to. It's easier in a traditional fee-for-service model for the end healthcare organization that you're contracting with to potentially get a cheaper rate by playing companies against each other, but the quality of care that you get is generally lower. This can cause issues down the line. Providing dedicated resources, regardless of the services performed, leads to a higher quality of care, which customers recognize. Retention is higher, and obviously, our margins are also protected. Stan innovated our program a couple of years ago, and we now have over 4,000 employees, most of whom operate under this plan.

Can you talk a little bit about retention of employees? I know that in home health, employee retention has been impacted by people leaving the workforce. Can you discuss your ability from a labor perspective, maybe what your retention is, and 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 take the first crack at the answer and then pass it over to Anthony. When it comes to employees, I'd like to think we take good care of our staff. For one, we pay about 10% to 15% hourly. Our hourly wage is higher than the street. We also incentivize employees to reach their best in the field. Based on customer satisfaction scores, we offer bonuses. Almost every full-time employee at the company participates in our equity plan. We invest considerable amounts into employee education. When you combine these different factors, our Glassdoor ratings show that we have one of the highest ratings in the industry at about 4.2 to 4.3. When employees are happy, they perform better and refer us to their friends. That helps with our recruitment and retention. We monitor our employee satisfaction closely. Hopefully, satisfied employees will stay and also refer others.

From the perspective of retention, traditional companies look at it in days or months, but in a timeframe that doesn't make sense to us. We look at it in dollar figures. How much revenue does the average employee bring in various categories relative to what it costs to onboard them? What is the return on the initial hire value?

That's how we assess and monitor everything in our company, and we are getting better, not worse, in that category. Our unique model allows us to increase revenue per employee relative to the onboarding cost. One reason we can pay better than most in the industry is tied to your previous question. Because we have dedicated staff paid on an hourly basis, we can control our margins and pay more than those traditionally on a fee-for-service concept, which is typically volatile in demand and results in lower pay. In our model, there are dedicated healthcare resources, allowing for higher compensation, and we consider multiple factors regarding employee satisfaction and retention.

The next question comes from Kieran Ryan of Deutsche Bank. Please go ahead.

Hi there. This is Kieran Ryan on for Pito. Thanks for taking the question. Looking at margins in Q3, they came in pretty strong, a little above 8%. Given the upsides in revenue, I thought maybe there could be even a little bit more upside there. Based on what you said around fuel and labor costs tracking in line, is it fair to think about these new contract upstart costs as being kind of the main gross margin swing factor for Q3 and then also for the step-up in Q4?

Yeah, that's exactly what you'd be 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 digits. That basically means a lot of new contracts were implemented during the course of third quarter, particularly three contracts, two hospitals and one municipality. These are sizable, long-term agreements that have initiated, and there is a startup cost associated with contracts of that type. Typically, we feel these costs for about 60, sometimes 90 days, but then we have multiple years of rewards from that initial investment. For Q3, excluding those initial startup costs for the three large customers, EBITDA margins would have been considerably higher. But I look at that as a good expense and would 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've seen LPNs tracking at about 65% to 70% of the cost of RNs. Is that generally still the right level, and are there any changes in that hiring environment in the last three months?

Yeah, I'll let Anthony or Norm or Andre speak to the actual percentage for the cost of LPNs. We have hundreds of physician assistants, nurse practitioners, registered nurses, and LPNs. Andre or Anthony, are you familiar with where the LPNs are tracking compared to our RNs? Is that something you are at liberty to talk about?

Yeah, I think that the number you gave, 65%, is close. That's close. I don't know the precise percentage, but I think it’s still within that ballpark and would probably also vary geographically. There's a significant difference between, say, New York City and Nashville, Tennessee, in terms of labor rates, but generally, they're relatively aligned.

The next question comes from Mike Latimore of Northland Capital Markets. Please go ahead.

Yeah, thank you. Hi, Mike, and congrats. Stan, and hello. Congratulations on both of your new roles. Sounds exciting. Thank you. Yeah, so on the mobile transport segment that was up sequentially in the quarter. Can you talk a little bit about what drove that? Is this kind of a new baseline to think about?

Yeah, there's been a combination of our ability to acquire licenses and then capitalize on those licenses. For example, I mentioned acquiring an ASCT license, which is a 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. These are the kind of models we've seen growth, where we look at our existing customer base and identify revenue we aren't capturing due to a lack of competency, capability, licensure, or perhaps all of the above. We seek value buys to service those needs. Generally speaking, our tuck-in acquisition strategy follows this mark across the board. I would also say, yeah, Andre, you can speak more into that: This is a new baseline going forward, and the revenue we have from transport is recurring and is part of longstanding multi-year contracts.

I'll just add to what Anthony said. On the higher level of transportation—like our ASCT—a-level transport, that created an increase in our average price per trip for those contracts, which are now leased out at about a 20% increase this year compared to last year, actually speaking. I think it's in the queue when you get that tomorrow. In 2021, the average cost per trip was about $303; this year, it's about $374, which is about a 23% increase, based on the fact that we have this higher level of transport that we can do with those document acquisitions.

Okay, that's great. And in terms of the spending environment among municipalities, it sounds like it's pretty healthy overall, but can you characterize what you're hearing from municipal governments in terms of interest in new programs or expanding programs and their view on what next year might look like?

There's a tremendous focus nationwide today surrounding population health. I think the country is finally realizing that to keep Medicaid and Medicare costs down, you have to be proactive in 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. We think population health and government-based 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. The country is finally taking proactive measures to address the problem rather than simply reacting to it. I'm also proud that we have a program that caters to those specific needs. It’s a very affordable program that makes sense because we leverage medical clinicians with state-of-the-art equipment combined with telemedicine, resulting in a significant differentiator. We're combining the best of medicine with the best of technology to drive good, positive outcomes. That's what we've built our business on.

The next question comes from David Grossman of Stifel. Please go ahead.

Thank you. Good afternoon. It came up a couple of times in your remarks. I think both you and Anthony had 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 help us mention your ability to successfully expand within the base?

I don't know if we've published any actual numbers, David, but I will tell you I've found it much more difficult to secure same-store sales than go out there, sell, and keep turning customers over. 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; much of that is because of the technology we integrate. We are a very integrated organization, and we integrate with most of the major EMR products out there. Once you go through that effort, you tend to be a long-term partner of that institution. I would say a very large number—though I don't think we disclose the actual percentage—of our growth comes from same-store sales throughout the country. We continue to sign up new customers, but I’m most proud that we don’t lose existing customers, and our existing customers come back with new ideas they want to implement. We often float around potential new concepts, and we can turn that into a proposal quickly. A lot of times, our business model allows us to launch a program. As long as compliance signs off, we won’t charge anything or will charge cost for 30 to 60 days; this way the customer can see results. If they like those results, we’ll then engage in a longer-term relationship. I’d reiterate that a significant majority of our growth has been from same-store sales.

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

That is really it. I really want to thank everyone for joining this evening. I know it's late. It has been truly an honor to work with so many wonderful analysts and financial professionals from the financial community. I believe DocGo is doing something wonderful. We are doing it differently, and our results are speaking for themselves. I've always said, judge us by our results, not our PowerPoint. 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.