Good afternoon, and welcome to the DocGo Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Cole, Head of Investor Relations. Thank you. 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 facts, are forward-looking statements. The words anticipate, aim, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions may be used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance, results, or outcomes 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 provided directly as part of this call or included in our earnings release, which is posted on our website, docgo.com, as well as filed with the Securities and Exchange Commission. The information contained in this call is accurate only as of 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, whether as a result of new information, future events, or otherwise, unless required by law. At this time, it is now my pleasure to turn the call over to Mr. Anthony Capone, CEO of DocGo. 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 a result of strong demand across the board, we are raising our full-year 2023 revenue guidance from $500 million 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 services to migrant populations in New York. In addition, we were just recently awarded mobile health contracts for flu vaccination programs in South Carolina and a 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 prevalence in relatively new geographies, which we aim to build upon over time. Now the increasing guidance is prudent and reflects a combination of new contract wins and 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. At its current growth rate, we anticipate that it is possible for us to achieve the maximum value of the contract, approximately $120 million, that is associated with subcontracting 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 such programs. Both our customer and employee satisfaction are at all-time highs. On a scale from negative 100 to 100, our on-demand customer NPS 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 promotions we have made just this year, helping to support clinicians who operate today as individual providers to grow into meaningful management careers. With an industry-leading Glassdoor score of 4.2 and an Indeed score of 4.3, it's clear that our employees love working at DocGo. At this time, I'm going to hand the call over to Lee Bienstock, our President and COO, to provide some operational details. Lee, please go ahead.

Thank you, Anthony. Before I jump into those operational details, I am very pleased to report that we reached a significant milestone during the second quarter. We have surpassed the 300,000-patient interactions through our Street Health outreach and wellness program in partnership with New York Health and hospitals. This is one of our flagship programs that brings health care and mental health services to the unsheltered homeless population, and we are extremely proud of this accomplishment. The $432 million mobile health contract with HPD 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 is a contract that was issued to DocGo under an emergency authorization after DocGo had already successfully worked with the city across numerous contracts spanning multiple years, building our track record and the city's trust. Due to DocGo's innovative clinical delivery model, our technology, and highly sophisticated operational models, we are able to provide these services both cost-efficiently and with high quality. During the quarter, we made substantial progress in further evolving our business model and launching care gap closure programs with four new major payers. 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 vulnerable to swings in demand. We viewed this as a way to help prove DocGo's clinical ability to our payer partners. And these relationships are now evolving into specific care gap closure programs that aim to provide preventative care and treat at-risk and chronically ill patients. These new agreements come with the predetermined pay rate per visit and guaranteed minimums, where DocGo is assigned a list of at-risk and chronically ill patients for our national operations center in Tuscaloosa, Alabama, to contact and schedule specific medical services. Simply put, patients are now assigned to us rather than DocGo waiting for the patients to contact us. These services include bone density tests, diabetic retinal exams, and mobile EKGs, just to name a few. Collectively, we expect these four payers to assign us 73,000 patients needing care gap closure and primary care services. We believe preventative care saves lives, improves program quality measures, and helps 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 are 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 missing discharge medications and orders, which is similar to the national average. The average wait time for these patients to get follow-up visits with their PCPs and specialists takes three weeks, whereas we deploy to address these issues much quicker and proactively. In the last 60 days, we've completed over 200 diabetic screenings, 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 A1C levels over nine 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 PCPs or provide additional treatment or medication changes. This data and impact we are seeing is reinforcing our belief that DocGo is uniquely positioned to drive improved patient outcomes while reducing costs 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 physiologic monitoring and principal care management. Within the last six weeks, we have 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 nephrologists that monitor tens of thousands of patients. Over the second quarter, we boasted a greater than 90% patient compliance with our established clinics, far above the industry average. On the medical transportation side, I am 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 least hour model by the end of the year. Not only were we able to significantly enhance profitability in this segment, but 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 it presents us with an excellent opportunity to prove ourselves with health care systems 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 8 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 have strategically positioned DocGo to leverage cash flows from our core municipal contracts to fund this growth internally, and we are seeing that strategic plan come together beautifully.

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 in DocGo's history, representing an 11% increase in the first quarter and a 15% increase from the second quarter of 2022. Last year's second quarter included an estimated $28 million in mass COVID testing revenues. By contrast, mass COVID testing revenues represented a relatively insignificant portion of total revenues in 2023's second quarter. Removing these testing revenues from both periods, recurring revenues increased by more than 50% compared to the prior year period. Mobile Health revenue for the second quarter of 2023 amounted to $80.1 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 testing revenues of less than $1 million for the second quarter of 2023 and $28 million for the second quarter of 2022, 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 2022. 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%. Based 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 2022. Last year's second quarter included approximately $4.4 million in nonrecurring income relating to the remeasurement of warrant liabilities and finance lease obligations. Adjusted 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 recorded 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 were 34.9%, significantly better than the 27.7% gross margin that Mobile Health reported in the first quarter of this year and compared to 39.9% for the second quarter of 2022. In the Transportation segment, gross margins continued to expand, increasing to 30.7% in Q2 2023, up from 28.9% in the first quarter and from 20.2% in Q2 of 2022. As expected, gross margins were sequentially higher in the second quarter than in the first quarter as we witnessed an easing of some of the margin headwinds we encountered in the early part of this year, particularly in relation to the startup cost on some mobile health projects. However, we did experience some project startup costs during Q2 as well in both mobile health and the transportation segments. While we anticipate that gross margins will continue to improve sequentially as we move into the third and fourth quarters of this year, overall margins could be impacted by the timing and size of newly launched and ramped up projects. Now looking at operating costs. 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, the 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, operating expenses as a percentage of total revenues amounted to 26.3% in the second quarter of 2023, up slightly from 25.4% in the second quarter of 2022. 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 enhancement projects, as we have detailed over the past couple of quarters. Now turning to the balance sheet. As of June 30, 2023, our total cash and cash equivalents, including restricted cash, was $123.8 million compared to $127.5 million as of the end of Q1. While our margins are improving, as I described earlier, we continue to experience working capital requirements as we build out our business with larger, more creditworthy municipal customers, such as New York City, which has received a credit rating upgrade in 2023. These customers have longer payment terms and a longer payment cycle in the 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 of 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 with the 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 a bit deeper at our accounts receivable portfolio, at June 30, more than 50% of our total accounts receivable portfolio were 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 segments. 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 month-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 in the $500 million to $510 million range. The raised revenue guidance range would represent year-over-year top-line growth of about 23% to 25% 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 testing revenues in 2023, we expect to be looking at top-line growth year-over-year of approximately 50%. We're also raising our guidance for adjusted EBITDA into a range of $48 million to $53 million, up from our original guidance range of $45 million to $50 million, and we still expect to exit 2023 at 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 a stock-based compensation basis, leading to the expected margin expansion. Now I'd like to turn the call back over to Anthony.

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. Understand the core ethos of DocGo was to provide high-quality health care for those that needed it the most. Oftentimes performing seemingly impossible tasks for our customers through rapid deployments in response to unprecedented events. In the early days of this migrant work, we were launching projects on extremely short timelines. All of this was to avoid families and children from sleeping on the streets without access to health care and basic necessities. Every day, DocGo saves lives, treating and transporting thousands and thousands of patients. One of the many key facts left out of 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. City officials are well aware of this program's success, as exemplified last week when Mayor Adams reiterated his confidence in our partnership during a press conference where he praised our work, describing it as a Herculean effort to help the city with this humanitarian crisis. I am tremendously proud of the work we are doing with the city and our partners upstate, especially all the amazing hard work being performed by local CBOs whom we work with daily. We are all working hard to preserve these migrants' basic human dignity and help change their lives for the better. To the thousands of DocGo employees listening, over 2,000 of whom are 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. I will hand it back over to the operator for questions.

The first question we have comes from Richard Close 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.

Norm here. Let me explain how we view our backlog. We started with about $205 million from the last report, and it's important to note that a significant portion of that amount transitioned from backlog into actual revenue during the quarter. Therefore, the increase from $205 million to $325 million includes much of that specific contract, as well as several other items that were added to the backlog during this period.

Okay. That's helpful. And I was wondering on the care gap programs, pleased to see that you're being, I guess, assigned lives there rather than having to go out and generate lead flow and whatnot. Can you talk a little bit about expected revenue contribution from those care gap programs, either for 2023 or once you like fully ramp?

The reimbursement for those averages around $250 per care gap closure. What remains to be determined, and which we will share more details about in our next earnings call, is how many patients become compliant with our program to close these care gaps. That will be the key factor. We announced that approximately 73,000 lives are being assigned to us, with an average of $250 for each individual care gap closure. Some patients have multiple gaps that need to be addressed, requiring multiple visits. Throughout this quarter, we will focus on how many care gaps we are actually able to close.

And there's nothing material really in our guidance.

Thank you. The next question we have comes from Sarah James from Cantor Fitzgerald. Please go ahead.

I was hoping to get a little bit more color on the revenue guidance boost. I know you guys mentioned in the release here that it was a prudent look at run rate and new. But for your contract that you recently signed like the New York HPD or some of the others that are more fee-for-service, how should we think about what's assumed in your 2023 guidance as far as the ramp in this?

It's really what we're doing today, extrapolated out unless, of course, we have something which is guaranteed. And so we do have contracts that have a scaling timeline where it says, okay, on this date, you will increase by this number of ambulances or increase by this number of mobile health units, in which case, that will then go into an increased revenue guidance. But it's either for sure a launch date or simply taking what we are 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 care gap closure program? So for these attributed lives. Is there the potential to turn these into ones where you might have chronic care management on an ongoing basis or maybe one day look to underwrite the risk of any attributed primary care life? What does the future of that program look like?

Yes, that's exactly right. The contracts are structured so that the majority of these individuals are assigned to us to address specific care gaps, primarily because they haven't seen their primary care provider in over a year. This indicates a need for care. When we visit their homes, we provide necessary services, such as diabetic retinal exams, diabetic foot exams, or annual A1C checks. We also recognize that many of these patients have multiple chronic conditions, and if there’s a medical necessity, we offer remote patient monitoring and care management services, with the potential to become their primary care provider. Once we become their primary care provider, there may be opportunities for us to work more closely with the payer, similar to what a typical primary care provider would do. However, that’s something we’ll consider in the future. Our current focus is to close as many care gaps as possible and to bring in patients who will benefit the most from our monitoring and management services.

The next question we have comes from Ryan MacDonald from Needham & Co. Please go ahead.

This is Matt Shea on for Ryan. Thanks for taking the question, and congrats on a nice quarter here. Wanted to follow up on some of the commentary throughout the call, Anthony. It almost sounds like with some of these newer deals, they're different than deals of the past, where you might start smaller and scale over time in a more regimented way with these dates that you would scale up. I'm curious if that's a conscious decision that you guys have been making in your new contracts, meaning that you don't have to have such high upfront starting costs 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 we're really getting to the end of Phase 1 of our rapid normalization initiative. We're really seeing the benefits of 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've iterated through all of those points before. 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 because those improvements span the entirety of the company. They weren't just one-time fixes. We didn't put some Band-Aids on some marginal issues. 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 cost. We still have a Phase 2 of the rapid normalization initiative, which will begin probably 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, 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 network. I 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, that's a good question. The Dara transport network is something we introduced with our existing customers. Currently, we have no plans to develop it into a separate product line. It sets us apart when engaging with health systems because we can not only act as a provider but also collaborate with their current providers, making the sales process much smoother and building trust. They can choose to give us a significant portion of their business while retaining other vendors, and we are fine with that. We are willing to work with them, ensuring they have the same level of transparency, ease of ordering, long-term reporting, and mutual accountability. When we approach a new customer, this service is one of the main offerings we promote. We are also open to integrating additional providers into our platform if they express interest, ensuring seamless integration with their systems. The reality is that there is much more demand for transportation services than there is supply. Therefore, there's no reason we cannot collaborate in a competitive environment to serve patients and hospitals. To achieve this, we need a unified system, which is essentially what the Dara transport network provides.

The next question we have comes from Michael Latimore from Northland Capital Markets.

Great results and outlook here. I guess, can you provide a little more clarity on the care deal, what percent of the maximum amount of that deal has gone into backlog? Maybe you can share that.

I think the first thing to address is the number that everyone is focusing on, which is around $430 million. You need to adjust that figure by categorizing the amounts that will be spent and represent actual recorded revenue. There’s revenue recognition involved, and some of that is flow-through. We estimate that approximately $300 million is the revenue that can be captured. I would say about two-thirds of that is already included in our backlog. The remainder serves as a modifier on that $300 million, plus there’s some that has already been realized and we anticipate realizing in Q3 and Q4. It can be a bit complex, and Anthony began explaining this earlier, but it’s difficult to determine how to categorize items into backlog versus revenue guidance. Essentially, revenue guidance is a forecast; it’s our best educated guess regarding what we expect revenues will be from various projects. This is aggregated from now until the end of the year or over the entire year, while backlog includes everything deemed achievable that hasn't been launched yet. With many projects, there are different phases occurring. Some phases are currently underway and various sites are being serviced, allowing us to start extrapolating that and include it in the revenue guidance. Conversely, other sites that have yet to launch typically fall into the backlog. This isn’t always the case, but conceptually, that’s how it works. We assess how existing work is expected to expand, which contributes to revenue guidance, while looking at additional items we expect to launch at some point that would go into the backlog. Therefore, the bulk of that number is backlog.

Yes. All right. Perfect. And then this is a large deal or a large potential deal. If you win another deal of a similar size, order control or whatever, how do you think about just handling that incremental demand and growth? I mean, do you feel like you can find enough supply, labor? Are there unique challenges here? How would you prepare for something if you win another deal about this size?

Yes. It would be a myriad of different factors. Hi, Mike, it's Lee. I think it will be a myriad of different factors. Obviously, geography plays a big factor in that, obviously, we're going in and scaling in a new geography with a new pool of clinicians and staff. Obviously, that affords us an opportunity to tap into additional staff and additional resources in new geographies. So that would be 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 and 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 in all of our geographies. 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 investment in that management ranks can really go and take and scale from here.

I'll just add on what Lee said. On the staffing side specifically, the model that we came up with for staffing and growth is quite scalable because the agencies that we have on, they represent many hundreds of thousands of total clinicians and providers around the United States. So being able to tap into that network, but doing so through our new contractual relationships allows us to take only an increased startup 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.

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 everything, so I don't want to beat this into depth. But just to be clear, when you look at the $325 million, do you want us to think about the revenue conversion to be fairly linear? Or just how do you want us to think about how that converts to revenue?

David, this is Anthony. Just for clarification, you mean convert as far as like a timeline? Like what do you think the chronology is of 325?

Right, exactly.

So a large portion of the increase that you have there is going to be related to the HPD contract, and that HPD contract is 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 like 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 HPD contract, and that contract is from May of 2023 to May of 2024.

Yes. David, it's Norm. So even within that, there are going to be things that are going to get in the way of the linear function. For example, one of the big elements of our backlog going back a couple of quarters was the New York City Health and Hospital transport contract, which we knew was a certain amount of money over a three-year period. We did realize some revenue 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 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 projects ramp in a mid-quarter point of time, then you're going to get some lumpiness in there where you have that first quarter or second quarter out as it converts from backlog into revenue, where you can have 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 contract that's going to be so large over the first 12 months. And I know there's a renewal term, but how do you want us to think about what happens after May 2024 with that contract?

I would think about it from a human perspective without going into a contractual relationship. The vast majority, I think 85%, 86% of the individuals that are in our care are families with children. The thought that these families with children will just be down on the street without care, the services for social work and for case management are 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, is over 85% of the individuals coming into New York, are going to be left without these services at any point.

Go ahead, I'm sorry.

Go ahead, David.

I was saying that the current run rate through May, that's already going to get as part of 2024. Go ahead, David.

When do they actually qualify for Medicaid? Is the qualification process influenced by political factors, or is there a clear path for them to receive Medicaid treatment?

There is. Yes. So once they've submitted their asylum application in New York through various circumstances, they can become eligible for New York State Medicaid as just normal Medicaid recipients and it covers all the Medicaid benefits, primary care, urgent care, and the like. If before they submit their asylum application, they enter into a hospital, then they're enrolled in what's called emergency Medicaid. That covers all emergency situations. What we are working on with 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. 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. I have one more question. You mentioned margin improvement in the latter half of the year, and I believe I understand those factors. However, is it reasonable to consider the exit rate in 2023 as a good indicator of the starting margin for 2024? Or are there seasonal and contractual factors that suggest that might not be the best approach?

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 use that term again, a more normalized margin. If we were there as an exit rate for 2023, that does become at least from a model standpoint, the starting point for 2024, in our minds.

Right. And as Phase 2 of the changes that you're making in your model for the normalization project, do those benefits get realized in Q4? Or should we think of that as being a tailwind in 2024?

No, I think you'll see the benefits of those in the first half of '24.

The next question we have comes from Pito Chickering from Deutsche Bank. Please go ahead.

You've got Kieran Ryan for Pito. Thanks for taking the question. Just wanted to hit on the transportation side first. Is there any reason that the step-up in segment margins there shouldn't be viewed as like a new run rate going forward, with potential to move even higher, just as the leased hour mix continues to rise?

Yes. The margin on the medical transportation side is primarily driven by our contract conversions to leased hours. Each new contract signed counts as a leased hour, and we are also converting older contracts to the same model, which is enhancing our margins. We anticipate that margins will remain stable and potentially increase as we optimize our service mix in transportation. Overall, the situation is improving.

Yes, there are many positive developments happening behind the scenes that are contributing to that number, which you can find detailed in our 10-Qs and other reports. Our average price per trip is increasing, not just due to general inflation, but because we are transporting more ALS and CCT trips instead of BLS trips. We are focusing on higher acuity trips. I refer to this as portfolio management, both in terms of the types of trips we offer and the variety of markets we operate in. As mentioned, we have exited the California transport market, which has improved our margins. Lee also mentioned in his earlier comments that we are evaluating all our transport markets to determine which ones meet our scale requirements and margin profiles for continued operation. This pruning process tends to lead to higher margins. In summary, to answer your question, we see the current numbers as a starting point for even better results moving forward, driven by various margin enhancement initiatives implemented over the past 12 to 18 months.

Great. Thank you. And then just on the RPM side, I was just wondering if you had any thoughts on your early efforts there? What kind of traction you're seeing with customers, and just how big a part of the discussions that service line is in some of these new deals that you're negotiating? Thanks.

Absolutely, Kieran. Yes. RPM continues to be a part of all of the new deals on the mobile health side, particularly with the care gap closure programs and our payer partnerships. Because ultimately, what it's there for is to lower the cost of care, provide proactive care, and keep patients out of the hospital. So as we go and do care gap closure services that we talked about, if we do see candidates, we do visit with patients that are good candidates for the RPM platform. That's the time that we would enroll them. We're already in their home. We would enroll them in the program. Then obviously, we'd begin monitoring them from there. So it's absolutely symbiotic with our care gap closure programs with a lot of our mobile health deployments, and it continues to be a big driver for us for the future. We're excited about it.

The next question is a follow-up from Richard Close. Please go ahead.

Yes. Norm, is there any way you could give us for the transport volumes and the pricing that will be in the queue?

I don't know it off the top of my head, but we'll put the Q in there. It will be in the Q 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 even over 20%, but definitely double digits. And the year-over-year average price also went up. I just don't want to quote the wrong number to you, but I can tell you directionally where it is. Then it will be out there tomorrow.

Okay. And then with respect to free cash flow, 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?

First, let's look at where we are at the halfway point. We did include the cash flow statement as we typically do in the earnings release. So what I like to do, given the way working capital has had such an impact 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 net income or net loss as it were and adding back the noncash items, that's one piece, and then you have the changes in the working capital categories. And that gives you a little bit of an idea. 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 working capital category. So we had a $14 million, $15 million increase in AR versus the end of the year, and we had a $14 million, $15 million decrease in accounts payable, so that we 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 the P&L cash flow, I think it worked out to roughly $16 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 the kind of cash flow generation that you're looking at. So I would compare the $14.7 million, I think, it was, of adjusted EBITDA that we generated in the first six months of the year with about $16 million of P&L cash flow, absent the impact of the working capital categories over that same period of time. So it lines up pretty well.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Anthony Capone for closing comments. Please go ahead, sir.

Thank you all for attending our earnings call. We appreciate you. For those investors that are on, have follow-up questions, please reach out to Mike Cole, and we will schedule one-on-one meetings. Thank you.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.