Greetings, and welcome to the DocGo Third 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, Director of Investor Relations. Thank you, sir. Please go ahead.

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. The words may, will, plan, potential, could, outlook, design, 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, and we cannot assure you that we will achieve or realize our plans, intentions, outcomes, results or expectations. Forward-looking statements are inherently subject to substantial risks, uncertainties and assumptions, many of which are beyond our control and may cause our actual results or outcomes or the timing of the results or outcomes to differ materially from those contained in our forward-looking statements. These risks, uncertainties and assumptions include, but are not limited to those discussed in our Risk Factors and elsewhere in DocGo's annual report on Form 10-K, quarterly reports 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 or the timing of results or outcomes 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 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 to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events, except as to the extent required by law. At this time, it is now my pleasure to turn the call over to Mr. Lee Bienstock, CEO of DocGo. Lee, please go ahead.

Thank you, Mike, and thank you all for joining us today. The third quarter marked our strongest growth since inception, and I'm extremely proud of the focus our team has brought through expanding our suite of services, our operational execution and our financial performance. Both during the quarter and subsequent to quarter end, we continue to expand with our current customers while also signing new customers and winning RFPs. Most importantly, our team continues to strive to increase access to care for those who need it most. During the third quarter, we surpassed 7.5 million total patient interactions since inception while leveraging a workforce that has now grown to over 6,000, more than double since I joined the company. Our services are in strong demand across the board. And as a result, we are increasing our full-year 2023 revenue guidance to $615 million to $625 million, up from $540 million to $550 million. And we are increasing our full-year 2023 adjusted EBITDA guidance to $50 million to $55 million, up from $48 million to $53 million. While our migrant work has received much of the media attention in Q3, it barely scratches the surface of what DocGo accomplished last quarter. To give a sense of the full picture in Q3 alone, DocGo transported over 158,000 patients. Our patient engagement team conducted outreach to over 50,000 patients. We've provided RPM, VCM and CIED monitoring for over 46,000 patients and increased our staffing headcount by over 26% during the quarter due to the increased demand for our services. We also increased our clinical capabilities to close over 30 different care gaps in patients' homes, including bone density measurements, colon cancer screenings, diabetic retinal screenings and annual wellness visits. DocGo is bringing care to patients where and when they need it. And we are gratified to see that many of our customers recognize the value of our services and routinely expand our assignments. I'm excited by all our efforts to serve patients with our insurance partners, government and municipal population health programs and hospital system customers. I'd like to share our impact, progress and future opportunities across all three of these key areas. First, with our insurance partners and at-risk provider groups, the market opportunity with major insurance companies and value-based care partners, like the deals we've signed with health care partners, EmblemHealth and others, is one area where we have made great progress. We entered this space with pilot programs late last year, and the majority of those partnerships we've launched have expanded over the past six months, driving more expansive commercial rollouts. Last quarter, we announced that we expected to be assigned 73,000 patients to close care gaps and provide primary care services under these agreements with four payers. We have already been assigned 59,000 of these patients and have expanded our clinical offerings to encompass a wide range of primary care services, including annual wellness visits for Medicare members and pediatric checkups, including childhood vaccinations and nutritional counseling for Medicaid members. We expect strong growth in the number of patients assigned and view this as a significant opportunity for DocGo with years of growth potential ahead. In our population health programs, our work with migrant-related services has continued to grow substantially during the quarter, and we've launched four new sites in the last six weeks alone. We expect to continue to work closely with our partners at the city to provide asylum seekers the medical care, behavioral health care, basic necessities and support services to help transition them out of the program and into a position of self-sustainability as quickly as possible. Contrary to early negative media, we recently shared that the contract has been registered and payments have commenced. In addition, a recent independent report by the New York State Office of Temporary and Disability Assistance found that our programs were working as planned and asylee needs are being met. We believe this report accurately reflects DocGo's efforts and program quality as well as our commitment, diligence and dedication helping to improve the health, safety and overall well-being of all those in our care. Submissions for municipal and corporate RFPs remained a core focus and a material opportunity for the company. We recently learned that we were not awarded a large federal border control RFP, but we have many other opportunities we are excited about. Going forward, we intend to speak about this channel as a portfolio of opportunities without as much granular detail on any one specific RFP. We intend to pursue Mobile Health, both medical and behavioral health, medical transportation and municipal opportunities, both within our current footprint and with an eye towards expanding into new states, all aligned with our growing skill set. For our partners with hospital systems and medical transportation, we are also seeing substantial new contract wins. To share a few, we recently announced our contract with Main Line Health systems in the Northeast, which we expect to represent approximately $23.5 million in revenue potential over three years, and we have plans to further grow this relationship in early 2024. Additionally, we won a large medical transportation contract valued at $34 million over the next five years in the U.K., and our large New York Health and Hospitals contract we announced early this year is now fully rolled out as planned. We are very pleased with how this segment is performing and expect to see continued strong organic growth in the coming quarters. At this time, I'll hand it over to Norm to cover the financials. Norm, please go ahead.

Thank you, Lee, and good afternoon. Total revenue for the third quarter of 2023 amounted to a company record of $186.6 million, which was 49% higher than our last record, such as the quarter ago in Q2, and it represented a 79% increase from the third quarter of 2022. Mobile Health revenue for the third quarter of 2023 was $139.3 million, up 74% in the second quarter and 82% higher than last year's third quarter. While most of the revenue gains were related to the expansion of our migrant services contracts, we experienced growth across several projects. Some of our migrant services programs include the provision of what we call Total Care Services, which include shelter and related items in addition to core medical services. These non-medical services are expected to account for a smaller proportion of DocGo's overall revenue base in future quarters as our newly awarded or launched contracts tend to be more focused on medical-related services. Transportation Services revenue increased to $47.2 million in Q3 of 2023, up 4% from the second quarter of this year and more than 70% higher than transportation revenues in the third quarter of 2022. Nearly every core transportation market witnessed year-over-year revenue growth, continuing the momentum that began in the second half of last year. In the third quarter, Mobile Health revenues accounted for approximately 75% of total revenues, and Transportation was approximately 25%. This breakdown is closer to our expected mix of revenues than what we have seen in the prior three quarters. Based upon early indications in Q4, it appears that Mobile Health will likely continue to account for over 75% of total revenues in the fourth quarter of this year. As of the end of the third quarter, our revenue backlog, defined as remaining revenue from projects that have been awarded but have not yet been fully rolled out, stood at $430 million, up from $325 million at the end of Q2. We recorded net income of approximately $4.6 million in Q3 of 2023, compared with net income of $1.3 million in the second quarter and net income of $2.5 million in the third quarter of 2022. Adjusted EBITDA for the third quarter of 2023 amounted to $16.7 million, up 84% from adjusted EBITDA of $9.1 million in the second quarter and nearly double the $8.4 million in last year's third quarter. The adjusted EBITDA margin in Q3 was 9% compared to 7.3% in the second quarter and 8.1% in the third quarter of 2022. Total gross margin percentage during the third quarter of 2023 was 29.5%, down from 33.4% in the second quarter and 31.7% in the third quarter of 2022. Gross margins in the third quarter were negatively impacted by the increase in revenues and the associated project ramp-up costs that resulted from the recent launch and ramp-up of new projects. As previously discussed, our revenue increased approximately $60 million just since the end of the second quarter. We took the opportunities that were presented to accelerate our growth with the anticipated trade-off of temporarily low gross margins. While we had previously anticipated that gross margins would continue to improve sequentially throughout 2023, we had indicated that overall margins could be impacted by the timing and size of newly launched and ramp-up projects. This is exactly what occurred in the third quarter of 2023. However, it is worth noting that gross margins were still more than 100 basis points higher than the recent low point on the first quarter of this year. Specifically, when we witnessed accelerated revenue growth, we tend to see higher than normal labor costs due to higher-than-planned overtime rates and a greater dependence on relatively more expensive subcontracted labor. During Q3, our company-wide overtime rate was 17%, well above our targeted rate of 5% to 10%. Subcontracted employees accounted for close to 50% of total field labor costs. We typically aim for this number to be closer to the 25% area. During the third quarter, gross margins from the Mobile Health segment were 28.8% compared to 34.9% in the second quarter and 34.8% in the third quarter of 2022. In the Transportation segment, gross margins expanded for the fifth consecutive quarter, increasing to 31.7% in Q3 of 2023, up from 30.7% in the second quarter and 23.2% in Q3 of 2022. Looking at operating costs, operating expenses as a percentage of total revenues amounted to 24.8% in the third quarter of 2023, down significantly from 32.1% in the second quarter and compared to 27.7% in the third quarter of 2022. Looking at the same comparison without depreciation and stock compensation expenses, operating expenses as a percentage of total revenues amounted to 20.7% in the third quarter of 2023, down from 26.4% in the second quarter and 23.7% in the third quarter of 2022. As revenues have increased, we have seen operating expenses decline as a percentage of total revenues, leading to operating margin expansion. Therefore, despite lower gross margins, adjusted EBITDA margins were higher in Q3 than in either Q2 or Q3 of last year. Now turning to the balance sheet, as of September 30, 2023, our total cash and cash equivalents, including restricted cash, was $67.3 million as compared to $123.8 million at the end of Q2. The decline in the cash balance is primarily related to an increase in our accounts receivable, reflecting the increase in revenues in Q3, which was on top of the sequential growth in revenues in Q2. This revenue increase was primarily driven by our government business, including our migrant-related work, which features a lengthy initial payment cycle. However, since the end of the third quarter, we have now begun to receive payments for this work performed. And as we reduce these accounts receivable, we expect near-term collections to be enough to drive our total cash balance higher in subsequent periods despite our ongoing working capital needs. In order to bolster our working capital, subsequent to quarter end, we drew down on our revolving credit facility in the amount of $25 million. This leaves us with another $65 million in available credit. We view this credit as being short-term in nature. As our largest outstanding invoices are paid back, we plan to pay down the amounts outstanding. However, we do expect the recent working capital demands to persist as we stay in growth mode with an increasing payroll and as we are paying sizable invoices to our vendors, all well in advance of receiving payments from these customers. Turning to our outlook for the remainder of 2023, we anticipate continued strong demand from our customers for both Mobile Health and Transportation Services. We're very encouraged by our performance so far in Q4. So far, early indications reflect that we have carried over the revenue momentum from Q3, where we witnessed higher monthly revenues and extended margins throughout each month in the third quarter. While revenues in Q3 were much higher than initially anticipated, we use this outperformance as an acceleration, not as an aberration. During Q3, we got to a point on our growth curve that we had originally assumed was at least another quarter or two out. But we do not believe that this is one-time revenue. As such, as Lee mentioned earlier, we are raising our revenue guidance for the full-year 2023, and we now expect that revenues will be in the range of $615 million to $625 million, compared with our most recent increase in revenue guidance into the $540 million to $550 million range. The original revenue guidance for 2023, I'll remind everyone, was $500 million to $510 million. The increased revenue guidance range would represent year-over-year top line growth of about 40% on an as-reported basis. However, when we're moving to $75 million of mass COVID testing from our 2022 revenue baseline and considering that we have not received any material mass COVID testing revenues thus far in 2023, we would expect to be looking at top line growth of nearly 70% when comparing full-year 2023 with full-year 2022. We are also increasing our guidance for adjusted EBITDA into the range of $50 million to $55 million, up from our recent guidance of $48 million to $53 million, which had already been raised last quarter from our initial 2023 guidance range of $45 million to $50 million. With respect to 2024, it's too early for me to provide any specific details at this time. However, we expect a strong finish to 2023, which is implied by our guidance, and we believe that our backlog numbers gives us solid visibility into continued growth in 2024.

Thank you, Norm. My goal as CEO is to usher in a new era of operational excellence, maturity and vision as DocGo becomes laser-focused on what I consider to be our three greatest growth opportunities. My vision for the future of our company is clear. We help our three customer verticals, health systems, municipalities and insurers, keep patients out of the hospital. First, as I mentioned at the top, care gap closure and additional opportunities with major insurance companies and value-based care provider groups, the early data points are exciting, and we are working on numerous opportunities that we expect to expand our number of assigned patients, our geographical presence and scope of services. Our remote patient monitoring and chronic care management solutions fall under this effort as well. We believe our in-home and virtual medical visits combined with remote monitoring and care management allows us to successfully care for some of the most complex patients which drive the highest cost. We intend to bring this capability to our health plan partners with innovative programs where we can potentially share in the savings we deliver. Second, readmission avoidance programs with major hospital systems. These programs have historically yielded strong results for our customers, and we intend to aggressively pursue growth opportunities in this vertical. And lastly, continued emphasis on our RFP channel and what we believe to be large market opportunities. We have made great strides in the last year enhancing our overall ability to identify and compete for these types of projects, and we expect to continue winning larger and larger contracts over time. The common thread in those three markets is that we have the customer data to support the value proposition that DocGo offers. Now we just have to go out and grow it, and we are going to focus on doing exactly that. We believe we have multiple greenfield opportunities in front of us within the three verticals I've mentioned throughout this call, and my goal as CEO is to lay the foundation for significant growth at DocGo for many years to come. At this time, I'll hand it over to the operator to open up Q&A. Operator, please go ahead.

Thank you, sir. We will now be conducting a question-and-answer session. The first question we have comes from Sarah James from Cantor Fitzgerald. Please go ahead.

Sorry about that. I wanted to talk about Norman's comments on operating expense ratio. I appreciate the comments on scale, but I wanted to understand if this implies this is the new run rate? Or are there other moving pieces like timing of investment spend that benefited the quarter?

Sure, Sarah. I would say that predominantly what you saw during the quarter reflects the new run rate, meaning, given that we would expect that revenues would stay at this level or grow from this level, this becomes a new revenue baseline. We don't see anything that really is going to drive SG&A substantially higher, other than, obviously, the typical normal increases that you would see from quarter-to-quarter as we continue to build out our infrastructure, because remember, we're catching up. Now we're a $186 million revenue company in the quarter. So you're dealing with now almost $725 million, $750 million annual run rate of revenue. And we've always been in a position where we have to allow our infrastructure to sort of catch up. But other than that, there's nothing specific that we can look at. There's no big marketing program that's on the horizon or anything like that beside the ordinary. So we would anticipate that we'd probably be able to stay at these kinds of ratios. I would just caution that it's not something that continues to go. We're not going to get to a point where SG&A is going to be 10% of revenue. There's likely a point at which there's a step function of SG&A. But otherwise, you should be able to see the same kind of leverage in coming quarters as what you saw in Q3.

Great. And then one more. You guys mentioned that payments are being made on the New York HPD. Can you give us a sense of where cash or receivables fit on that now that we're through October? Is it still lagged versus a normal contract? Are you guys all caught up?

Yes, hi Sarah, it's Lee. Go ahead, Norm.

Yes, sure. Sorry, I think we're still catching up a little bit. There are a couple of things to consider when discussing a lag. One is the time between the date of service and the current date, which seems to show more of a lag than usual. However, the key issue is when the contract is registered for these municipal contracts, which is why we emphasized the importance of contract registration and mentioned it in an 8-K. No contract, even if fully signed, is processed for payment until it is registered. Fortunately, this contract has been registered. When I assess our position in the payment cycle relative to the contract registration, we are within the standard range that we've observed across various municipal agencies and municipalities. We have been in the municipal sector for 3.5 years, so none of this is out of the ordinary; it’s just a significant amount.

Thank you.

Yes. Sarah, I want to add that, as Norm mentioned, our experience has shown that we negotiate the invoice back and forth to align with the municipalities' preferences, and then payments generally occur in a consistent manner afterwards. This pattern reflects what we've observed in previous contracts, although, as Norm pointed out, the amount is larger this time.

Thank you, sir. The next question we have comes from Richard Close from Cannacord Genuity. Please go ahead.

Yes. Thanks for the question. Maybe just a follow-up on that on Norm. Can you just sort of walk us through your thoughts on accounts receivable and how we should think about that number in the fourth quarter? And I know you're not giving 2024 guidance, but just sort of the trajectory of that number?

Yes, Richard, I'm happy to provide insight into how we are managing our accounts receivable portfolio from a broader perspective. Currently, our accounts receivable totals over $200 million, which is significant. There are three ways to analyze this. One way is through days sales outstanding; although our accounts receivable is higher than last quarter's $630 million, it is lower than it was in March 2023. This is an important detail to consider. We are pleased to report that we have not experienced any deterioration in our accounts receivable portfolio. Underneath the surface, we successfully collected on some older receivables this quarter, especially in Transportation and Mobile Health. When examining the aging buckets of our accounts receivable, we find that as of the end of the first quarter, only about 25% or 26% was under 30 days. By June 30, that percentage rose to about 56%, and as of September 30, nearly two-thirds, approximately 63% to 64%, of our accounts receivable is now current. On the other hand, looking at amounts over $90 million, we see a decrease compared to previous periods, with about 10% over $180 million. In this business, particularly in the ambulance sector, we are still able to collect a significant portion of accounts that are over 180 days old, sometimes extending to 360 days and beyond. In summary, while our accounts receivable is quite substantial, we anticipate it will start to decline as we improve payment schedules with larger customers like HPD and other municipalities. However, as we experience revenue growth, that will continue to exert pressure on the overall accounts receivable figure. Ultimately, we closely monitor how the aging buckets are distributed, and we believe that aspect is being well managed.

And I guess, on a follow-up, if we can just sort of look at the gross profit margin and just go into maybe a little bit more detail on your comments there and thought process of that number going forward?

So yes, definitely. As I mentioned earlier, over the past few quarters, we've expressed our expectation for margins to increase sequentially. We achieved a gross margin of 28.1%, which in Q1 rose to about 33.4%, but now we've taken a step back. However, we always anticipated this growth under the assumption that revenue would grow at a steady pace. The last quarter produced more revenue than we expected a few months ago when we discussed our efforts to increase that revenue and gross margin sequentially. Importantly, we haven't replaced high-margin revenue with low-margin revenue—the issue lies mainly in labor costs. The percentage of subcontracted labor has been higher than usual and extended periods of elevated costs have also played a role. The positive aspect is that the key performance indicators related to margins improved as the quarter progressed, with noticeable increases from July to September. Whenever we launch new projects and generate significant revenue in a particular quarter, it can create some pressure. That said, while I can't specify what Q4 gross margins will be, I can say that they are expected to be higher than what we've seen this quarter. The revenue from this quarter will establish a new revenue baseline for future growth. This isn’t temporary revenue; it's consistent, recurring revenue. On the gross margin side, it was temporarily lower than it should be and doesn’t reflect our standard run rate. If we were to apply the September margin to Q4, it would suggest an increase in gross margin, which contributes to our expectations for the fourth quarter.

Thank you, sir. The next question we have comes from David Larsen from BTIG. Please go ahead.

Hi, congratulations on the good quarter. Lee, can you maybe talk a little bit about your relationship with the city and the state of New York and that contract itself? Can you just sort of refresh us on what exactly it is you're doing for the migrants? How many of these migrants are families with children that you're serving? And then it's my understanding that the way the contract stands right now, it's about a one-year contract through mid-2024. What are the odds in your view of it potentially extending? And then just lastly, I'm sorry for the long question. Have you been able to meet with the comptroller of New York? And I think it's touching on the detail of the invoices, have you been able to address this concern? I'm in an airport, sorry for the background noise.

No problem. Thanks, David. I'll start with the first part of your question regarding our relationship with the city. We've been collaborating with the city for over three years, focusing on various population health programs. We also provide medical transportation for all 11 New York City Health and Hospitals locations. Our work includes the SHOW program, which is the Street Health Outreach and Wellness program, and our collaborations with the Department of Home Services and Housing Preservation and Development. We’ve been assisting New York City with numerous population health and medical transportation needs for years, providing care to millions of New Yorkers, which we are very proud of. Regarding the care for asylum seekers and migrants, it all began when the first buses arrived at Port Authority. We supplied the initial paramedic units there and started conducting health screenings and infectious disease screenings for the asylum seekers. Our services have since expanded to what we call Total Care services, which include infectious disease screenings, urgent care, vaccinations, as well as behavioral health screenings and intensive social work to provide comprehensive support. Our aim is to help asylum seekers acclimate safely and eventually graduate from the program. The various sites offer different services, but the focus remains the same. As for the families arriving with children, they make up a significant majority of our asylum seekers. Most of our sites serve families with children, and our care ranges from pediatric services for ages two and above, up to adults aged 80. In terms of the length of the contract, as you mentioned, the HPD contract associated with our asylum seeker work is for one year, which is standard for our contracts with the city. Many of our contracts have been extended or re-awarded. We expect that portions may be put out for RFPs, which is customary for our collaboration with the city. The HPD contract was signed and initiated in May, thus, it is scheduled to run until May of next year. Ultimately, our goal is to provide necessary medical and behavioral health care as long as the city requires it, aiming to support asylum seekers in living their lives and getting the services they need for as long as they need them.

Thank you, sir. The next question we have comes from Mike Latimore from Northland Capital Markets. Please go ahead.

Great, thank you. Congratulations on the remarkable revenue and EBITDA growth. I would like to revisit the cash position for a moment. Could you provide more clarity on that? Specifically, do you anticipate that cash flow from operations will exceed or fall short of EBITDA in the fourth quarter? Additionally, by the end of the year, what month do you expect it to be fully resolved?

Yes, it's Norman here. I want to address that. Unlike previous quarters, we have already filed our 10-Q for this quarter, which aligns with the earnings release. There is a lot of information available in the release, but we have detailed information accessible now. Regarding cash flow from operations compared to EBITDA, the impact on operating cash flow came entirely from working capital issues. However, operating cash flow was already close to matching the EBITDA figure. The question is when we will reach a point where working capital no longer hampers operating cash flow. This could potentially happen in Q4, but it really depends on the timing of specific payments we receive in relation to our growth rate and expense base. We invest in labor and pay our vendors in advance of city payments, leading to a negative cash cycle with some of our larger municipal clients. As we approach early November, we have about six to seven weeks left in the year, and we hope to be caught up by then. This situation is somewhat unpredictable since we do not control the timing of our payments. We are engaged in discussions with various finance departments daily, including at multiple levels within our team. Importantly, any payment delays are not due to disputes; there have been no disagreements regarding the amounts or categories we charge. It’s more about occasionally providing additional documentation, which we can supply. Once we establish a smoother payment cadence with them, we expect to catch up quickly. We have shared a schedule with the city indicating our expected payment timeline. If they adhere to that schedule month by month, we should be caught up by year-end, following the typical 60 to 90-day payment lag after service delivery, which is standard for our contracts. This will significantly affect our Q4 outlook. I am hesitant to estimate the balance sheet at year-end since many variables could influence it. However, I anticipate improvements and a reduction in accounts receivable that suggest operating cash flow will start to recover.

Thanks. In the second quarter, I understand you secured contracts with a select group of staffing agencies aimed at increasing their volume under favorable terms. Can you provide details on whether these contracts and relationships with staffing agencies are meeting expectations, especially given the rapid growth with this new deal?

Yes, we are fully utilizing all of those contracts in the second and third quarters and beyond. We refer to those partners as they are instrumental in helping us scale significantly. All the contracts are performing as we anticipated, and the negotiations and structuring of those agreements have been executed successfully. Therefore, we are indeed seeing substantial benefits from these in the second and third quarters as well as for the remainder of the year.

Thank you. The next question we have comes from David Grossman from Stifel. Please go ahead.

Thank you. Good afternoon. I'm wondering, Lee, you spoke a little bit about your commercial business in your prepared remarks, and it sounds like you're still at 73,000 lives with four payers, with roughly 60,000 lives assigned as of, I guess, now. Can you give us any better insight into how these pilots should ramp from a revenue perspective over the next 12 months? And any new business that may be in the pipeline to give us a sense of just how this business should scale over the next year or so?

Yes, I'm happy to provide that insight. We assess our business through various metrics. First, as you noted, we consider the number of patients assigned to us, and I'm pleased to report that this number is indeed growing. I'd like to see continued growth in this area. Additionally, we monitor conversions—specifically, how many of those patients we engage with and provide care for in their homes. Over time, I expect to see improvements in these conversions as our teams become more specialized, experienced, and as we onboard more talented individuals. Recently, I reviewed a metric that indicated our highest conversion rate since we started, and I am pleased with our progress regarding patient engagement. We have a unique model where we go to patients' homes rather than having them visit us, which helps reduce access barriers to care. Many of these patients have not seen their primary care provider in over a year and are often chronically ill, requiring intervention and our services. I pay close attention to the number of care gaps we are addressing, as well as the variety of services we provide, which we believe gives us a significant competitive edge. The feedback from the market indicates that the range of services we offer is quite unique, and I aim for us to expand the care gaps and clinical services we provide to support more chronically ill patients. As our health plan partners increasingly rely on us and assign us more patients, we look forward to scaling this aspect of our business. I anticipate sharing our progress on these earnings calls, including the growth in patient assignments, engagement rates, and how many patients we are enrolling in our remote patient monitoring and virtual care platform. We are also engaged in various monitoring services, and I expect these contracts could evolve to us being the primary care provider and potentially sharing in cost savings through value-based care arrangements. There’s a lot of potential in this segment, and we are excited about the significant impact we’re having on the patients we attend to. By addressing major care gaps, we often prevent serious health issues, such as catching potential blindness through diabetic retinal exams before they occur. This is an essential part of providing care, and we are pleased with the momentum we’re seeing, the quality of care we’re delivering, and the positive outcomes for our patients. We believe there's substantial growth ahead and good work to be accomplished in the upcoming quarters, and I look forward to sharing our progress as we continue to expand.

Right. So perhaps it's too early, but is there anything you can do to dimension kind of what's going on, whether it be pipeline in terms of lives or any other quantitative metrics that may give us a better sense of how this business is scaling?

We'll provide details on the number of lives and assigned patients as they come to us. Our partners collectively manage millions of lives that can help close care gaps, and I believe we are only beginning to tap into this potential. It's necessary to scale our efforts, including our patient engagement team, and continue expanding our field team. We are already making significant investments in our technology platform and our clinicians, and we plan to keep investing in those areas. Our partners have hundreds of thousands of patients each, with some exceeding a million, which shows we are just starting to realize the positive impact we can make. While it's still early to provide specific metrics related to this process, we will share more information in the upcoming quarters.

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

Hi, thanks for taking my questions. Congrats on a nice quarter. Lee, I appreciate the commentary and sort of the outline of the strategic vision here and sort of the three key areas you're focused with in terms of insurance partners, municipalities and health systems. And as you look at sort of time allocation and where you see the biggest opportunity, how would you rank those three opportunities in terms of potential pipeline or backlog generation moving forward?

Thank you, Ryan, for your question. I wouldn't rank the customer segments because we value them all equally and appreciate all our partners. Most of our revenue currently comes from health systems and municipalities. However, we are experiencing significant growth in the value-based care insurer segment. I prefer not to prioritize one over the others as our primary goal is to deliver an exceptional customer experience for each client, regardless of their size. A smaller customer today could become a larger one in the future. We’re actively submitting proposals and have growth plans along with investments for all three segments. Recent significant contract wins have been predominantly with health systems and municipalities, but the contracts we are negotiating with insurers also hold substantial potential for future growth as we scale and handle more patients. Currently, the larger contract values are coming from the first two segments, while there remains considerable expansion potential in the insurance sector as well.

Super helpful. I appreciate the color on that. And then maybe as a follow-up, earlier this year at the Investor Day, you had kind of outlined the path to a 20% adjusted EBITDA margin, exiting 25%, that was underpinned really by a 40% gross margin profile. Given the success you continue to have on the top line and some of the temporary margin pressure that creates, do you still view those 40% gross margin, 20% EBITDA margin target as structurally achievable in the business today?

They are structurally achievable. Let me just say, Norm, that they are structurally achievable, and they continue to be our goals, as we stated at the Investor Day. But Norm, go ahead.

Yes, I was going to mention it. We model this with approximately 40% gross margins on a consolidated basis, and SG&A would account for about another 20 points. We're nearly at the SG&A target, understanding that we might take a step back before moving forward, but we're quite close. We have more potential for improvement on the gross margin side. We believe that it is attainable structurally. I'll echo what Lee mentioned; it's certainly our objective. It will involve managing some of the recent revenue gains and then increasing that number. We know how to achieve it; it’s just a matter of timing regarding the growth curve on the top line, which will influence how soon we reach that target.

Thank you, sir. The next question we have comes from Pito Chickering from Deutsche Bank. Please go ahead.

Yes, good afternoon, guys. So this model has evolved a few times in the last few years, starting off with COVID and the morphing into homelessness and then into the migrants. I guess how should we think about both homeless and migrants as a growth engine for the next few years? And can you talk about who we're seeing the competition in those markets now, for example, for the border opportunity? What did the company win that contract?

Yes. Hi Peter, I'll jump in. It's still too early to know the outcome of the Border Patrol contract. We will find out in the coming weeks and months who won that. I want to emphasize that our entire business, across all segments and customer bases, is growing at the target rate we've set, even without the HPD asylum seeker contract. While that contract has certainly accelerated our growth, we would still be achieving our target rate without it. Regarding asylum seeker care, we bring a lot of transferable expertise to that contract. There is a transportation component, and as one of the largest medical transportation providers in the country, we utilize that. For instance, our first paramedic BLS units were deployed at the Port Authority, and our transport teams continue to support the city in scaling care for this population. We employ the same logistics, tech, and vaccine management platforms. Our capabilities in providing care for asylum seekers are growing daily, and we apply those same competencies to other contracts. For example, the casework and behavioral health care we provide for asylum seekers can also benefit patients of insurance providers and some of our key customers. We keep leveraging our capabilities across all segments, maintaining a consistent approach for all our customers and patients. This has enabled us to scale rapidly, thanks to our investments in people and technology. We can apply our methods to various patient populations. I want to ensure that it's clear how this is a fundamental aspect of our growth and our ability to meet diverse patient needs.

And then one more on the cash collections. I understand the amount of guiding to or for recovery by the fourth quarter. But if you do sort of recover the cash or if you do sort of collect the cash in the fourth quarter, is it fair to think that you'll pay down the revolver that you drew on? And then looking actually at those delays, how much of that is due to the real-time audit that's being deducted? You were very clear saying there weren't any disputes here, but when you're getting real time audited, are you seeing any pushback from the state during that audit? Just thinking about the hotel rates pretty in food or accessing health care via telehealth or in-person?

Regarding the first quarter, I want to clarify that as we generate more working capital and free cash flow, it makes sense for us to use that to reduce our credit line. We don’t consider the credit line a permanent fixture; it's there for flexibility. So, yes, we plan to pay it down as we're able. On the topic of the real-time audit, the impact arises from the type of documentation requested for invoices, which is being done in anticipation of the audit. There haven't been any other indirect impacts from audits, and this influence tends to diminish over time. Once we establish a routine with the required documentation for our invoices, we will continue to follow that process in subsequent months. It hasn’t significantly affected us overall. It may mean that certain invoices take a bit longer due to additional upfront requests for documentation, but this isn't a major concern for us.

Thank you, sir. The last question we have comes from Richard Close of Canaccord Genuity. Please go ahead.

Yes. Thanks for the follow-up. Just with respect to the backlog increase, and Lee, I appreciate your comments on the three channels, but is most of that increase in the backlog number that you provided, I guess, the $105 million increase, is that pretty much evenly split between municipalities in the government channel and then the health systems? Or how should we think about that split?

So Richard, I'll address that. I have the backlog file in front of me. To refresh everyone's memory on how it works, the backlog number would typically decrease as more of it turns into actual revenue, and a significant amount did convert this quarter. However, we were able to increase the backlog due to various contracts we've won across different regions and business lines. This quarter's mix is quite significant. We have government work that is now active in terms of expansion or new sites, which is a major component. Additionally, we secured some large contracts in the U.K., and as previously mentioned, those will provide significant assistance. We also have contracts with Native American populations and other projects through our different divisions. This applies to both the U.S. and U.K. markets, as well as Mobile Health and Transport. The distribution is quite broad. Nonetheless, a notable part of the backlog is attributed to our expectation of realizing more revenue from certain asylum projects, which we've already seen come in, but this is not the primary driver of the backlog; rather, the backlog is quite diverse.

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

Thank you. Thank you all for joining us today. Thank you all very much. Much appreciate it. See you soon.

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