Earnings Call Transcript - DCGO Q2 2022

Operator, Operator

Greetings, and welcome to the DocGo Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Steve Halper. Please go ahead, sir.

Steve Halper, Host

Thank you, Irene. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are indeed forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, confidence, target, project, and other similar expressions are typically used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to certain risks and uncertainties and other factors that may affect DocGo's business, financial condition, and other operating results. These include but are not limited to the risk factors and other qualifications contained in DocGo's annual report on Form 10-K, quarterly reports filed on Form 10-Q, and other reports and statements filed by DocGo with the SEC to which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. In addition, today's presentation contains references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, as well as in our filings 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 in the future. At this time, it is now my pleasure to turn the call over to Mr. Stan Vashovsky, CEO and Co-Founder of DocGo. Stan?

Stan Vashovsky, CEO

Thank you, Steve. And thank you all for joining us today. The second quarter represented another period of strong operational execution. Our revenues increased 76% year-over-year to $109.5 million. Continued sales momentum and acquisition-based contributions have supported an increase in our 2022 revenue guidance to a range of $425 million to $435 million, up from a previous range of $400 million to $420 million. We're also raising our guidance for adjusted EBITDA to a range of $40 million to $45 million compared to original guidance of $35 million to $41 million. Some of the key factors driving our continued organic growth include the expansion of our agreements with Carnival Cruise Lines, new municipal programs in New York, new mobile health programs in Los Angeles, and expanded medical transportation business with Northwell. Our mass COVID testing revenues for the quarter were approximately $28 million and are expected to decline significantly in the third quarter. We have already begun offsetting this with non-COVID related business in place, and in many cases, the customers will remain the same. An example of this in New York is our transition from mass COVID testing with a municipal client directly into providing primary care at homeless shelters or medical imaging services for that same client. In some cases, we expect the transition to these new non-COVID projects to be relatively seamless with minimal impact on revenue generation. On the M&A front, we expect to increase our activity with several prospective transactions in the pipeline, about which we are very excited. We continue to pursue synergistic opportunities where prospective targets may be currently outsourcing services, which DocGo could directly provide. This is in addition to those opportunities which open up new markets and drive enhanced profitability. Our goal is to continue utilizing a strong balance sheet and cash flow from operations to expand the breadth, depth, and profitability of the company's portfolio of services. We continue to do an excellent job, both securing new customers and deepening those relationships considerably over time. Last quarter, we shared the statistic that approximately 90% of DocGo’s revenues are generated from customers in the third, fourth, or fifth generation contract, and that trend continues today. This success has occurred across all varieties of customers from corporations to healthcare systems and municipal accounts. This achievement speaks volumes about our ability to get our foot in the door, provide exceptional value to the customer, and grow that business substantially. We have also significantly enhanced our RFP capabilities in recent months, allowing us to actively bid on larger contracts across the country. While it is too early to quantify expectations, the pace of activity in this channel has more than tripled recently, and we anticipate a meaningful contribution from these efforts as we enter 2023. It is clear that the municipal customer segment will remain a cornerstone of our business for the foreseeable future, providing us with a stable base of revenue upon which we can build. Our direct-to-consumer and corporate health data tests continue to provide very encouraging results. That direct-to-consumer market represents a tremendous opportunity, and we have partnered with some of the largest payers in the industry, including Aetna, BlueCross, and LA Care. We expect coordinated marketing efforts to begin with these partners in late 2022 and early 2023. One market I would like to take a moment to review in greater detail is the cruise line business, given that it represents a great business case regarding the value of DocGo’s services to the customer. Initially, we entered this market with a relatively small contract to provide COVID-related testing services to Carnival staff in early 2021. By the end of 2022, we expect to be facilitating the full spectrum of standard healthcare services, from doctors down to lower-level clinicians, for a majority of Carnival's fleet. In 2022, we began serving two additional major cruise lines that we expect to follow a similar growth trajectory. The pace at which these initial contracts expanded highlights the attractiveness of DocGo’s unique model and commitment to customer service. This success is also reflected in our NPS, or Net Promoter Score, which is the gold standard of customer experience metrics. Scores are measured from a range of negative 100 to positive 100, with scores over 30 commonly viewed as good and over 50 considered excellent. Our Q2 mobile health NPS score was an impressive 77, which is a testament to our customers' strong perception regarding the value of DocGo’s service. Another example of continued business execution comes from a major hospital system in Southern California. This customer utilizes DocGo’s emergency room avoidance program, which attempts to mitigate unnecessary emergency room visits. With our program, we achieved a 35% reduction in ER visits, resulting in significant financial savings for that institution and earning bonus payments to DocGo for hitting that goal. At the end of the day, our proprietary technology is the lifeblood that allows us to deliver efficient, cost-effective healthcare in a mobile setting. And we are making further substantial investments to support the next generation of functionality. At this time, I will hand it over to Anthony Capone, our President, to provide us some details on that front.

Anthony Capone, President

Thanks, Stan. At its heart, DocGo is a technology company. As its former Chief Technology Officer, I've observed our software evolve into a highly sophisticated system. In Q2, we greatly enhanced our dispatching application with the ability to assign mobile health and ambulance resources based upon predictive demand analysis. This sophisticated model allows for increased utilization, thus decreasing the idle time of our mobile units, further enabling our ability to deliver our cost-effective healthcare. Our team also built a highly intelligent machine learning system to help predict reimbursement and help ensure collectability. At DocGo, we built software that is core to our business model and integrates with systems that support our business. In Q2, we completed our integration with one of the nation's largest EHRs, Athenahealth. Additionally, DocGo is accepted into the Epic App Orchard as its first and currently only fully embedded mobile health ordering application. Being in the Epic App Orchard grants thousands of hospitals using Epic the ability to order DocGo services directly from within their native EHR. DocGo believes in virtual and mobile-first medicine. To support this vision, we've improved Health Point, our patient EHR system, by embedding telehealth support, which ensures a seamless in-app patient experience. Software and automation are at the heart of our company. Over the coming years, DocGo will continue investing tens of millions of dollars into our engineering team. Stan, I'll hand it back to you.

Stan Vashovsky, CEO

Thanks, Anthony. After an excellent quarter, we continue to see tremendous growth potential coming from a variety of different avenues in the years ahead. At this point, I will hand it over to Andre Oberholzer to address the financial details.

Andre Oberholzer, CFO

Thank you, Stan, and good morning. Total revenue for the second quarter of 2022 amounted to $209.5 million, representing growth of 76% as compared to the $62.2 million reported for the second quarter of 2021. The year-over-year revenue growth was driven mainly by the contribution of revenue from the continued expansion of major corporate accounts and expanded municipal mobile health contracts, and the expansion of key customer relationships on the medical transportation side, such as Northwell. Mobile health revenue for the second quarter of 2022 amounted to $87.3 million as compared to $33.2 million in Q2 of 2021, an increase of approximately 163%. Excluding mass COVID testing revenues from both quarters, mobile health revenues amounted to $59.3 million, up from $23.2 million last year, an increase of 156%. Total medical transportation revenues amounted to $22.2 million compared to $28.9 million in Q2 of 2021. Recurring transportation revenues increased to $20.2 million, as compared to $18.7 million in the prior year quarter, an increase of 8%. It is important to note that last year's second quarter included approximately $10.2 million in project-based standby transportation revenue comprising emergency deployments on behalf of different municipal agencies to provide standby services at testing and vaccination sites. These emergency deployments gradually wound down by the end of the second quarter of 2021. During Q2 2022, project-based emergency deployment revenues amounted to approximately $2 million. Mobile health revenue constituted 80% of total revenue during Q2 this year, compared to 53% in the prior year, with transportation as the remainder. Revenue generated by the UK market grew by 45% to $3.2 million during Q2 this year, representing approximately 3% of total revenue. Net income amounted to $11.8 million in the second quarter of 2022, which represents a substantial improvement over net income of $100,000 for the second quarter of the prior year. Please note that net income includes the gain of approximately $3 million from the remeasurement of warrant liabilities and $1.4 million in a gain from remeasurement of finance leases. Even after removing these items, net income amounted to more than $7 million for Q2. The improvement in net income resulted from a substantial increase in revenues during the quarter, coupled with an improved total gross margin, while certain overhead costs related to infrastructure provided leverage as they did not increase in the same proportion as the revenue growth. Adjusted EBITDA grew to $12.3 million during the second quarter of 2022, up from $3.4 million in the prior year period, even with additional investments we made in regional expansion, product offerings, and infrastructure. As a reminder, adjusted EBITDA is a non-GAAP measure representing earnings before interest, tax, depreciation, amortization, stock-based compensation, warrant and finance lease liability revaluation, and other non-recurring expenses. Please refer to our earnings release for our reconciliation of adjusted EBITDA to net income. Total gross margin percentage during Q2 2022 amounted to 35.9%, as compared to 34% in the same period of 2021. It is important to note that on a consolidated basis, DocGo was able to drive year-over-year gross margin improvements despite the negative impacts of inflation on the cost of labor and other cost of sales items. The 1.9% increase in the total gross margin percentage was driven by the mobile health segment where gross margins increased from 28% during Q2 last year to 39.9% during our second quarter this year. This mobile health gross margin improvement was driven by a combination of factors, including lower lab fees and a continued shift away from higher-priced subcontractor labor, which represented a much lower percentage of mobile health revenues this quarter versus last year's second quarter. Positive improvements were somewhat offset by higher costs of certain labor supplies. Margins from the transportation segment were 20% year to date in Q2 this year compared to 22.7% in Q1. Our transportation gross margin this year continues to be suppressed by the impact of higher hourly wages over time and a significant increase in the cost of fuel. Transportation gross margins last year included over $10 million in high-margin emergency deployment standby revenues. As of June 30, 2022, our total cash and cash equivalents totaled $208 million as compared to $199 million and $179 million as of the end of Q1 this year and the end of fiscal 2021, respectively. During the first half of 2022, positive net cash provided by operational activities amounted to $30 million compared to $1.1 million cash used in operations during the prior year period. Excluding vehicle leases, outstanding debt amounted to $2.6 million at the end of Q2 versus $1.9 million at the end of last year. In May of this year, DocGo announced a share repurchase program of up to $40 million of common stock. In this program, we repurchased 70,000 shares at an average cost of $7.10 during the quarter. In terms of the impact of inflation, we have two major expense categories where inflation may significantly impact our results. Our 2022 guidance provided at the beginning of this year assumed that the average cost per hour of labor would increase by approximately 7% versus the already inflated 2021 labor rates, and that the average cost of goods would be $4.30 per gallon. During the second quarter of 2022, the actual increase in average hourly labor rates was higher than last year's actual rate, but lower than our assumptions, while the average fuel cost per gallon was significantly higher compared to both the prior year and our forecasted rates. During Q2 of this year, the negative impact of increased gas costs was approximately 73 basis points on gross margin compared to the second quarter of 2021, with the negative impact of 55 basis points against our assumptions for 2022. As for the cost of labor, the year-over-year increase in average hourly rates had a negative impact of 129 basis points on margins during Q2 of this year. However, the actual average hourly rate was lower than our 2022 assumptions, which resulted in a positive impact against forecasted gross margins of approximately 94 basis points. COVID-related testing revenue declined to $28 million during the second quarter of 2022, as compared to $38 million in the first quarter. Excluding COVID testing revenues from both Q1 and Q2 of this year, mobile health revenue increased by 13% to $59.3 million in the second quarter of 2022, up from approximately $52 million in the first quarter. As we have indicated before, going forward, we will no longer break out COVID-related testing revenue from total revenue. Adjusted EBITDA amounted to $12.3 million in the second quarter of 2022, approximately 11.2% of revenue, basically in line with the first quarter’s EBITDA margin of 11.5% and above the annual guidance of 9.3% given at the beginning of the year. In the six months ended June 30, 2022, total revenue amounted to $227 million, representing growth of 104% over the total revenue of $112 million last year. Adjusted EBITDA for the six months ended June 30, 2022 amounted to $25.9 million, representing a substantial improvement versus the adjusted EBITDA of $3.8 million last year. Now turning to our 2022 outlook. We anticipate strong demand from our customers for both mobile health and transportation services. Given our strong year-to-date performance, as Stan mentioned earlier, we are increasing our revenue guidance to $425 million to $435 million, up from our prior guidance of $400 million to $420 million. And we are increasing our adjusted EBITDA guidance to $40 million to $45 million, up from $35 million to $41 million. This represents revenue growth of 33% to 36% year-over-year, while adjusted EBITDA would improve as a percentage of revenue to approximately 10% this year versus 7.9% during fiscal 2021. In terms of segment revenues, we expect that the mobile health segment will continue to contribute approximately 74% to 76% of revenues, with medical transportation as the remainder. That concludes our prepared remarks. At this time, we will ask the operator to open the call to questions. Thank you.

Operator, Operator

Our first question is from Richard Close of Canaccord Genuity.

Richard Close, Analyst

Andre, I was wondering maybe just some housekeeping. Is there any way you could provide us the transport volumes and pricing for the quarter? And then as we think about the growth rate in transportation on the recurring revenue side, I'm just curious about your thoughts on the 8% growth. Should we be looking for something greater than that going forward? Or how should we think about growth on recurring revenue in transportation?

Andre Oberholzer, CFO

In terms of the actual volume and the price per trip, at this time, we have not disclosed that. It will be in future disclosures, maybe filed with the SEC. When you see the results, you will see both an increase in the trip volume as well as an increase in price per trip, which drove the 8% increase year-over-year. That excludes the project-based labor so just recurring. You still feel as in the past, the transportation year-over-year will grow around 30%. We do not see that trend changing at this point in time.

Stan Vashovsky, CEO

Richard, it’s Stan, good to hear from you again. Also, as we've discussed earlier, our business model has evolved over the last several years where the metric of quantity of trips per day is really no longer relevant because of the way we charge our customers, what we refer to as our least hour program. So we get paid the exact same dollar amount by the customer. They're paying us at a minimum rate per day, which includes vehicle, crew, supplies, everything. So if we do one transport or if we do seven transports with that single vehicle for that one customer, our compensation for that day is the same. This helps mitigate days that are quieter versus days that are busier, brings some consistency, and allows us to better forecast our business. It also allows the customer to be assured that they have dedicated resources versus on-demand resources that in the past have proven to be somewhat unreliable.

Richard Close, Analyst

Okay. But 30% is a good growth rate in transportation. I just want to.

Andre Oberholzer, CFO

Yes, we're still going to stick with 30% growth for the year, in that range.

Richard Close, Analyst

Okay. And is there any non-recurring revenue in the third quarter of 2021 that we should be aware of?

Stan Vashovsky, CEO

Well, Richard, it's kind of hard to project. Right now, we're not projecting much, but the reality is that it could be a hurricane tomorrow. It could be a forest fire in California, where we get notified by FEMA. We get notified by state agencies to come in and assist. Those are project-based, one-time type services. They happen several times throughout the course of the year, but projecting them is quite difficult. But we're always going to be super conservative and say that we can accomplish our growth target with what we can rely on, which is our contracted business. We don't know if Q3 is going to have that one-time, project-based emergency response that we've had in the past. We will probably have a little bit of it there, but no way to gauge how much of it will be in Q3.

Andre Oberholzer, CFO

But in terms of last year, Q3 does not have any significant project-based revenue. Most of that work wound down by the end of Q2 last year.

Richard Close, Analyst

And then Stan, on the M&A opportunity, maybe, if you could just dive into that a little bit more. Based on your comments, it somewhat sounded like you guys are seeing opportunities on the mobile health side, maybe with some additional services. Did I hear that correctly? Or just any thoughts on M&A?

Stan Vashovsky, CEO

No, you're absolutely right, Richard. Our focus on M&A is mobile health services. We think there will be opportunities. We're starting to see more and more companies approaching us. We hope to execute in the near future on some of these opportunities. We'll always acquire licenses and small companies on the transportation side because that's just the most effective way to get a license to break into a market. You can file for one, but you can wait 6, 12, or 24 months if you're working through the municipality for a license, where you can spend a few hundred dollars to acquire a small company, and then just use that license as a starting point. So there will always be some, call it license acquisitions on the transportation side, but we are reserving most of our capital for a significant amount of M&A activity in the future around mobile health. That's the space that we're mostly excited about. It's a very fast-growing space with endless amounts of possibilities. We see lots of areas that we're very interested in and have proven to be very effective in. That's how we're going to put our capital to work.

Operator, Operator

Our next question is from Mike Latimore of Northland Securities.

Mike Latimore, Analyst

So I guess just on the guidance. In the press release, it says guidance increases based on organic growth and M&A activities which occurred subsequent to the quarter. And it kind of sounds like you've already made an acquisition or am I interpreting that incorrectly?

Stan Vashovsky, CEO

No, your assumption is correct. We've made what we call tuck-in acquisitions: small acquisitions that give us licensing capabilities. So we haven't spent any material amount of money. We haven't acquired any significant amounts of revenue, but historically, we typically buy a few small companies every quarter for their licenses.

Mike Latimore, Analyst

So, most of the increase relates to organic activities?

Stan Vashovsky, CEO

Virtually all of it. I mean, very, very little. And you also have to understand that a lot of times we'll acquire a company that may have a few million dollars in revenue, but it's not the kind of business we want to keep anyway, so we'll release that revenue and focus more on the way we want to conduct our business.

Mike Latimore, Analyst

Obviously, the gross margins were great. Should we view them as relatively maintainable at these levels, or is there room for expansion in the second half of the year?

Stan Vashovsky, CEO

Well, the reality is, Mike, we're always going to make them better. We still pay premiums for staffing, whereas the market is talking about contracting on staffing, we're doing the opposite; we're hiring full speed ahead. We're paying recruiter fees, we're paying staffing agencies; we're still giving up a lot of margin that over time I think will stabilize, and that will help drive continued improvements in our gross margin. We've always said mobile health ideally should be somewhere at about 42% to 43% gross margin, and transportation slightly below that. So there's still room for growth and improvement.

Mike Latimore, Analyst

And then finally, you mentioned that you're looking to hire 600 people by the end of the year. How many of those positions are new hires compared to those who are replacing a staffing agency employee?

Stan Vashovsky, CEO

All of the new hires are additional to our existing team. The 600 we plan to hire does not account for replacements due to attrition. Based on our current workload and the contracts we've signed with agreed start dates for the second quarter, there is a strong demand for clinicians and operational staff. We have a recruiting team of over 20 people and collaborate with several agencies to attract candidates. Therefore, we are continuing to hire as aggressively as we did last year.

Andre Oberholzer, CFO

Mike, this is Andre. I just want to clarify something Stan said for mobile health. We still price contracts with a desired margin around 50% to 53%. And based on the improvement you saw in Q2 using the subcontract labor, we are on that path towards those desired margins.

Operator, Operator

Our next question is from Sarah James of Barclays.

Sarah James, Analyst

So you guys had a really strong quarter as far as contract signing goes. I think you signed Carnival, LA Care, the Empire Blue Cross in the release. Can you give us any idea on the size of those or how we should think about modeling new contract ads as far as transportation revenue goes?

Stan Vashovsky, CEO

That's a great question, Sarah. We don't really provide details down to the customer level. Our agreements with our customers prohibit us from sharing that kind of information. In terms of modeling, all I can say is we have a very good strong track record of meeting and beating our guidance. We feel very comfortable with the municipal contracts and the hospital contracts that we signed; the percentage of customers that are migrating from COVID-related work to non-COVID-related work is extremely high, well over 80%. I would just say that municipal work will continue to be our biggest contributor throughout the country. We have some very unique programs that I think differentiate DocGo from other medical providers, followed by hospitals and insurance companies from there. Andre, anything else you want to add to that? Or what do you think, Andre?

Andre Oberholzer, CFO

No, that sounds good. I mean, year-over-year, we see this year about 30% to 36% growth in those kinds of contract systems as it goes.

Stan Vashovsky, CEO

Let me just add one more thing. We talk about 30% to 36% growth, but if you take the number of $319 million from last year compared to the guidance that we provided this year, the reality is that $319 million number from last year has about $40 million to $50 million of COVID testing that is not going to replicate this year. So if you take that $319 million number down to let's say $250 million, that's the real incremental business that we're out there securing. It's been a wonderful year. We're very excited about the year, and the demand for our services continues to be very strong. We provide clinical services in a way that our competition does not, extremely innovative and very tech-enabled. So it's 30%, 35% if you look at it from the end of last year, but in reality, that number is closer to 50%, 60% if you remove last year's second half portion of the COVID testing, which we do not see as a major contributor this year.

Sarah James, Analyst

And could you give us a little color on your pipeline for new clients, either municipal RFP pipeline or conversations with providers? How does that compare to last year?

Stan Vashovsky, CEO

Strong, extremely strong. One thing that we've said before, something that we're very happy about is the remaining of the COVID business is really only two major customers left that we do mass COVID testing for, and one of those agreements expires in early September, and the other one is extremely small. Something that we are just super proud of, and I think speaks a lot to our company's efforts, is that same exact customer is migrating from a COVID program to a pure mobile health traditional type program. The personnel and the revenue that they contributed will remain working; there will be no layoffs. They'll just simply come in, get some additional training in-house, and then be redeployed, often working for that exact same customer. We've accounted for all of the revenue that we expect to lose from the mass COVID testing sites for the second half of the year, and all of that revenue is going to be traditional mobile health; nothing to do with COVID testing, COVID vaccinations, or anything related to COVID.

Operator, Operator

Our next question is from Pito Chickering of Deutsche Bank.

Unidentified Analyst, Analyst

Hi there, this is Ryan on for Pito. Thanks for taking the question. Just wanted to ask on margins again. I heard your comments on the strong Q2 gross margin, and you think that can be maintainable going from here, but it looks like the guidance suggests at least some step down in H2 so just wanted to get a feel for, is that just kind of the roll off of the COVID testing revenue or some conservatism around the labor and fuel costs? Or can you just talk a little bit more about kind of that move in margins for into H2?

Stan Vashovsky, CEO

Andre, do you want to take that?

Andre Oberholzer, CFO

Sure, I'll give it a go. So in terms of the COVID testing reduction, there's no real impact on gross margin because everything we price on mobile health, that includes COVID testing, and this is mass testing, not consumer. We price it about the same margin of 50% to 53%. So as we roll off the COVID program and roll into your mobile health replacement program, there's no real change in the margin. For the second half, we continue to look at inflation gas prices that exceeded prices more than we planned on during Q2. So that causes a couple of basis points. Labor is also a factor, but we always want to keep guidance conservative; there's no real margin decline that we plan on other than looking at inflation and thinking about the impact of inflation in the second half.

Stan Vashovsky, CEO

I would just add that, traditionally, we've always been very conservative when it comes to revenue and EBITDA guidance. Internally, we always plan for the worst and those are the numbers that you're seeing. Ideally, we hope for the best. If we see an improvement, we'll go ahead and then raise guidance one more time, if that opportunity arises at the end of the next quarter. But in general, our company culture is to try to be conservative, expect the worst, and hope for the best.

Unidentified Analyst, Analyst

And then if you could just give us any quick update on, is there any seasonality to watch for on the transportation side in Q3 and into Q4? And just kind of how did that business track versus your internal expectations this quarter? I think you took down that transport mix as a percentage of total by one percentage point. I'm guessing that's just kind of some outperformance on the COVID revenues within mobile health, but did that kind of live up to what you guys wanted to see there in Q2?

Stan Vashovsky, CEO

Yes, we see a lot of value in our transportation business. That part of our business is getting smaller a little bit. It may continue over time; we'll see. We like that business because it's recurring, it's steady, it's almost annuity-like. It also gives us access to a lot of patients that may down the line require our mobile health services. So, naturally, we focus our energy. We focus our strength on our higher revenue, higher gross margin, more profitable business, which is mobile health. But we are still strategically committed to our transportation business. We still see good steady growth in that business. And what we're very busy with is we transport thousands of people every single day. So we're very busy doing is saying, 'Hey, we've got a person in our vehicle, we're taking them home. We know why they're being released. What other services can we now offer to that patient?' Ultimately, that will take a patient that was purely transport revenue and have that patient contribute in the future to our mobile health revenue. That's the kind of stuff that we're always thinking about and innovating.

Operator, Operator

The next question is from Ryan MacDonald of Needham.

Ryan MacDonald, Analyst

Congrats on a great quarter. Stan, first one for you. It's great to see all the success you're starting to have in the payer end market. But now accessing member populations really starts to flex a new muscle for DocGo in terms of needing to market to members within that population. Would just be curious how that's going thus far in the beta test and maybe what your expectations are as this grows regarding what sort of penetration you think you can get within those member populations. And then lastly, are you assuming any revenue or much revenue contribution from these contracts in the back half of this year?

Stan Vashovsky, CEO

The reality is we do not assume any significant revenue from those payers for all of the rest of 2022. We see a little bit of contribution in 2023. We see a lot of potential in that space, in our direct-to-consumer future offering; the results are coming in very strong, but as you can imagine, we don't do anything traditional, and we realize that in a traditional direct-to-consumer offering, the customer acquisition costs can get very high. We know that. So we are working and thinking very creatively about how to reach out to millions of patients that can benefit from our service while doing it in a non-traditional way that allows us to access large populations at a very low cost. Until we figure that out, we're going to keep on trying various different things. Right now, the pilots are going very well in New York and New Jersey. I would say tracking a little bit ahead of plan, but we still have a long way to go to come up with a direct-to-consumer plan that we feel super, super confident about. Once that happens, we hope that will happen sometime in 2023; it will open up a tremendous total addressable market that we're not even tapping into right now.

Ryan MacDonald, Analyst

And then maybe just as a follow-up, I thought it was interesting to hear about the updated technical integrations with Athena health and then being accepted into the Epic App Orchard. I'd be curious, when in your conversations with health systems, how much in the past has this been maybe a gating factor that might have prevented opportunities from materializing, and how do you think the impact is to the pipeline having these natural integrations with two major EHRs now?

Stan Vashovsky, CEO

Brian, I’m going to let Anthony, our President, answer that.

Anthony Capone, President

One of the biggest issues that many companies run into when they work with health systems is that they try to convince the health system to use their software. It's a whole new application, and a hospital system may have tens of thousands of employees. They're trying to get those tens of thousands of employees to use their new web portal or application. When you embed inside of their EHR and eliminate all of that, it’s single sign-on; it's a click right from the patient's chart. It's seamless integration of data, demographics, payer details, and charting information. This barrier is pretty much nonexistent at that point. That's what the Epic App Orchard allows us to do. Now, many people go into the Epic App Orchard; it's really just a link that you're inside of Epic, and then it launches your application. That's not the route we took. We took the route where the entire experience, end-to-end, is inside of Epic. All of the data goes back into Epic so that the health system can do all of their reporting, KPIs, and metrics inside of their application without having to come to us for any of that. That really, really eliminates the barrier. As far as the second part of your question about what it opens up to: Epic is the most widely used and the fastest-growing EHR in the hospital health system space. That is very encouraging for us because the Epic App Orchard is now available to anyone in that space.

Stan Vashovsky, CEO

And Ryan, let me add to that. Coming into a hospital system and sharing with them what we'd like to do and telling them they can further leverage their investment that they've already made in Epic by utilizing our tech makes the sales much more attractive. The integration process took years, cost millions of dollars, and most importantly, required major hospital systems logging on our behalf with Epic to get the support we needed to complete this endeavor. This has been very complex, expensive, and time-consuming. And the only reason we're able to achieve it is because large hospital systems that we have working relationships with lobbied on our behalf. Our competitors today don't have that advantage, and that's something we're very excited about and think will continue contributing to our growth in the future because we're telling hospitals to further leverage what they've already spent hundreds of millions of dollars on by using our services.

Operator, Operator

Our next question is from Craig Jones of Stifel.

Craig Jones, Analyst

So Stan, you mentioned how your main COVID mass COVID testing partner was rolling into just a mobile health contract. So of that $28 million that you did in Q2 from mass COVID, how much of that are you modeling in for Q3 and Q4, whether it's mobile or COVID or however you want to classify?

Stan Vashovsky, CEO

Very little. We basically just have basic revenue through August, a couple of days in September, and then the entire program goes away. So you're looking at, we don't give segment reporting out on particular projects. But I would say very minimal mass COVID testing revenue going forward. That's the reason why, as Andre mentioned, we don't really plan on reporting it as a separate line item going forward. It's way below the level of materiality, and it's just way too much effort and work to continue doing something that generates a few million here and there. It is not worth separating out for us.

Craig Jones, Analyst

Yes. Sorry. Maybe I didn't ask that well enough. I meant, so your client has transitioned into mobile health. So how big of a quarterly revenue contributor will they be from a mobile health perspective?

Stan Vashovsky, CEO

So from that aspect, I would say you can basically model out very similar, if not maybe a little higher, to what they were contributing in terms of revenue while they were doing COVID testing.

Craig Jones, Analyst

Okay. So that means the majority of the $28 million should keep going just under different contract, under mobile?

Stan Vashovsky, CEO

Under different contract on the traditional mobile health services. Correct.

Craig Jones, Analyst

Got it. Okay. So then if we look at the guidance, it looks like it's implying sequentially lower Q3 and Q4 versus the first half for mobile health. I guess for mobile health. So, if that customer is largely transitioning from mass COVID to mobile, what's driving that headline there for why that would decline sequentially?

Stan Vashovsky, CEO

As we've mentioned, we're always taking a very conservative approach. Many things can happen during this transition. We feel very good about how the second half of the year looks, but naturally, we are taking a conservative approach. At the end of the third quarter, if we're a bit too conservative, we'll once again go ahead and raise guidance.

Operator, Operator

The next question is a follow-up from Richard Close of Canaccord Genuity.

Richard Close, Analyst

Stan, I was wondering if you could talk a little bit about the RFP. You made some comments there about activity growing. Can you just dive in a little bit more on that? Is anything baked into your guidance or is that all upside? And on those types of contracts, how does a typical contract look like on that side?

Stan Vashovsky, CEO

In terms of our guidance, we do not incorporate any assumptions related to RFPs. Our guidance is based on contracts and agreements that we are very confident in. We have access to numerous municipal and government systems that help us identify needs across various municipalities nationwide. Our experience in large medical programs is unmatched in the industry. We have excellent clients who are willing to serve as references for our services. We have observed significant growth in our responses to RFPs, which has tripled. While we do win some smaller contracts, our focus is now shifting towards larger opportunities with agencies like the CDC, the Department of Homeless Services, and various municipalities and border patrols. There are many large agencies providing medical services that release opportunities every few months, and we are diligently responding to these and beginning to win a few.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would love to hand the call back to Stan Vashovsky for closing remarks.

Stan Vashovsky, CEO

Well, this concludes our call this morning. We began 2022 with clear and significant momentum across our businesses. I am optimistic that we have set the stage for a very successful year. I look forward to our next quarterly update in November. Thank you everybody for joining us.

Operator, Operator

This concludes today's conference. Thank you for joining us. You may now disconnect your lines.