DCGO - NASDAQ

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. [Operator Instructions] 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, [Technical Difficulty], 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 needed 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 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 3 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 6 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 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 $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 will 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 comp 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, as I mentioned earlier. 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 as of 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. As 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, and then 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. At this point, I'd like to turn the call back over to Lee.

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. [Operator Instructions] The first question we have comes from Sarah James from Cantor Fitzgerald. Please go ahead. Sarah, please go ahead.

Sorry about that. I wanted to talk about Norman 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 is 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 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. I think there are a couple of things to look at when we talk about a lag though. There's -- looking at the invoices from the date of service to where we are today, in which case, I would say that's a little bit more of a lag than what we typically see. But the real factor there is when the contract gets registered for all of these municipal contracts, and this is why we made such a big deal about the contract being registered. That's why we mentioned it in an 8-K. No contract -- even if it's fully signed, no contract is paid for until where the services are not paid for until the contract is registered. Thankfully, this contract has been registered. When I look at where we are in the payment cycle vis-a-vis the registering of the contract, and we're fully within the typical range of what we've seen across different municipal agencies and a bunch of different municipalities. We've been in the municipal business for 3.5 years now. So none of that is out of the ordinary. It's just that it's a very big number.

Thank you.

Yes. And Sarah, the only thing to add there, as Norm was saying, I think this is -- our experience has been this where we go back and forth with the invoice and get the invoice in the right cadence of the way the municipalities like to see it, and then payments happen in a fairly regular fashion from there on. So pretty indicative of where we've been, in previous contracts same here, but as Norm said, it's a larger number this time around.

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, sure, Richard. And let me take it up for you and give you insight as to how we look at managing our AR portfolio from the top down. So if you look at the number itself, it's a very, very large number, right? We're over $200 million in AR. If you look at it from -- there's three different ways of looking at it, obviously. So you can look at it in terms of days sales outstanding, now it's over $200 million of AR. But now we're at a point where we're doing close to $200 million, $186 million, almost $190 million in quarterly revenue. So in terms of just the raw calculation of days sales outstanding, while it's higher than it was at, let's say, the last quarter end at $630 million, it's actually lower than it was at March of 2023. So that's a little something to take into account. It's still a number that's big, that's very large. And the thing that we look at is across the different buckets -- the different aging buckets of our accounts receivable is whether or not we've seen any deterioration in our portfolio. And thankfully, we have not. We actually spent sort of -- behind the headlines or underneath the headlines, we actually did very well in collecting some of our relatively aged receivables during this quarter, both on the Transportation side and Mobile Health. The next thing that we like to look at is the makeup of the portfolio in those different buckets. So when I look at what is current, right, which is typically defined as 0 to 30 days. So at March, just to give you a little bit of a baseline or a comparison, at the end of the first quarter, only about 25%, 26% of our AR portfolio was under 30 days. As of June 30, that number was about 56%. And now because of the fact -- obviously, it's sort of the way the math works because of the fact that so much of this revenue is stuff that happened during this quarter. As of September 30, nearly two-third. So about 63%, 64% of our AR is current. Also when I look in the other side of the equation, when I look at the over $90 million, it's a lower number than what we've seen. When I look at over $180 million, maybe 10%. And I will say in this business, especially on the ambulance side, we still collect quite a bit of what's over 180 days old. We often will collect things even out to $360 million and plus. So I guess my summary of the answer there is that the AR is very, very large. We would expect it to start to come down because we would expect to get on a better payment schedule, let's say, with some of our larger customers like HPD or other municipal. But at the same time, we're growing revenues by quite a bit. So that's going to continue to put pressure on the overall number. But the thing that we look at most closely is how the buckets break down and that's being pretty 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, sure. I mean as I mentioned in my prepared remarks, over the last couple of quarters, we've talked quite a bit about how it was our expectation that margins would grow sequentially as we went through the quarters. We had 28.1% gross margin. In Q1 I think it went to 33.4%, something along those lines in the last quarter, now we're taking a step back. But what we have always maintained was that, that was assuming that the growth was happening at a pretty steady state. And what you saw this past quarter was a good bit more revenue than I think what we had anticipated a few months ago when we talked about growing that revenue, obviously -- growing that gross margin on a sequential basis. And when we look at it, there's no one particular project that is -- we don't -- we haven't replaced high-margin revenue with low margin revenue. There's none of that going on. It's really all in the areas of labor, which is both a subcontracted labor percentage being higher than it would typically be, over time being higher than it would typically be. The good news there is that -- those metrics, those KPIs, which leads to the margins improved sequentially as we went through the quarter. So it was at a certain level in July, it improved in August and improve began in September. So that's -- those are the things that are driving -- And any time you're going to add the new product -- new project launches and therefore, a lot of revenue in a -- one particular quarter, that's going to be the pressure that you have. Having said that, without pinning down what I think Q4 gross margins will be, I will say that directionally, margins are higher than what you see this quarter. What you see this quarter on the one hand, when it comes to revenue, that becomes on -- our new revenue baseline off of which we think we can build. This is not any really nonrecurring revenue in the quarter. This is real recurring revenue. On the other hand, when you look at the gross margin number, I would say that, that was something that was temporarily lower than it really ought to be. It's not our run rate of gross margin. It's not the run rate of gross margin that we saw leading out of the quarter. So if I would typically take -- I mean, if I would simply take the September month margin and apply that to Q4, that in and of itself would account for a higher gross margin. So that sort of plays into our expectation 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. So I'll start with the first part of your question, our relationship with the city. So we've been working with the city, as was mentioned, for over three years. We've been working on various different population health programs. We actually also provide, as I mentioned, the medical transportation for all 11 public New York City Health and Hospitals locations. So we've been working with the city for a number of different years. You've heard us talk about the SHOW program, which is the Street Health Outreach and Wellness program. You've heard us talk about our work with the Department of Home Services. You've heard us now talk about our work with Housing Preservation and Development. You've heard us talk about our work with New York City Health and Hospitals. So we've been helping New York City across a wide range of population health and medical transportation needs since we started working with the city over three years ago, and we have provided care to millions of New Yorkers together. We're very, very proud of that. In terms of the asylum seeker and migrant care work, it actually all started with the first buses arriving at Port Authority, and we actually provided the initial paramedic units at the Port Authority when the first buses started arriving from our southern border. That's really how our work together started. We provided the paramedic teams, and we're doing health screenings, infectious disease screenings and so forth for the asylum seekers as they're arriving. And it's essentially grown from there to all the services that we've been talking about. And really, it's grown to what we call our Total Care services and ranges from medical care that could be infectious disease screenings, urgent care and other medical care vaccinations as well. It encompasses behavioral health, which includes depression screening and other case management work and intensive social work as well and then encompass obviously, the other assets of the program in order to provide the total care that asylum seekers need when they're arriving. All of the goal to help them land safely and then ultimately acclimate and what we say graduate out of the program. So those are the services we've been providing. The different sites have a different composition of services, but those are the comprehensive suite of services that we've been providing. You asked about the -- what percentage are families arriving with children. It's actually a large majority of the asylum seekers in our care -- are families with children composition. Most of the sites are families with children. And so we are providing services from ages two and pediatric care and up all the way to as old as 80 years old, we've been providing services. So the large majority of our families are children. Yes, and also, David, about the length of the contract, as you alluded, the contract -- the HPD contract is of the asylum seeker work we're doing, is 1 year long, which is actually fairly customary for our contracts with the city. Many of them have been extended. Many of them have been re-awarded. We do fully anticipate that portions will be put out for RFP and so forth, which is very, very customary to how we've been working with the city now for over three years, as I mentioned. That contract with HPD was signed and initiated in May. And so if you follow that year-long chronology, you would have it until May of next year. But again, really, our goal is to provide the services that the city needs, the medical care and the behavioral health care the city needs as long as the city may need it. And our goal is to help the city in aiding the asylum seeker so that they can essentially live their lives, acclimate out of the program and receive the services that they need for however long as the city asked us to provide us, for however long the asylum seekers need it.

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

Great, thanks. Yes, congrats on the phenomenal revenue EBITDA growth here. I guess just back on the cash position for a second. Maybe just trying to see if you could bracket that a little more? I mean do you think that cash flow from operations might be above or below EBITDA in the fourth quarter? And then kind of by year-end -- what month do you think it will get paid up to by year-end, let's say?

Yes. So -- it's Norman, I'll take that one. So -- and this allows me to make a point that unlike previous quarters, we filed our 10-Q for the quarter already. We did that pretty much recurrently with the earnings release. So a lot of information is in the release anyway, but that -- the more detail information is currently available. So as far as the cash flow from operations as it compares to EBITDA, so one thing that you'll notice is that the impact that you saw in operating cash flow were entirely from the working capital side. Otherwise, in terms of what we like to call the P&L, operating cash flow, that number was already pretty close to resembling the EBITDA number. I guess the question is, when we're going get to a point where working capital is no longer a drag on the operating cash flow. So it might happen in Q4. Frankly, it's really going to depend on the timing of when we get specific payments in here compared to how quickly we grow and how our expense base grows because we're laying out the money effect for labor, for a lot of other things to our vendors in advance of what we get paid by the city. So we have that ongoing negative cash cycle as far as those programs go, whether it's the city or whether some of our larger municipal or other customers. So I would expect that we're sitting here early November. We've got about -- is it six, seven weeks at the end of the year. It's our expectation that we would be pretty well caught up by the end of the year, at least that's our hope. It's just something that is somewhat unpredictable given that we're not the ones who actually pay ourselves. And we are in discussion with the different finance departments -- the different relevant finance departments on a daily -- on a more daily basis at a bunch of different levels, whether it's me, whether it's Lee, whether it's people within our finance or operating teams. So there's a lot of dialoguing going on. I should point out, and this sort of ties a limit to something that I think David mentioned in the questions of four years, which is, any of the slowdown in the payment is not -- none of the slowdown in payment is related in any way, shape or form to disputes. Nothing has been disputed in terms of the amounts that we're charging, in terms of the categories in which we're charging. It's simply a matter of from time to time of asking for more backup, which we have and which we just have to send over in their way. I think once we get on a pretty good cadence with them and a good payment rhythm with them, we will catch up pretty quickly. The schedule that we -- I'm not going to share the strategic details, but we have shared a schedule with the city that lays out when we would expect to pay. And if they do keep it to that schedule on a month-by-month basis on a monthly invoice by monthly invoice basis, we would be largely caught up by the end of the year, which are typical, I'll say, 60-day -- 60 to 90-day lag from when the services are provided, which is normal for all of our contracts. So that would obviously have a big impact from what we see in Q4. I'm just a little bit low to make an estimate as to where the balance sheet is going to be come year-end because there's just a lot of things that could move in that direction. And what I would look for is just sort of an improvement, a reduction in the sales outstanding and other metrics that would indicate on the operating cash flow side, that is starting to catch up.

Okay, great. Thanks. And then in the second quarter, I know you signed up a select group of staffing agencies to contracts that were meant to maybe give them some more volume but also under favorable terms. Can you tell -- I know -- and I know this quarter, you've ramped up really quickly on this new deal, but can you tell us those contracts and the staffing agency relationships and the terms? Are they all being kind of met as expected, I guess, factoring in this kind of, rapid early?

Yes. So Mike, absolutely. So we're actually utilizing all of those contracts in full effect in Q2, Q3 and beyond, all those partners -- we call them partners because they're helping us scale tremendously. All of those partners, all those contracts are performing as expected. All of the negotiations and structuring of those contracts are actually well done. And so yes, we're absolutely benefiting greatly from those in Q2 and Q3 and going through the rest of the year here.

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. Absolutely, David. Happy to do so. So I think we look at that business -- we look at a multitude of different metrics. The first is, as you mentioned, the number of patients that are being assigned to us. That number -- I'd like to see that number growing. It is growing. It's growing very much so. And so we'd like to see continued growth there. From there, I track and our team tracks sort of conversions, how many of those patients do we engage, do we go and provide the care gap, go into the home. And I'd like to see that number is going to also increase over time as our teams get more and more specialized, more and more trained, as we get more and more experience. And as we bring on more and more talent to our team, that number has also been going up In fact, last week, I was looking at a metric rise of the highest conversion since we started. So that metric I'd like to see going up, and it is going up and I'm pleased with our progress there in terms of how many of the patients that are assigned to us engage with us. And obviously, we have a unique model where we don't call the patients who come into our office, but rather we go to their home. And obviously, we are able to decrease the barriers of access and bring care to the patients that need it. Almost all of these patients have not seen their primary care provider in over one year. And many of them are chronically ill, almost all of them are chronically ill. And so, are in need of care gaps or need of intervention or in need of our services. So I look at assigned patients, I look at conversions. The other thing I look at, which I'm very pleased with that, I mentioned it on the call, is the number of care gaps, the breadth of services that we're offering. And we feel like this is a very big -- an additional competitive advantage for us. Obviously, the mobile deliveries of the competitive advantage and our broad set of care gaps is also a competitive advantage. We get a lot of market feedback that what we're offering -- the breadth of our services is actually pretty unique as well. And so I'd like to see us offer more and more and more care gaps, more and more clinical services to more and more chronically ill patients who need it. And as we see that, we see our health plan partners relying on us and partnering with us more and more and more, assigning us more patients and as we scale that. So those are the metrics at a high level like -- that we look at. We look at a lot more in depth. But I'm looking forward to sharing on these calls our progress on how many patients have continued, growth of the number of patients that were being assigned, but also how many we're engaging, how many we're enrolling in our remote patient monitoring and virtual care platform, how many we're doing cardiac monitoring for, how many care gaps we're closing. And ultimately, the contracts we have can evolve into us becoming the primary care provider of record to us potentially sharing in the cost savings and the value-based rate arrangements and value-based care. So a lot of runway for us in this segment. We're very excited about it, and we're also doing a lot of tremendous good for the patients that we go and see, that we're closing significant care gaps and likely catching sort of catastrophic -- potentially catastrophic episodes before they become so -- like our diabetic retinal exams are catching blindness, potential blindness or potential vision impairment before it happens, as an example. So -- and that obviously becomes costly and it's a horrible outcome for a patient. So we're very, very pleased with the momentum, with the metrics. We're pleased with the great care we're providing with the good we're doing for the patients. And so we think there's a lot of runway and a lot of growth and a lot of good to be done in the coming quarters, and I'm looking forward to sharing that progress as we 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 share out how many -- as the number of lives, the number of assigned patients get assigned to us, we'll share out. The partners we have, collectively have millions of lives to be assigned to close care gaps. And we're, in my opinion, only scratching the surface. What could be done, we need to scale the effort. We need to scale our patient engagement team. We have to continue to scale our team in the field. We continue already to invest significantly in our technology platform and our clinicians. So we can continue to invest there. And I can tell you that the partners we have, have many hundreds of thousands of patients each, 1 million-plus patients as we consider the larger partners we have. So we are sort of scratching the surface of the good we could be doing there. And I think it's too early to say exactly the various metrics to that funnel I just described, but we definitely will be sharing that in the coming 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?

Yes. So thanks, Ryan, for the question. Not sure I'll rank the customer segments because we love them all the same, so to speak, and we love all of our partners. And I would say, when I look at it, obviously, we shared the vast majority of the revenue is coming from health systems and municipalities today. But we see tremendous -- our growth percentages are very, very large with the third pillar, which is the value-based care insurer group. So we see -- I'm not sure I'd stack rank one over the other because again, our goal is to provide an absolute exceptional customer experience. It's part of our culture for every single customer we have, no matter how large, no matter how small we've given absolute exceptional customer experience, which is the reason why they tend to grow with us. And a small customer today can be a very large customer in future. So that's the way we view it. I will say that we continue to submit proposals for all three. We have growth plans in place for all three. We are investing in growth in all three. And so I think you're seeing a lot of the large contract -- to more address your question, we are seeing the large contract wins, the dollar value contract wins coming in the health systems, our hospital partners and municipalities. The contracts that we are winning and negotiating and have in the pipeline with the insurers have the potential to be very large as we scale them and as we can take on more and more patients, then we'll be able to -- they'll come with more associated revenue numbers and growth for them. So we're going to be investing in that. But the wins right now are coming in -- and the dollar wins are coming in the first two. I would say the expansion opportunities and the market potential is also coming in that third pillar with the insurance providers 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 past to a 20% adjusted EBITDA margins, 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 -- go ahead. 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, it's pretty much -- I was going to say it. The way we sort of model that out is we have roughly 40% roughly gross margins on a blended basis, consolidated basis, and SG&A would be about another 20 points. We're kind of there on the SG&A with the understanding that we're going to take -- we might take a step back before we take a step forward, but we're pretty close. Where obviously we have more room to get to is on the gross margin side. But yes, we think structurally it is achievable. And I'll just echo what Lee said, it's definitely our goal. It's surely going to be a matter of digesting some of these recent revenue gains and then taking that number higher. We kind of know where we do it and how we do it. It's just going to be a matter of the timing of that growth curve on the top line that's going to have an impact in the near-term on how close we get to that number.

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 board opportunity? What did the company won that contract?

Yes. Hi Peter, I'll jump in. So it's still too early in terms of the Border Patrol contract. We'll find out in the coming weeks and months who ended up winning that. But I just want to really mention -- start off by saying in terms of that evolution that you described, we -- our whole business, all of our segments, all of our customer base, our markets, we're growing at the target rate we put out, even without the HPD asylum seeker contract. So that obviously has accelerated our growth, but we would still be growing at our target rate without that HPD content. So I want to make sure that I share that. And so I think in terms of the asylum seeker care, there's a lot of transferable expertise that we've been bringing to that contract. So first off, there's a transportation component to that. And obviously, one of the largest medical transportation providers in the country. We utilize that, as I mentioned, those first paramedic BLS unit at the Port Authority where our transport teams -- And we continue to use our platform to help the city scale the care for this particular population. We use the same logistics platform. We use the same tech platform. We use the same vaccine management platform. And we're growing every single day our capabilities that we're helping to provide the care for the asylum seekers but we're also using that same exact -- those same exact competencies for other contracts. As an example, you can imagine casework and behavioral health care that we're providing at scale for asylum seekers is also applicable to patients of insurance providers and some of our other key customers. So we continue to leverage the capabilities we have across all of our segments. There's a common thread for all of the customers we partner with for all of the patients we're providing care. We leverage all the same platforms, all the same technology. And so that has allowed us to scale very, very rapidly in those investments in our people and our technology that have allowed us to do that. And we apply that to a myriad of different patient populations. And so I just want to make sure that I shared that, and I think that's a very key aspect of our growth and how we've been able to provide care for such a wide swath of 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 -- they'll pay down the revolver that you drew on? And then looking actually at those delays, how much of that is due to the sort of 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?

So as far as your -- the first quarter, on your point, I don't want to take this into a corner. I mean it would make a lot of sense for us as we generate more working capital, more free cash flow for us to use that to pay down the credit line. I mean the credit line is not being seen as something that we want to have on a permanent basis. It's something that we have there to give us some flexibility. So yes, clearly, we would pay that down as we could. As far as the other thing in terms of the impact of the real time audit, so here's why I think the impact comes in, I think it's a matter of the type of backup that is asked for on these invoices and it's something that is being done in anticipation of the real-time audit. There hasn't been any other indirect impact audit. And that's kind of an impact that tends to wane after time because once we get to a good rhythm with them in terms of the types of backup that we're going to provide together with our invoices, then we just do it again and again as we go through the next month's invoice and the next month's invoice. So it hasn't really had a big impact in terms of anything like that. It doesn't mean that may sit on every invoice for longer. It really just means that they will have some more requests for backup sort of upfront than what we otherwise would have expected to provide. But that in and of itself is not really an issue 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 take that one. So I've got the backlog file open in front of me here. So the back of -- again, just sort of refresh everybody's memory in terms of the way it works. So -- and all things being equal, the backlog number would go down as more of the backlog turns to actual revenue and quite a bit of it turned to actual revenue during this quarter. However, we're able to add quite a bit to the backlog based on different contracts that we've won really across our geographies and across our business lines. So I would say, especially this quarter, it's a really big mix. So you've got some of the government work that obviously is now on the table in terms of expansion or additional sites. That's clearly a big part of this. But at the same time, there are a couple of contracts we won in the U.K. that I think as we mentioned, where those are very large contracts that are the kinds that will help us out. We have a couple with native American populations, other types of projects that we do through one of our other entities. So I mean, this is stuff that applies to both the U.S. It applies to the U.K. market. It applies to Mobile Health, it applies to Transport. It's actually really very, very nicely spread out. But without question, a big part of it is the fact that we do expect to realize more revenue on some of the asylum projects given that we've seen it coming in the way we saw it come in. But that's not by a wide -- by any measure. That's not an overwhelming drive of the backlog, rather the backlog is very 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.