DocGo Inc
NASDAQ:DCGO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2.84
6.17
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Earnings Call Analysis
Summary
Q2-2024
DocGo reported robust financial results in Q2 2024 with $164.9 million in revenue, up 31% year-over-year. Mobile health revenue surged 46%, and transport services rose 6%. Net income jumped to $5.9 million from $1.3 million in Q2 2023. Adjusted EBITDA increased to $17.2 million, and margins improved. The company raised its 2024 cash flow guidance to $80-$90 million. Though migrant-related revenues are declining, DocGo is ramping up new contracts and expects base business revenues to grow significantly in the second half of 2024. They reaffirmed their 2024 revenue guidance of $600-$650 million, aiming for $65-$75 million in adjusted EBITDA.
You don't have any saved screeners yet
Good day, everyone, and welcome to the DocGo Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this call may be recorded. [Operator Instructions]
It is my pleasure to turn the program over to Mike Cole, Vice President of Investor Relations.
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, goal, 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 which may cause our actual results or outcomes or the timing of 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 or on the current report on Form 8-K that includes our earnings release, which is posted on our website, docgo.com, as well as filed with the SEC.
The information contained in this call is accurate as of only the date discussed. Investors should not assume that statements will remain relative 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. We had an excellent performance in the second quarter, recording $164.9 million in revenue and $17.2 million in adjusted EBITDA, driven by strong operational execution while also making substantial progress with new business development and cash collections. We are seeing a lot of momentum working through the sales pipeline. Early this year, we launched an initiative to specifically pursue dialogue with prospective partners across our 3 customer verticals as well as partnership opportunities with virtual-only providers who want to utilize our in-person capability to complement their offerings.
There is no doubt that the healthcare industry is increasingly looking for mobile delivery solutions to create greater access to care while lowering costs. Telemedicine has a number of advantages, but on a standalone basis it also has significant limitations. The dialogue that we're having with these potential strategic partners revolves around DocGo's unique ability to deliver last-mile physical care. We are seeing strong results from this effort with several new relationships in the contracting phase and others working their way through the sales pipeline. I'm really excited to share those opportunities with you as they mature.
I'm also very proud of our operational execution in Q2. It was a significant undertaking to wind down the downstate migrant-related locations under our contract with HPD, but we did so seamlessly and we concurrently began the process of rightsizing our cost structure accordingly. I think we did an exceptional job managing this process, and we expect to see margin improvement going forward as those rightsizing initiatives take hold.
We also made significant progress during the quarter with our cash collections. Our cash flow from operations exceeded $35 million in Q2 of 2024, driving up our cash balance by more than $25 million relative to the end of Q1. I think it's important to note that the cash balance also reflects the fact that we repurchased approximately $5 million worth of DocGo shares during the period and nearly $10 million since the start of 2024.
We continue to work with our large municipal customers to try and normalize the payment process, and expect continued strong cash flow from operations over the coming quarters. We expect this to give us the resources to further strengthen our balance sheet, support potential additional stock repurchases and of course, continue to support the strong growth we project ahead. As a result, we are increasing our cash flow from operations guidance from $70 million to $80 million to an updated range of $80 million to $90 million for 2024.
We also announced the establishment of a world-class Medical Advisory Board, which includes a prominent group of physicians and specialists from leading national institutions. The Advisory Board will offer counsel and expertise on our clinical offerings, and publish medical research on the impact of the company's programs on patient outcomes. We are excited to leverage their expertise to continue developing innovative healthcare solutions for those that need it most.
As I usually do, I would now like to spend some time covering our 3 key customer verticals: payers and providers, hospital systems and municipal population health. In our payer and provider customer vertical, we have had a flurry of recent contract wins with several of those opportunities having considerable room for expansion over time. One key leading indicator for this vertical is the number of patients DocGo has been assigned for care gap closure services, and we have more than doubled that number on a sequential basis in Q2 over Q1. We are seeing strong results from these programs and the customer ROI is becoming increasingly apparent.
For example, one of our customers has observed a 50% reduction in all-cause readmissions for complex patients that receive our care post discharge. In addition, our quality measure and care gap closure programs enable payers to maintain or improve quality ratings, which can further impact payer financials in a material way. During the second quarter, we added a top 10 payer in Southern California and plans are in place to expand with that same customer in New York.
Our work with hospital systems continues to perform well. We had a new medical transport -- we had new medical transport wins in New York and Delaware with key extensions in New Jersey and the U.K. Overall we saw 13% revenue growth to date in 2024 compared to the first half of 2023, and we still expect medical transportation to grow in the neighborhood of 15% or more annually over the near term.
We're in the final stages of contracting with one of the largest hospital networks in New Jersey for a mobile health program to provide physical and wellness checks to their enterprise customers located across the state, and we're seeing increased interest from major health systems for our transitional care management mobile health offerings, remote patient monitoring, virtual care management and readmission reductions and more, all of which are designed to help keep patients out of the hospital and healthy in their homes.
In our municipal population health vertical, we recently launched our first mobile X-ray program for the City of New York and are planning seasonal vaccination programs for clients in Texas, New York and Washington, D.C. In addition, we won a project from the state of New Mexico to provide nursing care and mobile vaccination clinics, nursing call centers across the state, and behavioral health services for the New Mexico Behavioral Health Institute. Separately, we won a contract to provide x-ray technicians at multiple sites for a new customer in Arizona.
And lastly, we're proud of the deep clinical expertise in mobile healthcare services we provided as part of the humanitarian response in New York. In Q2 alone, our clinicians have facilitated over nearly 200,000 patient interactions on these programs, including 150,000 behavioral health encounters and nearly 50,000 medical encounters, including over 42,000 for intake and triage, 8,000 vaccination and 2,600 QuantiFERON blood test.
This is all in keeping with our historical municipal work, bringing care to vulnerable patients across various public health initiatives for many populations, including uninsured individuals, the LGBTQ+ community, both sheltered and unsheltered homeless populations, and newly arrived asylum seekers outside of traditional medical settings.
Collectively, we are performing in line with the guidance announced as part of last quarter's earnings release, and reaffirming our 2024 guidance of $600 million to $650 million in revenue and $65 million to $75 million in adjusted EBITDA, while raising our cash flow from operations expectation to $80 million to $90 million, up from $70 million to $80 million.
Additionally, we continue to expect revenues from our base business to show strong sequential growth in the second half of 2024 and be approximately $400 million in 2025. I want to reiterate that the 2025 revenue expectation in our base business is not overall revenue guidance for 2025, given we expect some migrant-related revenues next year.
I think one of the most important takeaways from the quarter would be the quality and quantity of new opportunities entering the pipeline. As we work with New York City to coordinate a taper down of migrant-related work, it has freed up considerable bandwidth to pursue other opportunities. As I mentioned, some of these opportunities are maturing to the contracting phase, and I expect multiple new programs to roll out in the second half of 2024. This will directly complement our traditional RFP channel and provide another conduit for growth.
At the end of the day, we have the technology, logistical infrastructure and balance sheet to offer large-scale last-mile deployments with national healthcare providers, payers, hospitals and municipalities. Combine that with a very broad scope of clinical services that DocGo offers and we feel we are in an excellent strategic position going forward.
I will now hand over the call to Norm to just cover the financials. Norm, please go ahead.
Thank you, Lee, and good afternoon. Total revenue for the second quarter of 2024 was $164.9 million, a 31% increase from the second quarter of 2023. Mobile health revenue for the second quarter of 2024 was $116.7 million, up 46% from the second quarter of 2023. We experienced growth across several projects, business lines and geographies. However, the bulk of the year-over-year revenue gains related to the migrant-related projects we operated in New York for both HPD and H&H.
As we projected on our last earnings call, these migrant-related revenues declined sequentially in Q2, reflecting the wind down of some sites in New York City, which began in mid-May. These migrant-related revenues are expected to continue to decline sequentially as we go through the rest of 2024. Transportation services revenue increased to $48.2 million in Q2 of 2024 which was 6% higher than the transport revenues we recorded in the second quarter of 2023.
The largest gains occurred in our 3 biggest markets: New York, Pennsylvania and the U.K. In the second quarter, mobile health revenues accounted for about 71% of total revenues and transport for the remaining 29%. Net income was $5.9 million in Q2 of 2024 compared with net income of $1.3 million in the second quarter of 2023. The higher net income reflects higher revenues and wider margins.
Adjusted EBITDA for the second quarter of 2024 was $17.2 million, up from $9.1 million in last year's second quarter. The adjusted EBITDA margin was 10.4% in Q2, up from 7.3% in the second quarter of 2023. This was the third consecutive quarter of double-digit adjusted EBITDA margins.
As you've seen in our earnings release, beginning with the second quarter, we are now presenting both GAAP gross margin and adjusted gross margin. GAAP gross margin includes depreciation charges and the cost of goods sold, while adjusted gross margin does not factor in depreciation charges. For the purpose of comparing our historically reported numbers, please note that what we have historically referred to as gross margin is now and will henceforth be referred to as adjusted gross margin. We have included a reconciliation table in our earnings release to clarify this and to allow for clean year-over-year comparisons.
Total GAAP gross margin percentage during the second quarter of 2024 was 31.3%, up from 30.3% in the second quarter of 2023. The adjusted gross margin was 33.9% compared to 33.4% in the second quarter of 2023. During 2024 to date, we've seen solid improvements in both overtime rates and subcontractor costs in the mobile health area. During the second quarter of 2024, subcontracted labor accounted for 24% of total labor costs as compared to 21% in the second quarter of 2023.
The year-over-year increase was driven primarily by the migrant related projects, which tend to feature more subcontracted labor than to our core mobile health projects. However, subcontracted labor has declined sequentially since peaking in the fourth quarter of last year at over 30% of total labor costs, and we expect this decline to continue over the remainder of 2024.
Overtime accounted for 6.7% of total hours worked in the second quarter of 2024 compared to 9% in the second quarter of 2023. Overtime hours have declined as a percentage of total hours in each of the last 4 quarters. While there is still some room for further improvement, we're getting very close to our target of 5% of total hours worked.
During the second quarter of 2024, adjusted gross margin from the mobile health segment was 35.9% compared to 34.9% in the second quarter of 2023. Adjusted gross margins for the mobile health segment have now improved for 3 consecutive quarters since the third quarter of 2023, which had been impacted by significant project launch and ramp-up related costs relating to the migrant programs.
In the transportation segment, adjusted gross margins were 29.1% in Q2, down from 30.7% in Q2 of 2023. Transportation margins in Q2 were impacted by increased subcontractor costs in one of our markets as we were not able to hire quickly enough to align with the timing of an increase in volumes from certain customers. Looking ahead, however, we expect the transportation gross margins will improve in the current level in Q3 and beyond despite some anticipated wage pressures in certain geographies as the market for EMTs remains tight, and they should be back above 30% as they have been for the past 4 quarters prior to Q2.
Looking at operating costs. SG&A as a percentage of total revenues was 27.7% in the second quarter of 2024, much lower than the 32.1% seen in the second quarter of 2023. We executed a targeted reduction in force during Q1, which resulted in some cost savings that were realized in Q2.
We took a big step forward in the second quarter toward our goal of fortifying our balance sheet. As of June 30, 2024, our total cash and cash equivalents, including restricted cash, was $85.8 million as compared to $58.9 million as of the end of the first quarter of 2024 and also higher than the $72.2 million we had on our balance sheet as of the end of 2023. The increase in cash was driven by strong collections during the second quarter, which also resulted in a decline in our accounts receivable compared to both those at the end of the first quarter and the levels at the end of 2023.
Specifically, looking at our project with New York City's Department of Housing Preservation and Development, HPD, as of today, we have collected more than 99% of the year-end 2023 accounts receivable for this project, and we've received assurances from our partners of the city that we will be paid for the services provided under the terms of the contract.
At quarter end, we had approximately $185 million in our accounts receivable from the various migrant programs, which represented about 72% of our total company AR. That compares to $210 million in accounts receivable from these various migrant programs as of the end of Q1, which represented about 75% of total AR. Our days sales outstanding, or DSO, which we calculate based on trailing 12-month revenues, came out to 127 days at the end of Q2, which was down from 147 days at the end of Q1, but still higher than the 96 days sales outstanding at this point last year, which was, of course, before the migrant-related programs ramped up.
As these migrant-related programs continue to wind down over the second half of 2024, our balance sheet is expected to benefit substantially as we collect this AR and bring our DSO more closely in line with their historical levels, leading to an improvement in cash flow from operations.
And in addition to working capital uses during Q2, we used our cash balances to execute our stock buyback program. During the quarter, we repurchased about 1.4 million shares for an aggregate amount of approximately $4.9 million. We spent approximately $10 million so far on our repurchases this year, and we recently authorized a new repurchase program through the end of the year of up to $26 million, which was the approximate amount remaining under the prior authorization that had expired on July 30, 2024.
As we mentioned on last quarter's earnings call, we expect sequentially lower migrant-related revenue over the remainder of the year due to the ongoing wind down of certain migrant projects. However, we expect the collection of receivables mentioned above to lead to a continued improvement in our working capital. As we collect older, larger invoices and as our cash outflows decrease in line with the lower migrant project expenditures, we expect to see a continued increase in our cash balance over time, although specific timing of these large cash inflows remains unpredictable.
While it's difficult to predict our cash inflows and cash balances on a month-to-month or even on a quarter-to-quarter basis, we do now expect to generate cash flow from operations of $80 million to $90 million in 2024, which represents a $10 million increase in the range that we gave last quarter. Given that we have generated $26 million in cash flow from operations in the first half of 2024, we're looking at an additional $54 million to $64 million of cash flow from operations in the back half of the year, which will be driven in large part by collections of our large municipal invoices.
At this point, I'd like to turn the call back to the operator for our Q&A session. Operator, please go ahead.
[Operator Instructions]. We'll take our first question from Sarah James of Cantor Fitzgerald.
This is Gabie Ingoglia on for Sarah. I had a quick question. If you could expand on what's driving -- I think the term you used was a flurry of recent contract wins. And if what you've seen behind that has to do with the end market or more so internal company strategies.
It's actually both. So first off, we are seeing more and more adoption from the marketplace for in-home care, for driving care to where patients need it for addressing patients who don't have access to good care or drifters. And so we've seen strong interest from hospital systems, from insurance partners of ours to bring care to those members, to those patients. So we're absolutely seeing that.
At the same time, we're also seeing the ROI of our programs, of our pilots that we run with our insurance partners where we have been successful in reducing hospital readmissions, ER readmissions. And as we shared with one of our longest-standing partners, we were able to reduce those hospital readmissions by 50%, which is very significant, right? So if we're able to keep patients out of the hospital, that saves the health plan's money, that saves the hospital system's money because they get penalized for quality and for other metrics when patients are bouncing back to the hospitals after they discharge them. And of course, most importantly, patients don't want to be in the hospital, they want to be happy at home.
And so we've really seen the strong market adoption, but also our programs are working. We're expanding our programs. We're adding more and more clinical offerings to those programs. We're adding more geographies. And that's helping us sign additional contracts.
We'll take our next question from Mike Latimore of Northland Capital Markets.
I guess, did the -- does your core business grow 30% plus in the quarter year-over-year?
So the core business didn't grow 30% quarter-over-quarter. The core business was relatively flat quarter-over-quarter. We do anticipate very strongly the core business to grow as the year progresses in the back half of the year as all those new contracts and new programs start to come into full bloom and start to expand. And so the core business maintained relatively stable quarter-over-quarter. And we have programs ramping in the core business in -- now and in the back half of the year.
And when you say quarter-over-quarter, are you meaning sequentially or year-over-year?
Sequentially from Q1 to Q2.
Okay. So I think the goal is to grow the business 30% year-over-year next year. And I think you talked about mobile transport growing 15% year-over-year. So you're expecting mobile transport to accelerate 30% plus next year?
The mobile transport we expect to grow in that 15% to 20% range, specifically on transport. Right now, as we shared, so far transport for the year, year-to-date for 2024, has grown 13%. So in line and we have a number of expansions happening in the back half of the year on the transport side. And then, of course, those will continue to expand into next year as we win more and more business on the transport side, which we recently announced. Actually we won multiple new transport wins in Dover, Delaware, in New Jersey and other geographies for us. So we expect that medical transportation to continue to grow in that 15%, perhaps even up to 20% range into next year.
On the mobile health business, that's where we're seeing even larger growth, particularly as we're focusing our efforts and expanding our initial customers in the insurance and provider space as well as in the hospital systems space for the transitional care, social determinants of health and other in-home care gap closure metrics. Next year as well, we do anticipate significant growth in our primary care offering and our remote patient monitoring offering as well. So all of those contracts that we're signing, we have signed. We're expanding right now and into the back half of this year. We'll obviously catalyze the growth into 2025 as well.
And it does seem like, obviously, your business will diversify quite a bit. Any sense of how many customers may be sort of 10% plus customers next year though?
Right now, I think that would be -- we had to project out probably less than 5 customers would be more than 10% of total revenue, probably in that range. But we do -- and as you're saying, that is a big focus of ours. We want to diversify our customer base. We want to bring on more and more customers that have the opportunity to grow into very significant customers. And as they're growing significant customers, no 1 or 2 customers represent significant customer concentration for us. That is absolutely part of our strategy.
We'll take our next question from David Larsen of BTIG.
Can you please talk a little bit more about fiscal '25 revenue expectations, the -- I guess, the $400 million? It sounds to me like what you said was it could actually come in higher than $400 million if there's some New York City migrant revenue in there? And then I guess, within the mobile health portion of that $400 million, I think we talked about that being maybe $175 million with $50 million of that coming from payers. Can you maybe just talk a little bit more about that payer component, like what will that $50 -- how does that compare to like what you would expect for fiscal '24? And what are the different pieces of it?
Absolutely, Dave. Great to hear from you. So as you mentioned, for 2025, we expect the base business to be $400 million. And we don't expect some of the wraparound migrant revenues to continue into next year, things like the security and some of the wraparound services that we are providing as an emergency basis. What we do think will extend possibly into next year on the migrant side, which would be additionally -- additional revenue, is particularly the clinical services, and the population health services, and the infectious disease control, and the screening and the behavioral healthcare, and the depression screening, and all those medical expertise that could potentially continue on into next year.
And that's really what we're planning for. But the $400 million in the base business is really comprised of the revenues we expect in the hospital systems in the both hospital systems, both transitions of care and medical transportation for the hospital systems, municipal programs, populational programs, with municipalities and with our payer vertical.
As you mentioned, the payer vertical, we're projecting to be $50 million of that revenue in next year. That's going to come from 3 revenue streams. The first revenue stream is going to be the care gap closures that we're conducting in the home. For every care gap closed, we collect a rate that's negotiated with the payers. And so we're ramping that up considerably. We shared -- we doubled the number of patients at the top of the funnel quarter-over-quarter. So from Q1 to Q2 of this year, we've doubled the number of patients that our health plan partners have assigned to us.
So that is a really good harbinger for the opportunity that we have in front of us as we go throughout this year and into next. And we have a number of opportunities also in the pipeline that are going to come to fruition in the back half of this year and into next year. So one of those revenue streams with the payers is going to be the care gap closures.
We also have the opportunity with those patients that are being assigned to us to become their primary care provider and create a capitated rate for us as part of their primary care provider for the patients. And so that will be the second revenue stream. And then the third with the payer vertical will be the patients that we monitor. And we shared last quarter that we have 50,000 patients that we're currently monitoring and we expect that to grow to 70,000 patients next year. And all of those 3 revenue streams will be comprised in that $50 million that we're projecting for next year.
It sounds to me like you're delivering to America kind of exactly what this country needs. All of the health plans this quarter seem to be talking a lot about higher medical cost ratios, higher Medicare Advantage utilization, a higher Medicaid utilization, pressure on their Medicare cost ratios. How does that impact DocGo if at all? Is that a good thing or a bad thing and why?
So we think it's -- we think we fit nicely into that environment because ultimately what our goal is, is we are trying to provide more proactive care. So we're going into the home and doing a colon cancer screening or a bone density scan or a depression screen. We're doing social determinants of health work. And so we're going into the home and we're going to serve those members, all with the goal of catching chronic conditions or helping manage chronic conditions before they become more acute, catastrophic and more costly.
So that really is our value prop and that fits in nicely in the environment that you're describing, which is rising costs and all that being driven perhaps from patients that we're not getting the care they needed perhaps during the pandemic, perhaps they didn't have good access to care, and obviously the plans are seeing that. So we fit very nicely into that. That's what our value prop is.
We think the investment they're making with us actually saves them money and obviously improves patient outcomes, which again is what the whole system wants. So we feel like we're really of the moment, of the time. We feel like we have the right solution for the right need in the marketplace today and we feel like we're able to save the health plan's money. We're able to save patients heartache and help manage their care.
And then as you go through the continuum that really we're looking to participate in, right -- we go from care gap, which again is meant to be proactive care, to us becoming a primary care provider for those patients -- now we're increasing the care that's available to those drifter patients, those unattached patients, those patients that don't have good primary care. Primary care is a very good indicator of whether or not a patient is getting the care they need, the proactive care they need and the longitudinal care that they need. And so we play again very well into that model.
And then eventually, the contracts we're signing do have the ability for us to participate in the value arrangements that you're describing, those Medicare Advantage arrangements that you're describing. Once we feel comfortable with that and once we feel like we truly are able to impact that patient's total cost of care and health outcomes, which again is where our Medical Advisory Board comes, we're going to be publishing research to that effect.
So we have long-term plans in this space. We have very good early indicators of the value proposition, the impact we're having on patients. And we really feel like in a world where perhaps the pendulum swung to virtual-only digital, we think that has a role to play, but we feel very strongly that we add the in-person component. And so as more and more AI tools come to market, as more and more digital offerings come to market, we can be the partner that helps bring those directly to patients in their home. And so we can be that last-mile that helps mobilize and commercialize the technology that we're building and then also technology that we can partner on with other partners in the space.
So all to say, we're really excited about our plans. We really like where we fit in the healthcare ecosystem, and we really feel like we have a lot to bring to the space, both for our payer partners, our hospital systems and municipalities, but actually, even more importantly for the patients because as the patients are healthier and healthier and getting the product of care they need, ultimately they cost the system less money, which again is what everything is aligned to do today.
[Operator Instructions]. We'll move next to Pito Chickering of Deutsche Bank.
One more bridge question for you on 2025 margins. I think previously, I think you talked about transport in that 33% range and base mobile health in the high 30s, SG&A in the 23% range. So these are blended all together. So you should be thinking about 10% margins for next year on the $400 million of revenue?
Hey, it's Norm. Yes, that's exactly how we're laying it out. Nothing has changed for us in the last 3 months or so in terms of how that common size analysis works. We would think about 10% would be our target for the EBITDA margin. Obviously, we would go up from there. So we'd like to see -- we ideally like to model it out at 12%, 12.5% or higher. But we sort of put the floor in there at about 10%.
So this is a commentary from last quarter where you sort of talked about 12.5%. Did anything change from last quarter to this quarter?
No.
Or is this the base of 10 and target of 12.5?
Exactly. It's exactly the same.
Second question, would you expect the cash flow conversions to be on that $40 million of EBITDA next year ignoring the catch-up of the DSOs and migrant programs?
Sure. And it's kind of hard to ignore the catch-up on DSOs. It is such a big factor in 2024. But the thinking is that most of that will be done by the end of this year, although I will say I do think there's going to be some catch-up in the first quarter of next year as we get our DSOs more in line. But let's put that aside. So on that $40 million of EBITDA, I would say we typically would be able to pull out maybe $30 million in cash flow, right? You've got -- you're paying some tax, you have some other -- maybe some interest expense in there as well. So I would say that it should convert pretty well.
Okay. And then last question. Look, have you lost any mobile health customers this year? And as you look at the customer base from 2021 in 2022, what percent of those have increased in scope with you?
Absolutely. So we actually announced we did launch some -- we launched multiple new payers this year. We also shared that we won multiple new contracts. We just won a contract with the state of New Mexico. We're providing mobile vaccination clinics, nursing at virtual call centers and other behavioral healthcare work for the Mexico -- New Mexico Behavioral Health Institute. So we're launching that. We also announced that we won a partnership with one of the largest outpatient physician radiology groups in Arizona that has the opportunity also to expand to Texas and other states in the coming weeks. So we won those new contracts. Those are mobilizing and launching as we speak.
In addition, those -- in addition to those municipal contracts, we've also won multiple payer contracts that are expanding. Almost every single one of our payer contracts that were mobilized right now has expanded over the course of this year. And a huge portion -- a large portion of our hospital system contracts are also expanding with us as well through the year. So we continue to expand the customers we have. I think you see us also signing new customers and placing a lot of focus there as we are freeing up resources from the migrant-related projects that obviously consumed a lot of resources over the course of the last year. And now those resources are freeing up to launch with newly-signed contracts, and that's exactly what we're doing.
We'll take our next question from David Grossman of Stifel.
So just 2 quick questions to start off for you, Norm. Sorry, I'm traveling in the airport. So sorry if this is disclosed in the filing. But it looks like the transport margins were relatively low at EBITDA line, maybe even breakeven-ish. Am I seeing that correctly? And if so, other than subcontractor costs, you mentioned anything else going on in the margins?
Sure. Yes, let's talk about that. And it really was all contained within the margin piece, but that was a pretty big delta. The margins, as we mentioned for the quarter, were 29.1% for transport, which is about 4 points or 5 points lower than what we've seen lately. So there are a couple of factors. And with the subcontractors in that one particular market that we mentioned, that will remain a factor but a much, much smaller factor in Q3 and then towards the back end of Q3 that will disappear as a factor.
The other thing was we had a -- we had an adjustment of workers' comp premiums going back to 2021, which dates back to when we were on the New York State Insurance Fund here in New York. We're now self-insured. And for one reason or the other, they didn't complete their work on our 2021 planned year until in the last few weeks here. The overall adjustment in premium from that period 3 years ago was about $2 million. If I look at how it breaks down and some of it is mobile health and some of it is transport, but that cost transport probably 2 points of margin.
So if I take those 2 factors, the non-recurring, old insurance adjustment, and then I add to that the subcontractors, I would say that cost us somewhere between 4 points and 4.5 points of gross margin. So between the 2, you're talking about 4 points -- you're talking about well over $1 million impact on the business because of that.
Got it. And then just quickly on the free cash flow. So I was just going through the mental math on kind of the disclosures with the share repurchase and you probably had some other things in there. But did the core business generate cash flow excluding working capital in the quarter?
Yes, it did. Yes. And we published the -- we published a cash flow statement here. So you'll -- yes, you would have seen a positive number from what we call the P&L cash flow as well. But obviously, we were aided in the period from the other stuff that comes in from the business itself.
And then just lastly for you, Lee. You talked about doubling the assigned lives sequentially. Can you just give us a sense of how we can think about how that converts to revenue over the next several months and how to interpret that statistics from a P&L standpoint?
So that doubling of the lives being assigned to us, that's the top of the funnel. That's the metric that we're very focused on to start. And what will happen is those assigned lives to us will move towards -- move through the funnel. We'll go and visit those patients in their home, we'll close their care gaps, in some cases, we'll close multiple care gaps. And that will start generating revenue there for those care gaps closed. And all the while, we also are going to continue to add to the top of the funnel. But as those patients move through the funnel, we'll close those care gaps.
A portion of those lists will result in visits from us. A portion of those patients will remain unengaged, no matter how much or how convenient our services are. But we've been very successful so far engaging unengaged, unattached patients. And so a percentage of the list, it's too early right now for us to publish and post what the conversion rate is on the top of the funnel into care gap closure. But right now, our partners are very happy with what we've been able to achieve on the conversion rate. But the revenue will be generated and is being generated off of the care gaps that are closed, and that will happen -- it is happening now, it will happen more in Q3, it will happen more in Q4, is our plan.
And then once we are able to close those care gaps, then we're able to convert some of those patients -- again, another percentage of those patients into primary care patients for our PCP practice. And then we'll be able to build fee-for-service and then eventually a capitated rate for those patients. That will happen later on in the year and more so into 2025. But the initial metric after the top of the funnel is the number of patients we're able to close care gaps for. And then again, later on in the year and into next year, they'll convert over into PCP patients for, again, another revenue stream. We won't risk share or value-based arrangements with these partners, even though they are included, the ability to do so is included in the contract. That won't happen until next year. And that's sort of the further down the funnel.
And Dave, just circling back to your prior question, just to put a real number on it, and we provided the cash flow statement, obviously, for the 6 months, but we also broke out the 3 months of the Q2 number. We generated about $37 million in operating cash flow in Q2. I would say about 1/3 of that came from the business itself, in other words the net income in adding back all the non-cash expenses. And then the changes in the working capital categories were about 2/3 of that. So that $24 million of that versus $12 million, which combines to $36 million, $37 million for the quarter.
We'll take our next question from Ryan MacDonald of Needham.
Hey, this is Matt Shea on for Ryan. I wanted to double-click on care gap closure. So nice to see that doubling, but curious how much of that was driven by new payer relationships versus expansions with existings? And as you look to the back half of the year as payers are stressed about star ratings and medical costs, is there an opportunity that your existing payers give you incremental list of patients to target beyond those initial lists? And if so, is that contemplated in the current guidance?
Yes and yes. So to answer your first question, Matt -- great to hear from you, the -- on the care gap closure side, the doubling from Q1 to Q2, it came from both. It came from expansion with our -- with the partners we already had, but we did sign a new partner and the list they provided alone represented a doubling with that new very large partner that we've been working on, and we signed and now are mobilizing with right now as we speak. So we did get additional expansion from our current customers, and we did get essentially a doubling from a new very large payer that we brought on.
And then on the back half of the year, we do see momentum in the back half of the year as plans are trying to close out care gaps, as they're looking for their partners to increase velocity, as they're trying to get to as many patients as they can before the year-end. We do see that momentum. We do see that catalyze the business in the back half of the year. And so we are planning for that. We're increasing capacity for that right now in all the markets we serve. And we do think that will be a tailwind in the back half of the year, absolutely.
And then I think last quarter and now this quarter too, it sounds like health system partners are adding mobile health on to transport contracts or at least adding more mobile health programs. Curious how much white space there is for you to go after with mobile health for health systems? Any way to think about penetration rate or opportunity there? And are you replacing existing vendors? Or are these more greenfield opportunities?
So we're just scratching the surface right now in our mobile health with our hospital systems. We're in a great place because we already have been working deeply with hospital systems for years on medical transportation. We've become a trusted partner. We have close relationships. And so we're leveraging those relationships for other parts of the hospital to do patient monitoring for the hospital systems on the cardiac side and then also to do transitions of care.
On the cardiac monitoring side, it's typically displacing current service providers. They're already used. Cardiac monitoring has been in place. We have a very unique value proposition that our adherence is usually in the 90% range. We've shown that we can have patient adherence rates of 90% when the competitive set is typically in the 60% range. So we've been able to sell through that and we've been leveraging the hospital system customers and relationships that we have to introduce our cardiac monitoring offering. And we're going to invest a lot more there throughout the year and into next year, and we've been doing that.
And then on the transition to the care space, I think there are existing providers that serve that space today. And so we are competing with some of those providers. But at the same time, it's still a pretty white space. I think hospital systems are starting to realize that there are mobile health programs they can utilize for lower acuity care in the home post discharge to try and ameliorate patient readmission. And there are a lot of services and prevention that can be done in the home post discharge, where you don't have to have the patient come back to the hospital system or perhaps go unvisited and they do end up bouncing back.
And so that's the value prop. I think there is white space there. There is competition that's in the space. And I think we are placing more and more resources to that to be able to try and fill up much of that white space here as it's becoming more and more of momentum with the hospital systems.
We'll take a question from Richard Close of Canaccord Genuity.
John Pinney on for Richard Close. So just a quick question here. Are you still expecting for the base business $280 million to $300 million? Is that still on the high end, roughly $105 million mobile health and $195 million transportation?
Yes, that's still the projection for this year, $280 million to $300 million in the base business for this year.
And your breakdown is pretty close now.
Okay. And then I guess, last quarter you discussed like targets of like 10 -- 2025 targets of 10,000 PCP patients, 65,000 care gap closure, 70,000 remote patient monitoring. Can you, like, give any commentary of, like, where you expect to be tracking to in 2024 with those metrics?
So absolutely, John. So those metrics that you're sharing, we shared last quarter that we are projecting to do 65,000 care gaps closed, 10,000 PCP patients, as I mentioned, working through the funnel from care gap to PCP, and then 70,000 patients monitored. We shared last quarter, we're at 50,000 patients monitored to date. We shared that last quarter and we'll continue to share that number periodically as we're making more and more progress to that probably as we end 2024 into 2025.
But we're tracking to those metrics for next year. We are putting the partnerships in place. Either we sign them and are launching them now or we have many of those partnerships in the pipeline to be signed and launched at the end of this year into next. And so when we look at the bottoms-up projection of those numbers, we have either the customers today to scale with, and we're going to be adding new customers to help us reach those numbers next year.
And I guess one last question here. You mentioned like the Medical Advisory Board is helping with -- part of the value-add there is getting clinical studies up and going. Has that been something that has potentially been a hindrance for additional payer partnerships? And do you have any like studies that you can comment on, on the call and what would potentially help going forward?
Absolutely. So we're very excited about the Medical Advisory Board. You can check out who's on that Medical Advisory Board on our website. We're very, very proud of the physicians we're adding in. And really, the guiding light on the Medical Advisory Board is as we're getting more and more into primary care and specialty care, right? We have programs in cardiology, nephrology, endocrinology. We want to make sure that we have world-class leading physicians that are developing the clinical programs in those specialties to go along with the primary care that we're providing because many of the patients that we're going to have in our primary care practice have one or more chronic conditions relating to heart health and stage renal disease, diabetes and so on. And so we have those physicians now as part of our company really guiding the clinical programs that we're going to be providing and delivering for our primary care patients. So we're very excited about the Medical Advisory Board.
One of the main goals in addition to helping us develop those clinical offerings is going to be to publish medical research in leading medical journals on the efficacy and the outcomes, the clinical outcomes, of those mobile health programs that we're delivering to really show the impact that we're having, but in general, what increasing access via mobile healthcare can do in general for the broader industry and we are leading the charge there. And so we are going to be targeting publishing research and leading medical journals as well as publishing white papers as well.
And it hasn't been a hindrance, but I strongly believe that with that clinical research, with those medical outcomes, we can really utilize that to supercharge our pipeline and our sales efforts because that will really show the efficacy of the mobile health programs. We do use it today. We do share, as I did, the programs that we're running today is having a material impact on ED readmission avoidance and closing care gaps and increasing HEDIS Stars measures for the health plans. And so we do utilize those metrics in data-driven sales and data-driven business development today.
We just think it's going to take it to the next level when it is published in clinical research and is a very structured clinical study. And so we use -- it's not a hindrance today. We use data to sell today and to show the efficacy of our programs. I think there's an opportunity for us to take that to the next level in a very structured clinical format, and I'm really excited for the Medical Advisory Board to undertake that. We actually had our first meeting with the Medical Advisory Board in person just last week, and it's very exciting to see the people that we have now as part of our company. It's probably the leading Medical Advisory Board that you'll find for a company like ours in this space.
And this concludes our question-and-answer session for today. I'd be happy to return the call to Lee for closing comments.
Thank you so much. I want to thank everybody for joining us, and I hope to speak to you soon. Be well.
This does conclude the DocGo Second Quarter 2024 Earnings Conference Call. You may now disconnect your lines, and everyone, have a great day.