DocGo Inc, a last-mile health services company, continues to prove it can successfully replace its COVID testing revenue after it posted 4Q results that beat expectations, according to analysts at Canaccord Genuity (TSX:CF, LSE:CF).
In a note to clients, the analysts highlighted that DocGo’s results beat both their and the consensus estimates for the quarter.
Minus the contributions of COVID testing, which were about $50 million in 4Q21 and $1 million in 4Q22, the implied revenue growth was about 51%, they noted.
“The pipeline appears to continue to be robust, with management noting the company is currently in active bidding for 34 request for proposals (RFPs) with a collective contract value of over $1 billion, implying an average RFP valued at about $30 million, much greater than in the past where average RFP value was closer to $10 million per contract,” they wrote.
“Management also reiterated its plan to require leased hour contracts in Medical Transportation and Mobile Health in any new contracts and in renewal negotiations. Encouragingly, management noted there has not been significant pushback to the leased hour model with counties and municipalities amenable to the transition.”
The analysts pointed out that DocGo’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) miss was attributed in large part to incremental startup costs from large volumes of new business, estimated by management to be about $29 million over steady-state costs in 2022 and an approximate 600 basis point drag on gross margins.
“The announced rapid normalization initiative to speed time to onboarding new contracts is encouraging as the company works to minimize the impact of subcontracted agency labor and overtime as well as improve its edge on labor costs,” they wrote.
As such, the analysts reiterated their ‘Buy’ rating for the company and price target of US$13. DocGo shares are currently trading at US$8.31.
“Overall, we are pleased with the company's execution in growing revenue and positive pipeline development with larger RFPs,” the analysts wrote.
“The elevated startup cost impacts are somewhat expected given the rapid growth, and we fully expect margin improvement through announced cost initiatives and as the contracts mature.”
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