DocGo Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. DocGo provides ambulance and medical transportation and mobile health services in the U.S. and U.K.
Financial performance and liquidity
- Revenue: $113.0 million, down 4.1% from $117.9 million. Transportation Services revenue rose 44% to $40.1 million; Mobile Health revenue fell 19.1% to $72.9 million.
- Profitability: Cost of revenue was $81.2 million, or 71.9% of revenue versus 66.2% a year earlier. Operating loss was $6.9 million, compared with operating income of $10.1 million. Net loss was $3.9 million versus net income of $9.4 million; loss attributable to DocGo shareholders was $3.5 million, or $0.03 per share.
- Cash flow: Operating activities used $23.1 million, versus $18.3 million provided in Q1 2022. Investing activities used $1.7 million and financing activities used $12.0 million. Cash and restricted cash decreased $36.6 million to $127.5 million.
- Liquidity: Cash and cash equivalents were $120.1 million; working capital was $149.4 million. Accounts receivable increased to $131.6 million from $103.0 million at year-end 2022.
- Debt and leases: Notes payable totaled $1.9 million. Finance lease liabilities were $8.8 million and operating lease liabilities $9.7 million. The $90 million revolving facility, which may be increased by up to $50 million subject to lender approval, had no borrowings outstanding. It matures November 2027 and is secured by substantially all company personal and intangible assets.
- Other balance-sheet metrics: Total assets were $407.5 million and total liabilities $123.6 million. Goodwill was $47.7 million and net intangibles $38.9 million.
Material changes versus Q1 2022
- Mobile Health’s decline reflected lower COVID-19 testing: management estimated mass-testing revenue at approximately $1.0 million versus $38.0 million. The company says COVID-19 testing is now an insignificant share of revenue.
- Transportation growth reflected trip volume increasing 21%, to 58,176, and average trip price rising to $415 from $353. Management cited customer and market expansion, acquisitions, higher-acuity transports, and an 8.7% increase in the average Medicare ambulance reimbursement rate.
- Consolidated operating expenses rose 30% to $38.7 million, including higher corporate compensation and stock-based compensation, depreciation and amortization, and legal, professional, insurance and technology costs. Stock-based compensation expense was $8.5 million versus $1.4 million.
- Accounts receivable growth contributed to the operating cash outflow: the cash-flow statement reports a $24.7 million increase in receivables. Management attributed higher receivables partly to business growth and customers with longer payment terms.
- Beginning in Q1 2023, DocGo reported a separate Corporate segment for shared costs and recast prior-year segment results for comparison.
Outlook, commentary and risks
- Management expects cash balances, operating cash flows and the available credit facility to be sufficient for operating requirements for at least the next 12 months. It also expects cost of revenue and operating costs as a percentage of revenue to decline from Q1 levels during the remainder of 2023, citing margin initiatives and lower compensation costs relative to revenue; these are forward-looking expectations, not guarantees.
- The company expects demand for Mobile Health to benefit from broader service offerings and longer-term demand for care outside traditional settings, and expects transportation volumes to benefit from market growth. It anticipates COVID-19 testing will remain an insignificant revenue contributor.
- Risks include inflation and wage, fuel and supply costs that may compress margins; labor availability; operating-license approvals; reimbursement and customer payment timing; acquisition execution and contingent consideration; regulatory requirements; and uncertain future pandemic effects.
- Customer concentration is significant: one customer represented approximately 46% of Q1 sales and 62% of net accounts receivable. One vendor represented approximately 18% of total cost.
- On March 31, DocGo acquired 51% of Cardiac RMS for $10.0 million in closing consideration, including $1.0 million in stock. The filing records a further probable $15.8 million consideration for the remaining 49%, payable over 36 months based on EBITDA targets. Acquisition accounting is preliminary.
- Ambulnz Health commenced an assignment for the benefit of creditors on February 3, 2023; its operations had ceased and assets were transferred to an assignee for liquidation. The filing reports a $1.0 million liability for an agreed settlement of California class and PAGA claims, with final court approval then scheduled for April 28, 2023.
- In April 2023, DocGo acquired the remaining noncontrolling interest in FMC NA for $7.0 million, funded with $3.0 million of stock and $4.0 million cash. Management reported disclosure controls were effective and no material changes to internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the large customer concentration and slower receivables collection affect cash conversion and liquidity.
- Whether margin-improvement expectations materialize, given Q1’s lower consolidated gross margin and operating loss.
- The final purchase accounting, performance outcomes and cash or equity obligations associated with Cardiac RMS and other acquisition earn-outs.
- The status and financial effects of the Ambulnz Health liquidation and California settlement.
- Whether operating cash flow improves from the Q1 outflow and whether the company remains within the revolving facility’s financial covenants.