DocGo Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. DocGo provides mobile healthcare and patient transportation services in the United States and United Kingdom.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $125.5 million | $109.5 million | $238.5 million | $227.4 million |
| Gross profit / margin | $41.9 million / 33.4% | $39.3 million / 35.9% | $73.6 million / 30.9% | $79.2 million / 34.8% |
| Operating income (loss) | $1.6 million | $7.5 million | $(5.3) million | $17.6 million |
| Net income (loss) | $1.3 million | $11.8 million | $(2.6) million | $21.1 million |
| Net income (loss) attributable to DocGo stockholders | $(2.0) million | $12.7 million | $(5.5) million | $23.4 million |
| Basic EPS attributable to DocGo stockholders | $(0.02) | $0.13 | $(0.05) | $0.23 |
Q2 revenue grew 15%, while cost of revenue rose 19%; gross margin fell to 33.4% from 35.9%. For the first half, revenue increased 4.9%, but cost of revenue rose 11.2%, and gross margin declined to 30.9% from 34.8%. Higher compensation, subcontracted labor, and operating expenses contributed to weaker operating results. Q2 consolidated net income differs from the loss attributable to DocGo stockholders because of income attributable to noncontrolling interests.
Segments and material changes
- Transportation Services: Q2 revenue increased 104.5% to $45.4 million; trips rose 32% to 62,907 and average trip price increased to $390 from $360. First-half revenue grew 71% to $85.5 million, with trips up 26% and average price increasing to $402 from $356. Management cited customer and market expansion, acquisitions, higher-acuity transport mix, and higher Medicare reimbursement.
- Mobile Health: Q2 revenue decreased 8.2% to $80.1 million; first-half revenue declined 14% to $153.0 million. Mass COVID-19 testing revenue fell to about $1 million in Q2 from $28 million, and to about $2 million for the first half from $66 million. Broader services, customer growth, and contract extensions partly offset the decline.
- Corporate operating expenses were $36.6 million in the first half, up from $28.1 million, including higher headcount and stock-based compensation. Total first-half stock-based compensation was $11.8 million, versus $3.5 million in the cash-flow reconciliation for the prior-year period.
- Acquisitions increased goodwill and intangible assets; contingent consideration was $26.5 million at June 30. The company began reporting a separate Corporate segment in 2023 and recast prior-year segment data.
Cash flow, liquidity, and debt
- Six-month operating cash flow was a use of $12.4 million, versus $30.2 million provided a year earlier. Increased receivables used $15.4 million and reduced accounts payable used $14.9 million.
- Investing activities used $25.4 million, including $20.2 million for business acquisitions. Financing activities used $3.2 million. Cash and restricted cash declined $40.3 million to $123.8 million; cash and cash equivalents were $109.2 million.
- At June 30, current assets were $234.4 million and current liabilities $91.8 million; reported working capital was $142.6 million. Accounts receivable, net, was $118.5 million.
- The $90 million revolving credit facility (with a possible, lender-dependent increase of up to $50 million) had no borrowings outstanding. Notes payable totaled $2.3 million. Finance lease liabilities were $8.6 million and operating lease liabilities $9.6 million.
- Management stated that cash, expected operating cash flows, and available credit should be sufficient for operating requirements for at least the next 12 months.
Outlook, risks, and unusual items
- Management expects operating expenses as a percentage of revenue to decline from first-half 2023 levels during the remainder of 2023. No specific revenue or earnings guidance was provided.
- Management said inflation has raised wage, fuel, and supply costs and compressed gross margins; it expects inflation to moderate but remain above historical levels. The company may be unable to pass higher costs to customers quickly.
- Customer concentration increased: one customer represented about 36% of Q2 sales and 36% of period-end net receivables; for the first half, one customer represented about 41% of sales and 36% of net receivables.
- The company recorded a $1.0 million charge for a California class/PAGA settlement, which was paid in July 2023. It also reported the 2022 liquidation of Ambulnz Health through an assignment for the benefit of creditors; related assets and liabilities classified as held for sale at year-end were removed by June 2023.
- Management identified risks including licensing and regulatory requirements, labor availability and costs, acquisition execution, customer payment timing, and economic conditions. It reported no material changes to the risk factors in its 2022 Form 10-K and stated disclosure controls were effective.
Investor verification points
- Track whether transportation growth and expanded Mobile Health services can offset the ongoing decline in COVID-19 testing and restore margins.
- Monitor receivables, collections, and operating cash flow, particularly given municipal payment cycles and significant customer concentration.
- Review acquisition performance and the assumptions behind contingent consideration, acquired goodwill, and intangible assets.
- Confirm progress against management’s expectation for lower operating expenses as a share of revenue and assess the effect of labor, insurance, and inflation costs.
- Assess remaining liquidity and facility covenant headroom alongside acquisition commitments, seller payments, and lease obligations.