DocGo Inc. (Nasdaq: DCGO) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. DocGo provides mobile healthcare and emergency and non-emergency medical transportation in the U.S. and U.K.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $186.6 million | $104.3 million | $425.0 million | $331.7 million |
| Gross margin | 29.5% | 31.7% | 30.3% | 33.9% |
| Operating income | $8.7 million | $4.2 million | $3.4 million | $21.8 million |
| Consolidated net income | $4.6 million | $2.5 million | $2.1 million | $23.6 million |
| Net income attributable to DocGo stockholders | $4.8 million | $3.2 million | Loss of $0.7 million | $26.5 million |
| Operating cash flow | Not separately presented | Not separately presented | Use of $58.3 million | Provided $37.6 million |
Q3 revenue rose 78.9% year over year. Mobile Health Services revenue increased 81.8% to $139.3 million; Transportation Services revenue rose 70.6% to $47.2 million. For the nine months, Mobile Health revenue grew 15.1% to $292.4 million and Transportation revenue grew 70.9% to $132.7 million.
Transportation growth reflected higher trip counts and average prices: Q3 trips increased 9.4% to 64,321, while average price rose to $409 from $374. Nine-month trips rose about 20% to 185,404, and average price increased to $405 from $362. Mobile Health growth came primarily from expanded government-sector services, customers, geographic reach, and contract extensions.
Liquidity, cash flow, and debt
- At September 30, cash and cash equivalents were $52.9 million, down from $157.3 million at December 31, 2022. Restricted cash was $14.3 million; cash plus restricted cash totaled $67.3 million.
- Working capital was approximately $154.1 million, versus $170.9 million at year-end 2022. Accounts receivable increased to $207.3 million from $103.0 million.
- Nine-month operating cash use of $58.3 million was driven chiefly by a $103.5 million increase in accounts receivable, partly offset by higher accrued liabilities. Investing activities used $26.9 million; financing activities used $11.9 million.
- At quarter-end, notes payable totaled $2.7 million. Finance lease liabilities were $8.7 million and operating lease liabilities $9.8 million. The $90 million revolving facility had no borrowings at September 30; DocGo drew $25 million on October 19, 2023.
- Management said cash, expected operating cash flows, and remaining revolver availability should be sufficient for operating requirements for at least 12 months.
Material changes and notable items
- Margins weakened year over year: cost of revenue rose to 70.5% of revenue in Q3 from 68.3%, and to 69.7% for the nine months from 66.1%. Management cited higher employee compensation, subcontracted labor, and medical supplies. Transportation margins improved, but Mobile Health costs grew faster than segment revenue.
- Nine-month Mobile Health revenue included an estimated $3 million from mass COVID-19 testing, compared with $74 million in the prior-year period. Growth in other services more than offset this decline.
- Operating expenses increased 38.4% for the nine months, including increased compensation and stock-based compensation, technology, insurance, rent, and amortization. Management expects operating expenses as a percentage of revenue to decline from the first nine months’ levels over the remainder of 2023; no specific full-year revenue or earnings guidance is provided.
- Acquisitions and ownership transactions during 2023 included CRMS, FMC North America, and Healthworx. Contingent consideration and seller payments contributed to liabilities and cash outflows; CRMS includes up to $15.8 million of further consideration tied to EBITDA targets.
- CEO Anthony Capone resigned in September 2023; Lee Bienstock was appointed CEO. A November employment agreement provides for a $785,000 annual base salary, a target bonus of 100% of salary, a $500,000 signing bonus, and targeted equity grants.
- A putative federal securities class action was filed October 27, 2023 against the Company and certain current and former executives. DocGo disputes the allegations; the potential loss cannot yet be reasonably estimated. The Company also paid a previously accrued $1 million California wage-and-hour settlement in July.
Risks and investor verification points
- Receivables and cash conversion: Verify collection trends, aging, and subsequent receipts on the $207.3 million accounts-receivable balance; municipal customers’ longer payment cycles contributed to cash use.
- Customer concentration: Two customers represented approximately 65% of Q3 sales and 64% of net receivables; for the nine months, two customers represented about 54% of sales. Assess renewal, payment, and concentration risk.
- Margin sustainability: Track subcontracted labor, staffing, supplies, and the ability to improve Mobile Health margins; inflation may keep costs elevated, and management says higher costs may not be passed through promptly.
- Liquidity and financing: Confirm the impact and terms of the $25 million post-quarter revolver draw, covenant headroom, and cash requirements for working capital, leases, acquisitions, and contingent payments.
- Legal and governance developments: Follow the securities action and leadership transition, including costs and implications of the new CEO compensation agreement.
- Other exposures: Consider acquisition integration and valuation, self-insurance reserves, regulatory and licensing requirements, and reliance on a major vendor, which accounted for 20% of Q3 cost.