DocGo Inc. (DCGO) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 8, 2022. DocGo provides ambulance and medical transportation and mobile health services in the U.S. and U.K. Its reporting segments are Transportation Services and Mobile Health.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $104.3m | $85.8m | $331.7m | $197.4m |
| Operating income (loss) | $4.2m | $1.5m | $21.8m | $(0.1)m |
| Consolidated net income (loss) | $2.5m | $0.8m | $23.6m | $(1.1)m |
| Net income attributable to DocGo stockholders | $3.2m | $3.5m | $26.5m | $0.2m |
| Diluted EPS | $0.03 | $0.04 | $0.24 | $0.00 |
Q3 revenue grew 22% year over year; nine-month revenue grew 68%. Approximate gross margin was 31.7% in Q3 versus 30.1% a year earlier, and 33.9% for the first nine months versus 30.6%. Operating margin was approximately 4.0% for Q3 and 6.6% year to date. Q3 stockholder-attributable income was below the prior year despite higher consolidated net income, in part reflecting a smaller loss attributable to noncontrolling interests.
- Revenue mix: Q3 Transportation Services revenue was $27.7m, up 55%; Mobile Health was $76.6m, up 13%. Nine-month revenue was $77.7m for Transportation, up 18%, and $254.1m for Mobile Health, up 93%.
- Cash flow: Nine-month operating cash flow was $37.6m, compared with $6.9m. Investing used $37.8m, including $33.8m for acquisitions; financing provided $0.7m. Cash and restricted cash increased by $0.2m to $179.4m.
- Liquidity: September 30 cash and cash equivalents were $169.6m; restricted cash was $9.8m. Working capital was $180.9m. Management said existing cash, expected operating cash flows and available credit should fund operating requirements for at least the next 12 months.
- Debt and leases: The company had $1.0m drawn on its revolving line and $2.1m in notes payable. Finance lease liabilities were $8.9m and operating lease liabilities $8.5m. These lease obligations are in addition to the borrowing balances.
Material changes and notable items
- Transportation growth reflected higher trip volumes and average prices: Q3 trips increased approximately 29% to 58,751 and average trip price rose to $374 from $303. Nine-month trips rose approximately 13% to 154,534; average trip price increased to $362 from $297.
- Mobile Health expanded its customer base, geographic reach and service range. COVID-19 testing revenue declined significantly in Q3, but growth in other Mobile Health services more than offset the decline.
- Q3 total cost of revenue rose 19%, less than the 22% revenue increase. However, Mobile Health cost of revenue as a share of segment revenue increased to 65.2% from 63.9%; Transportation improved to 76.8% from 92.9%. Year-to-date Transportation cost of revenue as a share of revenue worsened to 77.8% from 74.1%.
- DocGo acquired Government Medical Services, Exceptional Medical Transportation and Ryan Brothers in Q3. Preliminary total consideration was $45.5m, including $4.0m contingent consideration and $6.0m due to a seller; purchase accounting remained subject to final adjustments. The acquisitions added $25.8m of goodwill.
- Q3 included a $1.8m loss from warrant-liability remeasurement; all outstanding warrants were redeemed in September, with 1.4m shares issued through cashless exercises. Nine-month results also included a $1.4m gain from finance-lease remeasurement.
- A $1.0m liability was recorded for a proposed wage-and-hour/PAGA class settlement, which received preliminary court approval in September and remained subject to final court approval.
Outlook, risks and contingencies
- No formal revenue or earnings guidance is provided. Management expects operating expenses to remain approximately 25%–30% of revenue in coming quarters and expects COVID-19 testing to comprise a declining share of revenue. Its business plan assumes continued recovery in transportation volumes and increased demand for mobile care.
- Management reported that inflation raised labor, fuel and supply costs and compressed gross margins because cost increases may not be passed promptly to customers. It expected inflation to moderate from early-2022 levels but remain elevated; higher-than-anticipated inflation could hurt margins, operating results and cash flows.
- Other disclosed risks include labor availability and wage pressure, fuel and supply costs, healthcare regulation and operating-license approvals, customer payment timing and working-capital needs, and reliance on major customers. In the first nine months, one customer represented approximately 33% of sales and 35% of net receivables; another represented 11% of sales.
- On November 1, 2022, after quarter-end, DocGo entered a five-year revolving credit facility of up to $90m, with an option to request up to $50m more. It was undrawn when disclosed, is secured by substantially all personal and intangible assets, and includes leverage and interest-coverage covenants.
- On October 12, 2022, DocGo acquired U.K.-based Community Ambulance Service Ltd for approximately £4.8m in cash.
Important facts for investors to verify
- Whether revenue growth and improving consolidated profitability translate into durable segment-level operating performance, particularly given Transportation Services’ reported operating loss of $33.0m for the first nine months of 2022.
- Customer concentration, accounts-receivable collectability and the effect of longer payment terms on working capital; net accounts receivable was $80.0m, and nine-month bad-debt expense was $2.7m.
- Final purchase-price allocations, acquired-business contributions and contingent or deferred payments for the 2022 acquisitions.
- Use and covenant headroom of the new $90m revolving facility, and the full impact of lease obligations and acquisition spending on liquidity.
- Final approval and payment status of the $1.0m proposed settlement, and any material developments in other legal or regulatory matters.