DocGo Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Unless the context requires otherwise, references to “DocGo,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of DocGo Inc. The following discussion and analysis should be read in conjunction with DocGo’s Unaudited Condensed Consolidated Financial Statements and related notes thereto included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause DocGo’s actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein and under the caption, “Cautionary Note Regarding Forward-Looking Statements.” Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in DocGo’s Unaudited Condensed Consolidated Financial Statements or in the associated notes. Certain other amounts that appear in this section may similarly not sum due to rounding. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of our management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Additional information regarding the risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Risk Factors” in Part I, Item 1A. in DocGo’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022 (the “2021 Form 10-K”), and may be updated in this and other subsequent Quarterly Reports on Form 10-Q. Forward-looking statements are not guarantees of future performance and speak only as of the date hereof. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law. Overview DocGo incorporated in 2015, is a healthcare transportation and mobile services company that uses proprietary dispatch and communication technology to provide quality healthcare transportation and mobile, in-person medical treatment directly to patients in the comfort of their homes, workplaces and other non-traditional locations, in major metropolitan cities in the U.S. and the U.K. The Company derives revenue primarily from its two operating segments: Transportation Services and Mobile Health services. ● Transportation Services: The services offered by this segment encompass both emergency response and non-emergency ambulance transport services. Net revenue from Transportation Services is derived from the transportation of patients based on billings to third-party payors and healthcare facilities. ● Mobile Health Services: The services offered by this segment include services performed at home and offices, COVID-19 testing, and event services which include on-site healthcare support at sporting events and concerts. See Note 10, “Business Segment Information” to the Unaudited Condensed Consolidated Financial Statements for additional information regarding DocGo’s segments. For the three months ended September 30, 2022, the Company recorded net income of $2.5 million, compared to net income of $0.8 million in the three months ended September 30, 2021. For the nine months ended September 30, 2022, the Company recorded net income of $23.6 million, compared to a net loss of $1.1 million in the nine months ended September 30, 2021. 36 COVID-19 The spread of COVID-19 and the related shutdowns and restrictions had a mixed impact on our business. In the ambulance transportation business, which comprises primarily of non-emergency medical transport, the Company initially saw a decline in volumes from historical and expected levels, as elective surgeries and other non-emergency surgical procedures were postponed. In addition, the Company experienced lost revenue associated with sporting, concerts and other events, as those events were cancelled or had a significantly restricted (or entirely eliminated) number of permitted attendees. Ambulance transports and event-related revenues have both since recovered to pre-COVID levels or higher. There are two areas where the Company experienced positive business impacts from COVID-19. In April and May 2020, the Company participated in an emergency project with Federal Emergency Management Agency in the New York City area. This engagement resulted in incremental transportation revenue that partially offset some of the lost non-emergency transport revenues. In addition, in response to the need for widespread COVID-19 testing and available EMTs and paramedics, the Company expanded its operations to include Rapid Reliable Testing (“RRT”), with the goal of performing COVID-19 tests at nursing homes, municipal sites, businesses, schools and other venues. RRT is part of the Mobile Health business segment. Mobile Health generated approximately $76.6 and $254.1 million in revenue in the three and nine months ended September 30, 2022, respectively, as compared to $67.9 and $131.7 million in the three and nine months ended September 30, 2021, respectively. During 2020 and the early part of 2021, the Company continued to operate with several back-office employees working remotely. To date, the Company has not witnessed any degradation in productivity from these employees, the large majority of whom have now returned to their respective offices, and our operations have proceeded without major interruption. By early 2021, nearly all remote employees had returned to work in their respective offices and other locations. DocGo also utilized several government programs in 2020 related to the pandemic, receiving approximately $1.0 million in payments through the Public Health and Social Services Emergency Fund authorized under the Coronavirus Aid, Relief and Economic Security Act and related legislation as well as various state and local programs, net of amounts that will be repaid. DocGo also received accelerated Medicare payments of approximately $2.4 million that were repaid in 2022. While it is very difficult to accurately predict the future direction of the effects of COVID-19 or other pandemics, and the related impact on medical transportation levels, the revenue from the Transportation Services segment during 2021 exceeded that of 2020 by approximately 33%. Since the beginning of 2021, trip volumes in most of our markets have returned to more normal historical levels, and this trend has continued throughout 2022. The Company generated, during 2021, COVID-19 testing revenue, included in its Mobile Health services segment, above the levels projected, and this persisted through the second quarter of 2022. However, as expected, COVID-19 testing revenues declined in the third quarter of 2022 and are expected to remain at these lower levels for the foreseeable future. Given the nature of the Company’s contracts with most of its customers, which include multiple procedures for which the Company is paid per hours worked, per vehicles and related equipment utilized and on a per-procedure basis (such procedures including both testing and several other procedures), it is difficult to determine the revenues that are directly attributable to COVID-19 testing. However, the Company estimates that COVID-19 testing revenue will continue to account for a declining proportion of Mobile Health segment and overall consolidated revenues over the remainder of 2022 and into 2023. In a broader, strategic sense, the consumer focus on Mobile Health services and the formation of RRT, and its emergence as a significant contributor to overall revenues, have accelerated the diversification in the Company’s business by more rapid expansion of the Mobile Health segment, which has now become our larger operating segment, both in terms of revenues and personnel. 37 The Company’s current business plan assumes continued recovery of industry-wide transportation volumes to historical levels and beyond, plus an increased demand for mobile health services, a demand that was accelerated by the pandemic, but which is also being driven by longer-term secular factors, such as the increasing desire on the part of patients to receive treatments outside of traditional settings, such as doctor’s offices and hospitals. However, given the unpredictable, unprecedented, and fluid nature of the pandemic and its economic consequences, we are unable to predict the duration and extent to which the pandemic and its related positive and negative impacts will affect our business, financial condition, and results of operations in future periods. Factors Affecting Our Results of Operations Our operating results and financial performance are influenced by a variety of factors, including, among others, obtaining operating licenses, acquisitions, conditions in the healthcare transportation and mobile health services markets and economic conditions, availability of healthcare professionals, changes in the cost of labor, and production schedules of our suppliers. Some of the more important factors are briefly discussed below. Future revenue growth and improvement in operating results will be largely contingent on DocGo’s ability to penetrate new markets and further penetrate existing markets, which is subject to a number of uncertainties, many of which are beyond DocGo’s control. The COVID-19 pandemic has also significantly impacted DocGo’s business, as discussed above. While the direct impact of the pandemic itself is waning, other impacts, such as supply chain disruptions and the cost and availability of labor are expected to persist. Operating Licenses DocGo has historically pursued a strategy of applying for ambulance operating licenses in the states, counties and cities, identified for future new market entry. The approval of a new operating license may take an extended period of time. DocGo reduces this risk through its acquisition strategy by identifying businesses and/or underlying licenses in these new markets that may be for sale. Acquisitions Historically, DocGo has pursued an acquisition strategy to obtain ambulance operating licenses from small operators. Future acquisitions may also include larger companies that may help drive revenue, profitability, cash flow and stockholder value. During the nine months ended September 30, 2022, DocGo completed three acquisitions, for an aggregate payment of $34.1 million, excluding $1.3 million held in escrow. 38 During the 12 months ended December 31, 2021, DocGo completed one acquisition, for a purchase price of $2.3 million. On July 6, 2022, the Company acquired Government Medical Services, LLC (“GMS”) in exchange for $20.3 million in cash. GMS is in the business of providing licensed healthcare clinicians. We believe this acquisition will allow us to increase our presence in that market, while giving us improved access to governmental and municipal contracts. We have completed our preliminary allocation of the purchase consideration to the asset acquired and liabilities assumed as of the end of the third quarter of 2022. On July 13, 2022, the Company acquired Exceptional Medical Transportation, LLC (“Exceptional”) in exchange for $6.4 million in cash paid at closing, plus $1.3 million held in escrow. Exceptional is in the business of providing medical transportation services in New Jersey. We believe this acquisition will allow us to increase our presence in that market. We have completed our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed as of the end of the third quarter of 2022. On August 9, 2022, the Company acquired Ryan Brothers Ambulance Inc. (“Ryan Brothers”), in exchange for $7.4 million of cash (and a total of $4 million in future contingent consideration). Ryan Brothers is in the business of providing medical transportation services in Wisconsin. We believe this acquisition will allow us to increase our presence in that market. We have completed our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed as of the end of the third quarter of 2022. Healthcare Services Market The transportation services market is highly dependent on patients requiring transportation after surgeries and other medical procedures and treatments. During the pandemic, DocGo experienced a decrease in transportation volumes as a result of fewer elective surgeries. However, the Company was able to reallocate assets to locations where demand increased as a result of the pandemic. Overall Economic Conditions in the Markets In Which We Operate Economic changes both nationally and locally in our markets may impact our financial performance. Unfavorable changes in demographics, health care coverage of transportation and mobile health services, interest rates, ambulance manufacturing, a weakening of the national economy or of any regional or local economy in which we operate and other factors beyond our control could adversely affect our business. Trip Volumes and Average Trip Price A “trip” is defined as an instance where the Company completes the transportation of a patient to a specific destination, for which we are able to charge a fee. This metric does not include instances where a trip is ordered and subsequently either canceled (by the customer) or declined (by the Company). As trip volume represents the most basic unit of transportation service provided by the Company, it is the best measure of the level of demand for the Company’s Transportation Services and is used by management to monitor and manage the scale of the business. The average trip price is calculated by dividing the aggregate revenue from completed transports (“trips”) by the total number of transports and is an important indicator of the effective rate at which the Company is being compensated for its provision of Transportation Services. Revenues generated from programs under which DocGo is paid a fixed hourly or daily rate for the use of a fully staffed and equipped ambulance do not factor in the trip counts or average trip prices mentioned above. 39 Our Ability to Control Expenses We pay close attention to the management of our working capital and operating expenses. Some of our most significant operating expenses are labor costs, medical supplies and vehicle-related costs, such as fuel, maintenance, repair and insurance. Insurance costs include premiums paid for coverage as well as reserves for estimated losses within the Company’s insurance policy deductibles. We employ our proprietary technology to drive improvements in productivity per transport. We regularly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our locations. Inflation Beginning in April 2021, the inflation rate in the US, as measured by the Consumer Price Index (CPI) has steadily increased. In 2019, the inflation rate was approximately 1.8%, while it dropped to approximately 1.2% in 2020. This data is reported monthly, showing year-over-year changes in prices across a basket of goods and services. For 2021, inflation increased from the 1.4%-2.6% range in the first quarter, to 4.2% in April, and was in the 5.0%-6.0% range through the end of the third quarter of 2021, before increasing to the 6.0%-7.0% range in the fourth quarter. For the full year, the inflation rate was 4.7% in 2021, the highest annual rate since the 5.4% rate recorded in 1990. The inflation rate continued to increase throughout the first nine months of 2022, reaching approximately 9.1% in June 2022 and amounting to 8.2% in September 2022. The increased inflation rate has had an impact on the Company’s expenses in several areas, including wages, fuel and medical and other supplies. This has had the impact of compressing gross profit margins, as the Company is generally unable to pass these higher costs on to its customers, particularly in the short term. In an attempt to dampen inflation, the U.S. Federal Reserve has already implemented six interest rate increases in 2022, raising its benchmark rate (the “federal funds rate”) from near 0.00% at the beginning of the year to the current level of 3.75%-4.00%. The federal funds rate was raised in March, May, June, July, September and November, with the last four rate increases at 0.75% each. Looking to the fourth quarter of 2022 and into 2023, we anticipate a moderation of the inflation rate when compared to the first half of the year, as a result of these recent rate increases but expect that inflation will remain well above the levels seen in the previous 10 years, when the annual inflation rate ranged from 0.1% to 2.4%, and above the Federal Reserve’s “target” inflation rate of 2.0%. If inflation is above the levels that the Company anticipates, gross margins could be below plan and our business, operating results and cash flows may be adversely affected. Investing in R&D and Enhancing Our Customer Experience Our performance is dependent on the investments we make in research and development, including our ability to attract and retain highly skilled research and development personnel. We intend to continually develop and introduce innovative new software services, integrate with third-party products and services, mobile applications and other new offerings. If we fail to innovate and enhance our brand and our products, our market position and revenue will likely be adversely affected. Regulatory Environment DocGo is subject to federal, state and local regulations including healthcare and emergency medical services laws and regulations and tax laws and regulations. The Company’s current business plan assumes no material change in these laws and regulations. In the event that any such change occurs, compliance with new laws and regulations may significantly affect the Company’s operations and cost of doing business. Components of Results of Operations Our business consists of two reportable segments — Transportation Services and Mobile Health services. The Company evaluates the performance of both segments based primarily on results of its operations. Accordingly, other income and expenses not included in results from operations are only included in the discussion of consolidated results of operations. 40 Revenue The Company’s revenue consists of services provided by its ambulance Transportation Services segment and its Mobile Health segment. Cost of Revenues Cost of revenues consists primarily of revenue generating wages paid to employees, vehicle insurance costs (including insurance premiums and costs incurred under the insurance deductibles), maintenance, and fuel related to Transportation Services, and laboratory fees, facility rent, medical supplies and subcontractors. We expect cost of revenue to continue to rise in proportion to the expected increase in revenue. Operating Expenses General and Administrative Expenses General and administrative expense consists primarily of salaries, bad debt expense, insurance expense, consultant fees, and professional fees for accounting and legal services. We expect our general and administrative expense to increase as we continue to scale up headcount with the growth of our business, and as a result of operating as a public company, including compliance with SEC rules and regulations, audit, additional insurance expenses (such as Directors and Officers insurance), investor relations activities, and other administrative and professional services. Depreciation and Amortization DocGo depreciates its assets using the straight-line method over the estimated useful lives of the respective assets. Amortization of intangibles consists of amortization of definite-lived intangible assets over their respective useful lives. Legal and Regulatory Expenses Legal and regulatory expenses include legal fees, consulting fees related to healthcare compliance, claims processing fees and legal settlements. Technology and Development Expenses Technology and development expense, net of capitalization, consists primarily of cost incurred in the design and development of DocGo’s proprietary technology, third-party software and technologies. We expect technology and development expense to increase in future periods to support our growth, including our intent to continue investing in the optimization, accuracy and reliability of our platform and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we may choose to make more significant investments, particularly when entering new business lines or customer sales channels. Sales, Advertising and Marketing Expenses Our sales and marketing expenses consist of costs directly associated with our sales and marketing activities, which primarily include sales commissions, marketing programs, trade shows, and promotional materials. We expect that our sales and marketing expenses will continue to increase over time as we increase our marketing activities, grow our domestic and international operations, and continue to build brand awareness. As the Company expands its sales efforts to include the direct-to-consumer channel, marketing expenses are likely to increase as a percentage of revenues, given the marketing-intensive nature of that sales channel. 41 Interest Expense Interest expense consists primarily of interest on our outstanding borrowings under our outstanding notes payable, lines of credit and financing obligations. Results of Operations Comparison of the three months ended September 30, 2022 and 2021 Three Months Ended September 30, Change Change $ in Millions 2022 2021 $ % Revenue, net $ 104.3 $ 85.8 $ 18.5 22 % Cost of revenues 71.3 60.0 11.3 19 % Operating expenses: General and administrative 22.1 19.6 2.5 13 % Depreciation and amortization 3.0 2.0 1.0 50 % Legal and regulatory 2.2 0.8 1.4 175 % Technology and development 1.4 0.9 0.5 56 % Sales, advertising and marketing 0.1 1.0 (0.9 ) (90 )% Total expenses 100.1 84.3 15.8 19 % Income (loss) from operations 4.2 1.5 2.5 173 % Other income (expenses): Interest income (expense), net 0.3 (0.3 ) 0.6     Gain on remeasurement of warrant liabilities (1.8 ) - (1.8 ) Gain (loss) on initial equity method investments 0.1 - 0.1 Gain (loss) from Lease Accounting - - - Loss on disposal of fixed assets 0.1 - 0.1 Other income (loss) 0.0 0.2 - Total other income (expense) (1.3 ) (0.1 ) (1.1 )     Net income (loss) before income tax benefit (expense) 2.9 1.4 Income tax expense (0.4 ) (0.6 ) 0.2 Net income (loss) 2.5 0.8 Net loss attributable to noncontrolling interests (0.7 ) (2.7 ) 2.0     Net income (loss) attributable to stockholders of DocGo Inc. and Subsidiaries $ 3.2 $ 3.5 42 Consolidated For the three months ended September 30, 2022, total revenues were $104.3 million, an increase of $18.5 million, or 22%, from the total revenues recorded in the three months ended September 30, 2021. Transportation Services For the three months ended September 30, 2022, Transportation Services revenue totaled $27.7 million and increased by $9.8 million, or 55%, as compared with the three months ended September 30, 2021. The increase in transportation services revenue reflected higher trip volumes and average trip prices. Volumes increased by approximately 29%, from 45,532 trips for the three months ended September 30, 2021, to 58,751 trips for the three months ended September 30, 2022. The increase in trip volumes is due to a combination of growth in the customer base in certain core markets, entry into new markets in 2022 and acquisitions made during the third quarter of 2022. Our average trip price increased from $303 in the three months ended September 30, 2021, to $374 in the three months ended September 30, 2022. The increase in the average trip price in 2022 reflected a shift in mix toward higher-priced transports with existing customers, as well as the acquisition of licenses to provide higher acuity transports resulting in higher prices per trip. The average trip price also benefited from a 5.1% increase in the average Medicare reimbursement rate for ambulance transports. In October 2022, the Centers for Medicare and Medicaid Services (CMS) announced that the Medicare ambulance fee schedule would be increasing by a further 8.7%, effective January 1, 2023. Mobile Health For the three months ended September 30, 2022, Mobile Health revenue totaled $76.6 million, an increase of $8.7 million, or 13%, as compared with the three months ended September 30, 2021. This increase was mainly due to the expansion of the services offered by this segment. This expansion accelerated through 2021 and into 2022 as the Company increased its customer base, primarily in the municipal and cruise line customer segments, and its geographic reach, while extending several large customer contracts and introducing a broader range of services. Compared to the prior year period, the third quarter of 2022 featured significantly less COVID-19 testing revenue, which was outweighed by the substantial increase in other Mobile Health services. Cost of Revenue For the three months ended September 30, 2022, total cost of revenue (exclusive of depreciation and amortization) increased by 19%, as compared to the three months ended September 30, 2021, while revenue increased by approximately 22%. Cost of revenue as a percentage of revenue decreased to 68.3% in the third quarter of 2022 from 69.9% in the third quarter of 2021. In absolute dollar terms, total cost of revenue in the three months ended September 30, 2022 increased by $11.3 million, compared to the same period in 2021. This was primarily attributable to a $22.7 million increase in total compensation, due to higher headcount for both the Transportation Services and Mobile Health segments and higher average hourly wages; a $2.8 million increase in vehicle costs, driven by a continued increase in the Company’s vehicle fleet and higher fuel and maintenance costs, as well as costs incurred to rent vehicles to provide Mobile Health services; a $0.5 million increase in facilities and related costs; and approximately $0.4 million in increases across a variety of other cost of revenue categories relating to the Company’s increased scale and geographic presence. These items were partially offset by a $9.1 million decrease in lab fees related to COVID-19 testing activity, reflecting lower reduced testing activity, lower per-test lab fees and a shift toward rapid tests; a $5.3 million decrease in subcontracted labor, driven mostly by the Mobile Health segment, where the Company continues to transition away from external labor sources towards its own hired personnel; a $0.4 million decline in medical supplies, reflecting a decline in COVID-19 testing activity and improved sourcing of various supplies and a $0.3 million decline in travel costs, as there were fewer field personnel and other clinicians who traveled out of their home regions to provide Mobile Health services. 43 For the Transportation Services segment, cost of revenues (exclusive of depreciation and amortization) in the three months ended September 30, 2022 amounted to $21.3 million, up $4.6 million, or 28%, from the three months ended September 30, 2021. Cost of revenues as a percentage of revenues decreased to 76.8% from 92.9% in prior year quarter, due to increased volumes and higher average trip prices, as described above, combined with lower average hourly wages, as recent market wage pressures began to subside, and as the Company more effectively managed its staff to reduce overtime hours for field employees. These factors outweighed the effects of increased fuel costs. Gasoline prices moderated somewhat during the third quarter, as compared to the levels witnessed in the second quarter of 2022, but remained well above the levels of the second quarter of 2021. We anticipate that fuel prices will remain at elevated levels for the remainder of 2022. For the Mobile Health segment, cost of revenues (exclusive of depreciation and amortization) in the three months ended September 30, 2022 amounted to $50.0 million up 15% from $43.4 million in the three months ended September 30, 2021. Cost of revenues as a percentage of revenues increased to 65.2% from 63.9%, despite the increase in revenues and the continued shift away from higher-cost subcontracted labor toward Company personnel during 2022, reflecting higher compensation costs associated with some of the Company’s newer projects. Operating Expenses For the three months ended September 30, 2022, the Company recorded $28.8 million of operating expenses compared to $24.4 million for the three months ended September 30, 2021, an increase of 18%. As a percentage of revenue, operating expenses declined from 28.3% in the third quarter of 2021 to 27.7% in the third quarter of 2022, due primarily to the increase in overall revenues described above, coupled with the semi-fixed nature of the cost of corporate infrastructure. The increase of $4.4 million related primarily to a $2.0 million increase in legal, accounting and other professional fees related to increased revenue and related contract generation and SEC filing-related costs; a $1.2 million increase in insurance costs reflecting the growth and expansion of the Company, as well as the inclusion of directors and officers (D&O) insurance; a $1.1 million increase in depreciation and amortization due to an increase in assets to support revenue growth and capitalized software amortization, including from recently acquired companies; a $0.3 million increase in office-related expenses, due to the Company’s ongoing growth and geographic expansion; a $0.6 million increase in IT infrastructure, driven by the Company’s business and headcount expansion. These items were partially offset by a $0.8 million decline in total compensation, which includes salaries, benefits, bonuses and commissions for both direct and subcontracted labor, reflecting savings from the outsourcing of certain administrative functions. The Company anticipates that operating expenses will continue to increase in line with the Company’s revenue growth remain in the range of 25%-30% of revenue in the coming quarters. For the Transportation Services segment, operating expenses in the three months ended September 30, 2022 were $10.6 million, down $2.2 million, or 17%, from the three months ended September 30, 2021. Operating expenses as a percentage of revenues decreased to 38.6% from 71.3% for the three months ended September 30, 2021, reflecting the increase in revenues and overhead cost-cutting activities undertaken during the earlier part of 2022, as well as lower insurance costs, due to the establishment earlier this year of the Company’s captive insurance program. For the Mobile Health segment, operating expenses in the three months ended September 30, 2022 were $18.2 million, up 56% from operating expenses of $12.8 million in the three months ended September 30, 2021. Operating expenses as a percentage of revenues increased to 23.8% from 17.2% in the third quarter of 2021, despite the increase in Mobile Health revenues, reflecting significant expenditures that were made in the 2022 period in the expansion of services and geographic areas of operation, as well as the continued buildout of the Mobile Health management infrastructure and the costs of developing the Company’s “on-demand” direct-to-consumer offering. Interest Income/(Expense), Net For the three months ended September 30, 2022, the Company recorded $0.3 million of net interest income compared to $0.3 million of net interest expense in the three months ended September 30, 2021. This was due to a significantly higher amount of interest earned in the third quarter of 2022, resulting from an increase in the Company’s cash balances in interest-bearing accounts, coupled with higher rates of interest earned on balances in these accounts. 44 Gain from PPP Loan Forgiveness During the three months ended September 30, 2021, the Company recorded a gain of $142,667 due to the forgiveness of a loan that one of its subsidiaries had obtained via the government’s Paycheck Protection Program (PPP) in 2020. No gain from loan forgiveness was recorded during the three months ended September 30, 2022. Gain/(loss) on Remeasurement of Warrant Liabilities During the three months ended September 30, 2022, the Company recorded a loss of approximately $1.8 million from the remeasurement of warrant liabilities. The warrants are marked-to-market in each reporting period, and this loss reflected the increase in DocGo’s stock price relative to the beginning of the period. There were no warrant liabilities in the same period in 2021. On August 15, 2022, the Company announced the redemption of all of its outstanding warrants under the Warrant Agreement, dated as of October 14, 2020, by and between Motion Acquisition Corp. (“Motion”) and Continental Stock Transfer & Trust Company, as warrant agent, as part of the units sold in Motion’s initial public offering, on the redemption date of September 16, 2022 (the “Redemption Date”). Warrants surrendered for exercise on a cashless basis resulted in the issuance of 1,406,371 shares. A total of 68,514 warrants were not surrendered on the Redemption Date and were redeemed for $0.10 per warrant. Gain/(Loss) on Equity Method Investment During the three months ended September 30, 2022, the Company recorded a gain of $93,371, representing its share of the losses incurred by an entity in which the Company has a minority interest, which is accounted for under the equity method. This investment was made in the fourth quarter of 2021, and as such, no gain or loss was recorded in relation to an equity method investment in the same period in 2021. Income Tax (Expense)/Benefit During the three months ended September 30, 2022, the Company recorded income tax expense of $0.4 million, compared to an income tax expense of $0.6 million in the three months ended September 30, 2021. Noncontrolling Interest For the three months ended September 30, 2022, the Company had a net loss attributable to noncontrolling interest of approximately $0.7 million, compared to a net loss attributable to noncontrolling interest of $2.7 million for the three months ended September 30, 2021. The loss reflected ongoing investments in new markets that were entered into during 2021 and 2022, partially offset by income generated by other markets. 45 Comparison of the nine months ended September 30, 2022 and 2021 Nine Months Ended September 30, Change Change $ in Millions 2022 2021 $ % Revenue, net $ 331.7 $ 197.4 $ 134.3 68 % Cost of revenues 219.4 137.1 82.3 60 % Operating expenses: General and administrative 70.7 47.2 23.5 50 % Depreciation and amortization 7.3 5.5 1.8 33 % Legal and regulatory 6.6 2.6 4.0 154 % Technology and development 3.7 2.0 1.7 85 % Sales, advertising and marketing 2.3 3.0 (0.7 ) -23 % Total expenses 310.0 197.5 112.6 57 % Income (loss) from operations 21.8 (0.1) 21.9 Other income (expenses): Interest income (expense), net 0.3 (0.5 ) 0.8 Gain on remeasurement of warrant liabilities 1.1 - 1.1 Gain (loss) on initial equity method investments 0.1 - 0.1 Gain on remeasurement of finance leases 1.4 - 1.4 Gain/(loss) on disposal of fixed assets 0.1 - - Other income (loss) 0.0 0.2 - Total other income (expense) 3.0 (0.4 ) 3.4 Net income (loss) before income tax benefit (expense) 24.8 (0.5 ) Income tax expense (1.2 ) (0.6 ) (0.3 ) Net income (loss) 23.6 (1.1 ) Net loss attributable to noncontrolling interests (2.9 ) (1.3 ) (1.6 ) Net income (loss) attributable to stockholders of DocGo Inc. and Subsidiaries $ 26.5 $ 0.2 26.6 Consolidated For the nine months ended September 30, 2022, total revenues were $331.7 million, an increase of $134.3 million, or 68%, from the total revenues recorded in the nine months ended September 30, 2021. 46 Transportation Services For the nine months ended September 30, 2022, Transportation Services revenue totaled $77.6 million, an increase of $12.0 million, or 18%, as compared with the nine months ended September 30, 2021. This increase was due to a rise in both transportation trip volumes and the average price per trip. Volumes increased by approximately 13%, from 137,136 trips for the nine months ended September 30, 2021, to 154,534 trips for the nine months ended September 30, 2022. The increase in trip volumes is due to a combination of growth in the customer base in certain core markets and entry into new markets in 2022, as well as acquisitions made during the third quarter of 2022. Average trip price increased from $297 in the nine months ended September 30, 2021, to $362 the nine months ended September 30, 2022. The increase in the average trip price in the 2022 period was due to a shift in mix toward higher-priced transports with existing customers, as well as the acquisition of licenses to provide higher acuity transports, resulting in higher prices per trip. The average trip price also benefited from a 5.1% increase in the average Medicare reimbursement rate for ambulance transports. Mobile Health For the nine months ended September 30, 2022, Mobile Health revenue totaled $254.1 million, an increase of $122.3 million, or 93%, as compared with the nine months ended September 30, 2021. This significant increase was mainly due to the expansion of the services offered by this segment, particularly with respect to COVID-19 related testing and vaccination and other healthcare services revenues included in the Mobile Health segment. This expansion accelerated through 2021 and into 2022 as the Company increased its customer base and geographic reach, while extending several large customer contracts and introducing a broader range of services. However, during the third quarter of 2022, COVID-19 testing revenue declined significantly, as expected, but these declines were outweighed by an expansion of the Company’s Mobile Health customer base and broadening of the range of services provided. Cost of Revenue For the nine months ended September 30, 2022, total cost of revenue (exclusive of depreciation and amortization) increased by 60% as compared to the nine months ended September 30, 2021, while revenue increased by approximately 68%. Cost of revenue as a percentage of revenue decreased to 66.1% in the first nine months of 2022 from 69.4% in the first nine months of 2021. In absolute dollar terms, total cost of revenue in the nine months ended September 30, 2022 increased by $82.3 million from the prior year period. This was primarily attributable to a $52.5 million increase in total compensation, reflecting higher headcount for both the Transportation Services and Mobile Health segments, coupled with higher average hourly wages; a $26.3 million increase in subcontracted labor, driven mostly by the Mobile Health segment, where revenue increases outpaced the Company’s ability to service such revenue solely with internal resources, temporarily causing the Company to rely increasingly on subcontracted labor, particularly in the first six months of 2022; an $8.0 million increase in medical supplies, due to the purchase of COVID-19 test kits and the need for increased PPE and related supplies, and the increased cost thereof as a result of increased demand during the pandemic; a $9.9 million increase in vehicle costs, driven by a continued increase in the Company’s vehicle fleet and higher fuel and maintenance costs; a $1.1 million increase in facilities and related expenses, due to the Company’s geographic expansion; a $2.1 million increase in travel expenses, relating to field personnel and other clinicians who traveled out of their home regions to provide Mobile Health services; and an increase of $0.9 million distributed among a variety of other cost of revenue items. These items were partially offset by an $18.5 million decrease in lab fees related to COVID-19 testing activity, reflecting lower per-test lab fees, and a shift toward rapid tests. For the Transportation Services segment, cost of revenues (exclusive of depreciation and amortization) in the nine months ended September 30, 2022 amounted to $ 60.4 million, up $11.8 million, or 24.4%, from the nine months ended September 30, 2021. Cost of revenues as a percentage of revenues increased to 77.8% in the first nine months of 2022 from 74.1% in the prior year period, due to the decline in higher-margin, project-based standby revenue, combined with the impact of higher hourly wages in certain markets and increased overtime for field employees during the first half of 2022 and increased fuel costs, as described above. 47 For the Mobile Health segment, cost of revenues (exclusive of depreciation and amortization) in the nine months ended September 30, 2022 amounted to $159.0 million, up 79.7%, from $ 88.5 million in the nine months ended September 30, 2021. Cost of revenues as a percentage of revenues decreased to 62.6% from 67.1%, due to the increase in revenues, lower average per-test lab fees and the increased number of higher-margin, hourly-based programs in the first half of 2022, which outweighed the increased use of higher cost subcontracted labor and significant increases in medical and general supply costs, as described above. During the third quarter of 2022, subcontracted labor costs declined, reflecting the ongoing transition of the company’s human resources base to Company-employed staff, reducing the reliance on higher-cost subcontracted labor. Operating Expenses For the nine months ended September 30, 2022, the Company recorded $90.5 million of operating expenses compared to $60.5 million for the nine months ended September 30, 2021, an increase of 49.5%. As a percentage of revenue, operating expenses decreased from 30.6% in the first nine months of 2021 to 27.3% in the first nine months 2022, due primarily to the significant increase in overall revenues described above, coupled with the semi-fixed nature of the cost of corporate infrastructure. The increase of $30.0 million related primarily to a $16.7 million increase in total compensation, which includes costs for both direct and subcontracted staff, due to investments in and expansion of corporate infrastructure to support the revenue growth; a $0.8 million increase in travel and entertainment expenses, reflecting both the growth of the overall employee base, as well as increased business development related activities for both the Transportation Services and Mobile Health segments; a $1.9 million increase in depreciation and amortization due to an increase in assets to support revenue growth and capitalized software amortization, as well as recently acquired companies; a $5.8 million increase in legal, accounting and other professional fees related to increased revenue and related contract generation and SEC filing-related costs; a $0.9 million increase in office-related expenses, owing to the Company’s ongoing growth and geographic expansion; a $1.5 million increase in IT infrastructure, driven by the Company’s business and headcount expansion; a $0.4 million increase in marketing expenses, primarily owing to the ongoing expansion of Mobile Health services; a $0.6 million increase in bad debt expense, in line with the increase in overall revenues during the period; and approximately $1.4 million in other increases spread across a variety of other operating expense lines. For the Transportation Services segment, operating expenses in the nine months ended September 30, 2022 were $50.2 million, up $16.9 million, or 50.8%, from the nine months ended September 30, 2021. Operating expenses as a percentage of revenues increased to 64.6% from 50.8% for the nine months ended September 30, 2021, despite the increase in Transportation Services revenues, due to a significant increase in corporate infrastructure, the bulk of which is allocated to the Transportation Services segment. The increased operating expenses, in dollar terms, in the nine months ended September 30, 2022 primarily reflected higher costs for payroll, travel and entertainment, professional fees and depreciation, as described above. For the Mobile Health segment, operating expenses in the nine months ended September 30, 2022 were $40.3 million, up 48.2%, from operating expenses of $27.2 million in the nine months ended September 30, 2021. Operating expenses as a percentage of revenues decreased to 15.9% from 20.6% in the first nine months of 2021, despite significant expenditures made in the expansion of services and geographic areas of operation, as well as the buildout of the Mobile Health management infrastructure throughout 2021 and the first nine months of 2022, due to the faster rate of increase in Mobile Health revenues. The increased operating expenses, in dollar terms, in 2022 were primarily driven by higher costs for payroll, subcontracted labor costs, travel and entertainment, marketing and IT infrastructure, and facilities costs, as described above. 48 Interest Income/(Expense), Net For the nine months ended September 30, 2022, the Company recorded $0.3 million of net interest income compared to $0.5 million of net interest expense in the nine months ended September 30, 2021. The shift from net interest expense in the prior year period to interest income in the current year period was due to a significantly higher amount of interest earned in the first nine months of 2022, resulting from an increase in the Company’s cash balances in interest-bearing accounts, coupled with higher rates of interest earned on balances in these accounts. This was partially offset by an increase in payments made for new leased vehicles, as the Company’s fleet expanded. Gain from PPP Loan Forgiveness During the nine months ended September 30, 2021, the Company recorded a gain of $142,667 due to the forgiveness of a loan that one of its subsidiaries had obtained via the government’s Paycheck Protection Program (PPP) in 2020. No gain from loan forgiveness was recorded during the three months ended September 30, 2022. Gain/(loss) on Remeasurement of Warrant Liabilities During the nine months ended September 30, 2022, the Company recorded a gain of approximately $1.1 million from the remeasurement of warrant liabilities. The warrants are marked-to-market in each reporting period, and this gain was due to the decline in DocGo’s stock price relative to the beginning of the period. No warrant liabilities were outstanding in the prior year period. Gain/(Loss) on Equity Method Investment During the three months ended September 30, 2022, the Company recorded a gain of $99,840, representing its share of the losses incurred by an entity in which the Company has a minority interest, which is accounted for under the equity method. This investment was made in the fourth quarter of 2021, and as such, no gain or loss was recorded in relation to an equity method investment in the same period in 2021. Gain/(loss) from Remeasurement of Finance Leases During the nine months ended September 30, 2022, the Company recorded a gain of approximately $1.4 million, resulting from a change in estimated remaining liabilities under the terms of its leases. No such gain or loss was recorded in the prior year period. Gain/(loss) on Disposal of Fixed Assets During the nine months ended September 30, 2021, the Company recorded a loss of $27,730 on the disposal of fixed assets. During the nine months ended September 30, 2022, the Company recorded a gain of $42,667 on the disposal of fixed assets. Income Tax (Expense)/Benefit During the nine months ended September 30, 2022, the Company recorded income tax expense of $1.2 million, compared to an income tax expense of $0.6 million in the nine months ended September 30, 2021. The increase in income tax expense resulted from the higher level of pretax income as well as state income taxes in jurisdictions the Company entered during the past year. 49 Noncontrolling Interest For the nine months ended September 30, 2022, the Company had net loss attributable to noncontrolling interest of approximately $ 2.9 million, compared to a net loss attributable to noncontrolling interest of $1.3 million for the nine months ended September 30, 2021. The increased loss in the first nine months of 2022 reflected ongoing investments in new markets that were entered into during 2021 and 2022. Liquidity and Capital Resources Since inception, DocGo has completed three equity financing transactions that served as the Company’s principal source of liquidity, with minimal debt incurred. Generally, the Company utilized equity raised to finance operations during its development phase, investments in assets, ambulance operating licenses and funding working capital. The Company has also funded these activities through operating cashflows. In November 2021, upon the completion of the merger between Motion Acquisition Corp. and Ambulnz, Inc., the Company received proceeds of approximately $158.1 million, net of transaction expenses. Although the Company generated positive net income in the three and nine months ended September 30, 2022, operating cash flows may not be sufficient to meet immediate obligations arising from current operations. For example, as the business has grown, the Company’s expenditures for human capital and supplies has expanded accordingly, and the timing of the payments for payroll and to associated vendors, compared to the timing of receipts of cash from customers frequently results in the Company using existing cash balances to fund these working capital needs. The Company’s working capital needs depend on many factors, including the overall growth of the company and the various payment terms that are negotiated with customers and vendors. As the Company’s customer base increasingly features large municipal entities, who tend to demand longer payment terms than do other customer segments, the Company’s working capital requirements are expected to increase. In addition, the Company might seek to take advantage of opportunities to secure favorable pricing for supplies and services from its vendors by agreeing to shorter payment terms, or prepaying. Future capital requirements depend on many factors, including potential acquisitions, our level of investment in technology, and rate of growth in existing and into new markets. The cost of ongoing technology development is another factor that is considered. Capital requirements might also be affected by factors which the Company cannot control, such as interest rates, and other monetary and fiscal policy changes to the manner in which the Company currently operates. Additionally, as the impact of the COVID-19 pandemic on the economy and operations evolves, the Company will continuously assess its liquidity needs. If the Company’s growth rate is higher than is currently anticipated, resulting in greater-than-anticipated capital requirements, the Company may need or choose to raise additional capital through debt or equity financings. On November 1, 2022, subsequent to the end of the third quarter of 2022, the Company entered into a revolving loan and security agreement with two banks, with one bank as the administrative agent (the “Lenders”), with a maximum revolving advance amount of $90,000,000. The revolving facility includes the ability for the Company to request an increase to the commitment by an additional up to $50,000,000, though no Lender (nor the Lenders collectively) are obligated to increase their respective commitments. Borrowings under the revolving facility bear interest at a per annum rate equal to, (i) at the Company’s option, the (x) the base rate or (y) the adjusted term SOFR rate, plus (ii) the applicable margin. The applicable margins are based on the Company’s consolidated net leverage ratio, adjusted on a quarterly basis. The initial applicable margins are 1.25% for an adjusted term SOFR loan and 0.25% for a base rate loan and will be updated based on the consolidated net leverage ratio reported in the compliance certificate. The revolving facility matures on the five-year anniversary of the closing date, November 1, 2027. The revolving facility is secured by a first-priority lien on substantially all of the Company’s present and future personal assets and intangible assets. The revolving facility is subject to certain financial covenants such as a net leverage ratio and interest coverage ratio, as defined in the agreement. The Company has not made any draws under the facility and there is no amount outstanding. Considering the foregoing, DocGo anticipates that existing balances of cash and cash equivalents, future expected cash flows generated from our operations and an available line of credit (as discussed in Note 8, “Line of Credit” and Note 20 “Subsequent Events” to the Unaudited Condensed Consolidated Financial Statements) will be sufficient to satisfy operating requirements for at least the next twelve months. Capital Resources Working Capital as of September 30, 2022 and 2021 As of September 30, Change Change $ in Millions 2022 2021 $ % Working capital Current assets $ 252.0 $ 96.7 $ 155.7 161 % Current liabilities 71.1 66.9 4.2 6 % Total working capital $ 180.9 $ 29.8 $ 151.1 507 % As of September 30, 2022, available cash totaled $169.6 million, which represented an increase of $130.0 million as compared to September 30, 2021, reflecting the receipt of the proceeds from the merger described above, as well as positive cash flow generated by operations, partially offset by cash used for acquisitions in the third quarter of 2022. As of September 30, 2022, working capital amounted to $180.9 million, which represented an increase of $151.1 million as compared to September 30, 2021, primarily reflecting the increased cash balance. Increased accounts receivable, reflecting the growth of the business in the second half of 2021 and the first nine months of 2022, were partially offset by increases in current liabilities, which reflected the growth of the business and resulted from extended payment terms from vendors. 50 Cash Flows Nine months ended September 30, 2022 and 2021 As of September 30, Change Change $ in Millions 2022 2021 $ % Cash flow summary Net cash provided by/(used in) operating activities $ 37.6 $ 6.9 $ 30.7 445 % Net cash provided by/(used in) investing activities (37.8 ) (4.4 ) (33.4 ) 759 % Net cash provided by/(used in) financing activities 0.7 6.0 (5.3 ) (88 )% Effect of exchange rate changes (0.3 ) 0.2 (0.5 ) Net (decrease) increase in cash $ 0.2 $ 8.7 $ (8.5 ) (98 )% Operating Activities During the nine months ended September 30, 2022, operating activities provided $37.6 million of cash, aided by net income of $23.6 million. Non-cash charges amounted to $11.9 million and included $5.0 million in depreciation of property and equipment and right-of-use assets, $2.2 million from amortization of intangible assets, $2.7 million in bad debt expense primarily related to a provision for potential uncollectible accounts receivable and $4.6 million of stock compensation expense. These were partially offset by non-cash gains of $1.4 million relating to the remeasurement of finance lease liabilities, $1.1 million from the remeasurement of warrant liabilities and a gain of $0.1 from an investment that is accounted for under the equity method. Changes in assets and liabilities resulted in approximately $2.1 million in increase to operating cash flow, as a $2.9 million decrease in accounts receivable, a $0.9 million decrease in other assets and a $2.6 million increase in accrued liabilities outweighed the effect of a $0.3 million increase in prepaid expenses and a $4.0 million decline in accounts payable.. During the nine months ended September 30, 2021, operating activities provided $6.9 million of cash, despite a net loss of $1.1 million. Non-cash charges amounted to $8.8 million and included $4.1 million resulting from the depreciation of property and equipment and right-of-use assets, $1.4 million from amortization of intangible assets, $1.2 million of stock compensation expense, $2.2 million of bad debt expense primarily related to a provision for potential uncollectible accounts receivable, partially offset by a non-cash gain of $0.1 million from the forgiveness of a PPP loan. Changes in assets and liabilities resulted in approximately $0.8 million in negative operating cash flow and were primarily driven by a $28.8 million increase in accounts receivable and a $4.5 million increase in prepaid expenses and other current assets, as well as a $1.8 million increase in other assets, which were partially offset by a $9.4 million increase in accounts payable and a $24.9 million increase in accrued expenses. Investing Activities During the nine months ended September 30, 2022, investing activities used $37.8 million of cash and consisted of the acquisition of property and equipment totaling approximately $2.0 million, the acquisition of intangibles in the amount of $2.0 million and $33.8 million in the acquisition of businesses, primarily relating to acquisitions the Company completed in the third quarter of 2022. During the nine months ended September 30, 2021, investing activities used $4.4 million of cash and primarily consisted of the acquisition of property and equipment totaling $2.8 million and the acquisition of intangibles in the amount of $1.6 million to support growth of new transportation and mobile health markets. 51 Financing Activities During the nine months ended September 30, 2022, financing provided $0.7 million, including $2.0 million in non-controlling interest contributions, $1.9 million in proceeds from the exercise of stock options and proceeds of $1.0 million from a revolving credit line. These factors were partially offset by a $1.0 million decrease in amounts due to seller, $0.6 million in repayments of notes payable, $0.5 million in common stock repurchased, and $2.1 in payments on obligations under the terms of finance leases. During the nine months ended September 30, 2021, financing activities provided $6.0 million of cash, primarily due to proceeds of $8.0 million from a revolving credit line, as well as $0.3 million in non-controlling interest contributions. These factors were partially offset by $1.8 million in payments on obligations under the terms of finance leases and $0.5 in repayments of notes payable. Future minimum annual maturities of notes payable as of the nine months ended September 30, 2022 are as follows: Notes Payable 2022, remaining 0.1 2023 0.6 2024 0.4 2025 0.4 2026 0.3 Thereafter 0.3 Total maturities $ 2.1 Current portion of notes payable (0.7 ) Long-term portion of notes payable $ 1.5 Future minimum lease payments under finance leases as of the nine months ended September 30, 2022, and for the following five fiscal years and thereafter are as follows: Finance Leases 2022, remaining $ 0.9 2023 3.1 2024 2.4 2025 2.1 2026 1.2 2027 and thereafter 0.3 Total future minimum lease payments 10.0 Less effects of discounting (1.0 ) Present value of future minimum lease payments $ 9.0 52 Future minimum lease payments under operating leases as of the nine months ended September 30, 2022, and for the following five fiscal years and thereafter are as follows: Operating Leases 2022, remaining $ 0.7 2023 2.4 2024 1.9 2025 1.9 2026 1.5 2027 and thereafter 1.4 Total future minimum lease payments 9.8 Less effects of discounting (1.3 ) Present value of future minimum lease payments $ 8.5 Share Repurchases On May 24, 2022, the Board approved a share repurchase program to purchase up to $40 million of the Company’s common stock (the “Program”). The Program does not obligate the Company to acquire any specific number of shares and will expire on November 24, 2023, and the Program may be suspended, extended, modified or discontinued at any time. Under the Program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions and/or a non-discretionary trading plan, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common stock repurchases under the Program are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. As of September 30, 2022, $39.5 million remained available for share repurchases pursuant to the Program. No shares were repurchased by the Company during the three months ended September 30, 2022. Critical Accounting Estimates For a discussion of our critical accounting policies, refer to the section entitled “Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2021. Item 3. Quantitative and Qualitative Disclosures about Market Risk We are a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.