DocGo Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. The discussion and analysis below contain certain forward-looking statements about our business and operations that are subject to the risks, uncertainties, and other factors described in the section entitled “Risk Factors,” included in Part I, Item 1A, and other factors included elsewhere in this Annual Report on Form 10-K. These risks, uncertainties, and other factors could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.” 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 and its consolidated subsidiaries, including those periods prior to the Business Combination. 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, in some cases, been calculated on the basis of such rounded figures. 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 Consolidated Financial Statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding. Overview DocGo, which was originally formed in 2015, is a healthcare transportation and mobile services company that uses proprietary dispatch and communication technology to help provide quality healthcare transportation and mobile services 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 United States and the United Kingdom. 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 transport services. Non-emergency transport services include ambulance transports and wheelchair transports. 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 a wide variety of healthcare services performed at home and offices, testing, vaccinations and event services which include on-site healthcare support at sporting events and concerts. 49 See Item 1. “Business” in this Annual Report on Form 10-K for additional information regarding DocGo’s business. For the year ended December 31, 2022 the Company recorded net income of $30.7 million, compared to net income of $19.2 million in the year ended December 31, 2021. COVID-19 The spread of COVID-19 and the related shutdowns and restrictions had a mixed impact on our business. In the Transportation Services segment, which comprises primarily of non-emergency medical transport, the Company saw a decline in volumes from historical and expected levels, as elective surgeries and other non-emergency surgical procedures were postponed. In addition, in the Mobile Health segment, 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 line. Mobile Health generated approximately $325.9 million in revenue in the year ended December 31, 2022, as compared to $234.4 million in 2021 and $30.9 million in 2020. While COVID-19 testing has become a minor part of this segment’s business, as of the second half of 2022, the Mobile Health segment has continued to grow. We have expanded our service offerings in this segment to offer a wider range of testing, vaccination and other services to a broader customer group. During 2020 and the early part of 2021, the Company continued to operate with several back-office employees working remotely. During that time, the Company did not witness any significant reduction in productivity from these employees, nearly all of whom returned to their respective offices and other locations by early 2021 and our operations have proceeded without major interruption. 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. DocGo also received accelerated Medicare payments of approximately $2.4 million that were repaid in 2022. As the COVID-19 pandemic reaches endemic stages, the future impacts of it or other pandemics on DocGo remain highly uncertain and subject to numerous factors, including the severity of any new outbreaks, resurgences and variants, actions taken to contain resurgences or variants or to address their impact, and other effects, and its related impact on medical transportation levels remain uncertain. However, trip volumes in most of our markets returned to more normal historical levels in 2021, and this trend 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 declined further in the fourth quarter, to the point where, as of the date of the filing of this Annual Report on Form 10-K, they account for an insignificant proportion of total revenues. 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 an insignificant proportion of Mobile Health segment and overall consolidated revenues in 2023 and beyond, as COVID-19 enters the endemic phase. 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. The Company’s current business plan assumes an increased demand for Mobile Health services, a demand that was accelerated by the pandemic, but which we believe 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. In the Transportation segment, volumes are expected to continue to rise, reflecting an aging population in the U.S. and U.K., which tends to drive demand for the non-emergent medical transportation services provided by the Company. 50 Factors Affecting Our Results of Operations Our operating results and financial performance are influenced by a variety of factors, including, among others, our ability to obtain or maintain operating licenses; the success of our acquisition strategy; conditions in the healthcare transportation and mobile health services markets; our competitive environment; overall macroeconomic and geopolitical conditions, including rising interest rates, the inflationary environment, the potential recessionary environment, regional conflict and tensions; availability of healthcare professionals; changes in the cost of labor; and production schedules of our suppliers. Some of these 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 also significantly impacted DocGo’s business, as discussed above. While the direct impact of the pandemic itself has waned, 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 to apply 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 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, in both the Mobile Health and the Transportation segments. During the twelve months ended December 31, 2022, DocGo completed five acquisitions, for a purchase price of $69.1 million. On July 6, 2022, the Company acquired Government Medical Services, LLC (“GMS”) in exchange for $20.3 million in cash and up to a total of $3.0 million in future contingent consideration upon GMS meeting certain performance conditions . 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 municipal contracts. On July 13, 2022, the Company acquired Exceptional Medical Transportation, LLC (“Exceptional”) in exchange for $7.7 million in cash (and a total of $6.0 million deferred consideration). The Company also agreed to pay an estimated $1.1 million contingent consideration upon Exceptional meeting certain performance conditions. 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. On August 9, 2022, the Company acquired Ryan Brothers Ambulance Inc. (“RB”), 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. On October 12, 2022, the Company acquired Community Ambulance Services LTD (“CAS”) in exchange for approximately $5.5 million in cash. CAS is located in the U.K. and is engaged in providing emergency and non-emergency transport services, including high dependency, urgent care, mental health and blue light transport services and diagnostics testing. We believe that this acquisition will help allow us to continue to grow our presence in the U.K. market. On December 9, 2022, Ambulnz U.K. Ltd., a wholly owned subsidiary of the Company acquired Location Medical Services, LLC (“LMS”) for a total of $11.6 million in cash (of which $11.3 million is deferred consideration) and $2.5 million in future contingent consideration. LMS, based in Shepperton, U.K., provides professional medical support services, including staff and equipment, for events (festivals, equestrian, cycling, etc.), as well as for the film and television production industry. LMS has a staff of over 250 medical professionals. We believe that this acquisition will allow us to increase our share of the events business in the U.K. market. During the twelve months ended December 31, 2021, DocGo completed one acquisition, for a purchase price of $2.3 million. 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, since 2021, the Company has seen increased demand and trip volumes in nearly all of its Transportation services markets, as elective surgeries resumed and as the Company expanded its customer base. 51 Overall Economic Conditions in the Markets in which we Operate Economic changes both nationally and locally in our markets 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 transport 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 rate for the use of a fully staffed and equipped ambulance do not factor in the trip counts or average trip prices mentioned above. We anticipate that these fixed rate, “leased hour” programs will account for an increasing proportion of the Transportation segment’s revenues in the future. Our Ability to Control Expenses We pay close attention to managing 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 aim to employ our proprietary technology to drive improvements in productivity per transport. We regularly analyze our workforce productivity with a goal of balancing the optimum, cost-efficient labor mix for our locations. Inflation Beginning in March 2021, the inflation rate in the US, as measured by the Consumer Price Index (CPI) has generally trended higher. This data is reported monthly, showing year-over-year changes in prices across a basket of goods and services. The monthly 12-month inflation rate was 2.6% in March 2021, and increased steadily over the rest of 2021 and into 2022, with the inflation rate hitting 9.1% in June 2022. The inflation rate has seemingly moderated since that point, declining to 6.4% in January 2023, but remains well above historical averages. On an annual basis, in 2019, the inflation rate was approximately 1.8%, while it dropped to approximately 1.2% in 2020, rising to 4.7% in 2021 and 8.0% in 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 implemented seven interest rate hikes in 2022, and another hike to date in 2023, raising its benchmark rate (the “federal funds rate”) from near 0.00%% at the beginning of 2022 to the current level of 4.50%-4.75% as of the date of the filing of this Annual Report on Form 10-K. The federal funds rate was raised in March, May, June, July, September, November and December of 2022 and in February of 2023. The rate of the increase in the federal funds rate has declined, however, with the December 2022 increase coming in at 0.50% and the February 2023 rate increase of 0.25%, compared with rate hikes at 0.75% each in June, July, September and November of 2022. Looking to 2023, we anticipate a continued moderation of the inflation rate when compared to the levels seen in 2022, as a result of these recent rate hikes, 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%. 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 must 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 any such change occurs, compliance with new laws and regulations might significantly affect its operations and cost of doing business. 52 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. Revenue The Company’s revenue consists of services provided by its Transportation 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, fuel, 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 expenses consist primarily of salaries, bad debt expense, insurance expense, consultant fees, and professional fees for accounting services. We expect our general and administrative expense to increase as we 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, 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 costs 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 as we invest in the optimization, accuracy and reliability of our platform to help drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, which is in turn, dependent on numerous factors, including when we plan to enter into new business lines or customer sales channels. Sales, Advertising and Marketing 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. Interest Expense Interest expense consists primarily of interest on our outstanding borrowings under our outstanding notes payable, credit line and financing obligations. 53 Results of Operations Comparison of Fiscal 2022 with Fiscal 2021 Years Ended December 31, Change Change $ in Millions 2022 2021 $ % Revenue, net $ 440.5 $ 318.7 $ 121.8 38 % Cost of revenues 285.8 209.0 76.8 37 % Operating expenses: General and administrative 103.4 74.9 28.5 38 % Depreciation and amortization 10.6 7.5 3.1 41 % Legal and regulatory 8.8 3.9 4.9 126 % Technology and development 5.4 3.3 2.1 64 % Sales, advertising and marketing 4.7 4.8 (0.1 ) (2 )% Total expenses 418.7 303.4 115.3 38 % Income (loss) from operations 21.8 15.4 6.5 Other income (expenses): Interest income (expense), net 0.8 (0.8 ) 1.6 200 % Gain (loss) from Payroll Protection Program (“PPP”) loan forgiveness - 0.1 (0.1 ) Gain on remeasurement of warrant liabilities 1.1 5.2 (4.1 ) Gain (loss) on equity method investment - (0.1 ) 0.1 Gain on remeasurement of finance leases 1.4 - 1.4 Loss on disposal of fixed assets - - - Gain on bargain purchase 1.6 - 1.6 Other income (loss) (3.9 ) - (3.9 ) Total other income (expense) 1.0 4.4 (3.4 ) (77 )% Net income (loss) before income tax benefit (expense) 22.8 19.8 3.3 Benefit (provision) for income tax 7.9 (0.6 ) 8.5 Net income (loss) 30.7 19.2 11.5 60 % Net loss attributable to noncontrolling interests (3.9 ) (4.5 ) 0.6 13 % and Subsidiaries $ 34.6 $ 23.7 10.9 Consolidated For the year ended December 31, 2022, total revenues were $440.5 million, an increase of $121.8 million, or 38%, from the total revenues recorded in the year ended December 31, 2021. Mobile Health For the year ended December 31, 2022, Mobile Health revenue was $325.9 million, an increase of $91.4 million, or 39%, as compared with the year ended December 31, 2021. This increase was primarily due to the expansion of the services offered by this segment, particularly with respect to testing, vaccination and other healthcare services revenues. This expansion accelerated through 2021 and into 2022 as the Company increased its customer base, primarily in the municipal customer segment, and its geographic reach, while extending the terms of and/or expanding the scope of several large customer contracts and introducing a broader range of services. Compared to the prior year, 2022 featured significantly lower COVID-19 testing revenue, which was outweighed by the substantial increase in other Mobile Health services, as the Mobile Health segment transitioned away from its dependence on COVID-19 related revenue. COVID-19 testing continued to be a significant driver of Mobile Health revenues in the first half of 2022, but dropped sharply in the third quarter of the year, and represented an insignificant proportion of total revenues in the fourth quarter. 54 Transportation Services For the year ended December 31, 2022, Transportation Services revenue was $114.6 million an increase of $30.3 million, or 36%, as compared with the year ended December 31, 2021. This increase was due to a 20% increase in transportation trip volumes, from 180,753 trips for the year ended December 31, 2021 to 216,009 trips for the year ended December 31, 2022. The increase in trip volumes was due to a combination of growth in the customer base in certain core markets, entry into new markets in 2021 and early 2022 and acquisitions made during the second half of 2022. Our average trip price increased from $301 in the year ended December 31, 2021, to $380 in the year ended December 31, 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. Cost of Revenue For the year ended December 31, 2022, total cost of revenue (exclusive of depreciation and amortization) increased by 37%, as compared to the year ended December 31, 2021, while revenue increased by approximately 38%. Cost of revenue as a percentage of revenue decreased to 64.9% in 2022 from 65.5% in 2021. In absolute dollar terms, cost of revenue in the year ended December 31, 2022 increased by $76.8 million from the levels of the year ended December 31, 2021. This was primarily attributable to a $64.9 million increase in total compensation, due to higher headcount for both the Transportation Services and Mobile Health segments; a $16.0 million increase in subcontracted labor, driven mostly by the Mobile Health segment, where the Company did not have sufficient personnel to staff the initial phases of large new projects; $13.6 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 $2.1 million increase in travel costs, due to field personnel and other clinicians who traveled out of their home regions to provide Mobile Health services; a $0.4 million increase in facilities and related costs; and approximately $2.6 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 $21.1 million decrease in lab fees related to COVID-19 testing activity, reflecting sharply lower COVID-19 testing activity in the second half of 2022, lower per-test lab fees and a shift toward rapid tests; and a $1.8 million decline in medical supplies, reflecting a decline in COVID-19 testing activity and improved sourcing of various supplies. For the Mobile Health segment, cost of revenues (exclusive of depreciation and amortization) in the year ended December 31, 2022 amounted to $199.2 million, compared to $145.2 million in the year ended December 31, 2021. Cost of revenues as a percentage of revenues decreased slightly to 61.1% from 61.9%, due to the increase in revenues and the continued shift away from higher-cost subcontracted labor toward Company personnel during 2022, which was partially offset by higher compensation costs associated with some of the Company’s newer projects. For the Transportation services segment, cost of revenues (exclusive of depreciation and amortization) in the year ended December 31, 2022 was $86.5 million, an increase of $23.1 million, or 36%, from the year ended December 31, 2021. Cost of revenues as a percentage of revenues were essentially unchanged, at 75.5% in 2022 compared to 75.3% in 2021. 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, to offset the effects of increased fuel costs. Fuel prices moderated somewhat during the third quarter and in the fourth quarters of 2022, but the full-year average fuel price for 2022 was approximately 29% above the full-year average for 2021. We anticipate that fuel prices will remain at elevated levels for 2023, but we expect that the full-year average for 2023 will be lower than it was in 2022. Operating expenses For the year ended December 31, 2022, operating expenses were $132.9 million compared to $94.4 million for the year ended December 31, 2021, an increase of 41%. As a percentage of revenue, operating expenses increased slightly, from 29.6% in 2021 to 30.2% in 2022, despite the significant increase in overall revenues described above, as the Company continued to add to its management infrastructure and incurred a full year’s worth of expenses relating to its status as a public company. The increase of $38.3 million related primarily to a $20.1 million increase in total compensation, which includes salaries, benefits, bonuses and commissions for both direct and subcontracted labor, reflecting higher headcount driven by the Company’s overall growth and expansion; a $7.1 million increase in legal, accounting and other professional fees related to increased revenue and related contract generation and SEC filing-related costs; a $2.8 million increase in insurance costs reflecting the growth and expansion of the Company, as well as the addition of directors and officers (D&O) insurance in 2022; a $3.2 million increase in depreciation and amortization charges due to an increase in assets to support revenue growth and capitalized software amortization, including from recently acquired companies; a $2.3 million increase in rent utility expenses, due to the Company’s ongoing growth and geographic expansion; a $2.9 million increase in IT infrastructure, driven by the Company’s business and headcount expansion; and a $0.6 million increase in marketing expenses, driven in part by expenditures made to develop and expand the Company’s direct-to-consumer (DTC) and other Mobile Health programs. These items were partially offset by a $0.7 million decline witnessed across several operating expense categories, such as travel, commissions and general office expenses. The Company anticipates that operating expenses will continue to increase along with the Company’s revenue growth and remain in the range of 25%-30% of revenue in the coming quarters. 55 For the Mobile Health segment, operating expenses in the year ended December 31, 2022 were $58.0 million, up 25% from operating expenses of $46.3 million in the year ended December 31, 2021. Operating expenses as a percentage of revenues decreased to 17.8% from 19.8% in 2021, due to the increase in Mobile Health revenues, which outweighed the effect of the significant expenditures that were made in 2022 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. For the Transportation services segment, operating expenses in the year ended December 31, 2022 were $74.0 million, up $26.6 million, or 56%, from the year ended December 31, 2021. Operating expenses as a percentage of revenues increased to 64.6% from 56.3% in the prior year period, despite the increase in revenues, primarily due to increases in the Company’s corporate overhead expenditures, as described above, as these expenses were allocated to the Transportation segment for purposes of segment reporting. Operating expenses for the Transportation segment were also driven higher by the inclusion of the acquisitions the Company made in the second half of 2022. Interest Income (Expense), Net For the year ended December 31, 2022, the Company recorded $0.8 million of net interest income compared to $0.8 million of interest expense in the year ended December 31, 2021. This was due to a significantly higher amount of interest earned during 2022, resulting from an increase in the Company’s cash balances in income-bearing accounts, coupled with higher rates of interest earned on balances in these accounts, which reflected significantly higher market interest rates. Gain/(loss) on Remeasurement of Warrant Liabilities During the year ended December 31, 2022, the Company recorded a net 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 reflected the decrease in DocGo’s stock price relative to the beginning of the period. During the year ended December 31, 2021, the Company recorded a net gain of $5.2 million on the remeasurement of warrant liabilities. 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 and Continental Stock Transfer & Trust Company, as warrant agent, 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 year ended December 31, 2022, the Company recorded a gain on equity method investment of $8,919, 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, during which period a loss of $66,818 was recorded in relation to this equity method investment. Gain on Bargain Purchase During the year ended December 31, 2022, the Company recorded a gain on bargain purchase of approximately $1.6 million in relation to an acquisition made during the fourth quarter of the year, wherein the tangible net asset value of the acquired entity exceeded the purchase price. No such gain or loss was recorded during the same period in 2021. Gain/(Loss) from Remeasurement of Finance Leases During the year ended December 31, 2022, the Company recorded a gain from remeasurement of finance leases 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 same period in 2021. Gain from PPP Loan Forgiveness In 2021, the Company recorded a $0.1 million gain 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 year ended December 31, 2022. Income Tax Benefit (Expense) During the year ended December 31, 2022, the Company recorded an income tax benefit of $7.9 million compared to an income tax expense of $0.6 million in the year ended December 31, 2021. The tax benefit in 2022 was due to the release of the valuation allowance recorded in previous years for net operating losses (NOLs), as the Company determined that it was now more likely than not that it would be able to realize its NOL carryforwards in the future. Net Loss Attributable to Noncontrolling Interest For the year ended December 31, 2022, the Company had a net loss attributable to noncontrolling interest of approximately $3.8 million compared to a net loss attributable to noncontrolling interest of $4.6 million for the year ended December 31, 2021. For both periods, the loss reflected ongoing investments in new markets that were entered into during 2021 and 2022, partially offset by income generated by those markets. 56 Liquidity and Capital Resources Since inception, DocGo has completed three equity financing transactions as its principal source of liquidity. Generally, the Company has utilized equity raised to finance operations, investments in assets, ambulance operating licenses and to fund accounts receivable. The Company has also funded these activities through operating cash flows. In November 2021, upon the completion of the merger between Motion and Ambulnz, the Company received proceeds of approximately $158.1 million, net of transaction expenses. Despite the fact that the Company generated positive net income in the year ended December 31, 2022, operating cash flows are not always 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 need to use 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. Future capital requirements depend on many factors, including potential acquisitions, DocGo’s level of investment in technology and ongoing technology development, and rate of growth in existing markets and into new markets. Capital requirements might also be affected by factors outside of the Company’s control, such as interest rates, rising inflation and other monetary and fiscal policy changes to the manner in which the Company currently operates. Additionally, as the impact of the COVID-19 on the economy and on the Company’s market environment and operations evolves, the Company routinely assesses its liquidity needs. If the Company’s growth rate is higher than is currently anticipated, resulting in greater-than-anticipated capital requirements, the Company might need to, or choose to, raise additional capital through debt or equity financings. On November 1, 2022, the Company entered into a revolving loan and security agreement with two banks, with one bank acting as the administrative agent (the “Lenders”), with an initial maximum commitment amount of $90,000,000. The revolving facility includes the ability for the Company to request an increase to the commitment by an additional amount of 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 Company’s consolidated net leverage ratio. The revolving facility matures on 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. As of the date of the filing of this Annual Report on Form 10-K, the Company has not made any draws under the facility and there are no amounts outstanding. Considering the foregoing, DocGo anticipates that its existing balances of cash and cash equivalents, future expected cash flows generated from its operations and its available line of credit under the revolving facility (as further discussed in Note 9, “Line of Credit” to the Consolidated Financial Statements) will be sufficient to satisfy operating requirements for at least the next twelve months. 57 Capital Resources Comparison as of December 31, 2022 and December 31, 2021 As of December 31, Change Change $ in Millions 2022 2021 $ % Working capital Current assets $ 271.1 $ 256.0 $ 15.1 6 % Current liabilities 100.2 57.9 42.3 73 % Total working capital $ 170.9 $ 198.1 $ (27.2 ) (14 %) As of December 31, 2022, available cash totaled $157.3 million, which represented a decrease of $18.2 million compared to December 31, 2021, as changes to working capital accounts and cash used for acquisitions in 2022 outweighed the positive cash flow generated by operations. As of December 31, 2022, working capital amounted to $170.9 million, which represented a decrease of $27.2 million compared to December 31, 2021, which reflected the decreased cash balance in 2022. Increased accounts receivable, which reflected the growth of the business and a shift towards higher credit quality customers, who have longer payment terms, in 2022, were outweighed by the increase in current liabilities, which reflected the growth of the business and amounts due to seller resulting from acquisitions. Cash Flows Year ended December 31, 2022 and 2021 As of December 31, Change Change $ in Millions 2022 2021 $ % Cash flow summary Net cash provided by/(used in) operating activities $ 28.9 $ (1.9 ) $ 30.8 1,621 % Net cash provided by/(used in) investing activities (38.4 ) $ (8.6 ) (29.8 ) (347 %) Net cash provided by/(used in) financing activities (6.2 ) $ 155.2 (161.4 ) (104 %) Effect of exchange rate changes 0.7 $ - 0.7 100 % Net (decrease) increase in cash $ (15.0 ) $ 144.7 $ (159.7 ) (110 %) 58 Operating activities During the year ended December 31, 2022, cash provided by operating activities was $28.9 million, aided by net income of $30.73 million. Non-cash charges were $11.3 million and included $7.3 million in depreciation of property and equipment and right-of-use assets, $3.2 million from amortization of intangible assets, $3.8 million in bad debt expense primarily related to a provision for potential uncollectible accounts receivable, $8.1 million of stock compensation expense, and a non-cash loss of $2.9 million related to the impairment of a business unit that was discontinued at the end of the year. These charges 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, $1.6 million in a gain on a bargain purchase and $9.9 million in the realization of a deferred tax asset. Changes in assets and liabilities resulted in an approximately $13.2 million decrease to operating cash flow, as an $8.4 million increase in accounts receivable, a $4.2 million increase in prepaid expenses and a $6.0 million decrease in accrued liabilities outweighed the effect of a $1.8 million decrease in other assets and a $3.6 million increase in accounts payable. During the year ended December 31, 2021, cash used in operating activities was $1.9 million, despite net income of $19.2 million. Non-cash charges amounted to $7.7 million, as $5.2 million in depreciation of property and equipment and right-of-use assets, $1.8 million from amortization of intangible assets, $4.5 million in bad debt expense primarily related to a provision for potential uncollectible accounts receivable and $1.4 million of stock compensation expense were partially offset by $5.2 million in a non-cash gain on the remeasurement of warrant liabilities. Changes in assets and liabilities resulted in an approximately $28.8 million decrease in operating cash flow and were primarily driven by a $57.1 million increase in accounts receivable arising from the growth of the business, particularly in the fourth quarter of the year and the inclusion of larger Mobile Health customers with extended credit terms; and a $3.5 million increase in prepaid expenses and other current assets, partially offset by a $32.6 million increase in accounts payable and accrued expenses due primarily to the extension of credit and timing of payments, as DocGo attempted to align the timing of payments to vendors with the timing of payments received from customers, where possible, in an attempt to manage cash balances. Investing activities During the year ended December 31, 2022, cash used in investing activities was $38.4 million and consisted of the acquisition of property and equipment totaling approximately $3.2 million, the acquisition of intangibles in the amount of $2.3 million and $33.0 million in the acquisition of businesses, primarily relating to acquisitions the Company completed in the third and fourth quarters of 2022. During the year ended December 31, 2021, cash used in investing activities was $8.6 million, primarily consisting of the acquisition of property and equipment totaling $4.8 million and the acquisition of businesses and intangibles of $3.1 million to support the ongoing growth of the business. In addition, the Company made an equity investment amounting to approximately $0.7 million. Financing activities During the year ended December 31, 2022, cash used in financing activities was $6.2 million, including $3.7 million in the repurchase of Common Stock, $3.0 million in payments under the terms of a finance lease, $2.5 million decrease in amounts due to seller and $0.9 million in repayments of notes payable, which were partially offset by $2.1 million in non-controlling interest contributions and $2.0 million in proceeds from the exercise of stock options. During the year ended December 31, 2021, cash provided by financing activities was $155.2 million, due primarily to $158.1 million in proceeds from the issuance of common stock in connection with the Motion merger, which is net of $20.0 million in issuance costs. This was slightly offset by $2.2 million in payments on obligations under the terms of a finance lease, and $0.5 million in expenditures to acquire the remaining 20% of the Company’s U.K. subsidiary. During 2021, the Company received $8.0 million in proceeds from a revolving bank loan, which was repaid during the fourth quarter of 2021. Future minimum annual maturities of notes payable as of December 31, 2022 are as follows: Amounts in millions Notes Payable 2023 0.6 2024 0.5 2025 0.4 2026 0.3 Thereafter 0.1 Total maturities $ 1.9 Current portion of notes payable (0.7 ) Long-term portion of notes payable $ 1.2 59 Future minimum lease payments under finance leases as of the year ended December 31, 2022: Amounts in millions Finance Leases 2023 $ 3.2 2024 2.4 2025 2.2 2026 1.4 2027 and thereafter 0.4 Total future minimum lease payments 9.6 Less effects of discounting (1.0 ) Present value of future minimum lease payments $ 8.6 Future minimum lease payments under operating leases as of the year ended December 31, 2022: Amounts in millions Operating Leases 2023 $ 2.8 2024 2.3 2025 2.3 2026 1.7 2027 and thereafter 1.6 Total future minimum lease payments 10.7 Less effects of discounting (1.3 ) Present value of future minimum lease payments $ 9.4 Critical Accounting Policies Basis of Presentation The Company’s Consolidated Financial Statements are presented in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. The Consolidated Financial Statements include the accounts and operations of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions are eliminated upon consolidation. Noncontrolling interests (“NCI”) on the Consolidated Balance Sheets represents the portion of consolidated joint ventures and a variable interest entity in which the Company does not have direct equity ownership. Accounts and transactions between consolidated entities have been eliminated. Pursuant to the Business Combination, the merger between Motion and Ambulnz was accounted for as a reverse recapitalization in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, Motion was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Ambulnz stock for the net assets of Motion, accompanied by a recapitalization. The net assets of Motion are stated at historical cost, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Ambulnz. The shares of common stock and corresponding capital amounts and earnings per share available for common stockholders, prior to the Business Combination, have been retroactively restated as shares of the Company, reflecting the exchange ratio (645.1452 to 1) established in the Business Combination. Further, Ambulnz was determined to be the accounting acquirer in the transaction, as such, the acquisition is considered to be a business combination under Accounting Standards Codification (“ASC”), Topic 805, Business Combinations, (“ASC 805”) and was accounted for using the acquisition method of accounting. Principles of Consolidation The Company holds a variable interest in an entity which contracts with physicians and other health professionals in order to provide services to the Company. MD1 Medical Care P.C. (“MD1”) is considered a variable interest entity (“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of MD1 and funds and absorbs all losses of the VIE and appropriately consolidates MD1. Total revenue for the VIE amounted to $2,857,463 as of December 31, 2022. Net loss for the VIE was $373,456 as of December 31, 2022. The VIE’s total assets, all of which were current, amounted to $610,553 as of December 31, 2022. Total liabilities, all of which were current for the VIE, was $320,424 as of December 31, 2022. The VIE’s total stockholders’ deficit was $290,130 as of December 31, 2022. The Company made payments of $3,018,119 and $1,746,736 to MD1 and its affiliates during the years ended December 31, 2022 and 2021, respectively. 60 Business Combinations The Company accounts for its business combinations under the provisions of ASC 805-10, Business Combinations (“ASC 805-10”), which requires that the acquisition method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including NCI, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for as measurement-period adjustments. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings. For transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expenses acquisition-related costs and fees associated with business combinations. The estimated fair value of net assets to be acquired, including the allocation of the fair value to identifiable assets and liabilities, is determined using established valuation techniques. Management uses assumptions on the basis of historical knowledge of the business and projected financial information of the target. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values. Goodwill and Indefinite-Lived Intangible Assets Goodwill represents the excess of the total purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually on December 31 or more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. These events include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization, as indicated by our publicly quoted share price, below our net book value. On February 3, 2023, Ambulnz Health, LLC (“Health”), commenced an assignment for the benefit of creditors (“ABC”) pursuant to California law. An ABC is a liquidation process governed by state law (California law in this instance) that is an alternative to a bankruptcy case under federal law. Prior to commencing the ABC, Health ceased business operations and all of its employees were terminated and treated in accordance with California law. In the ABC, all of Health’s assets were transferred to an assignee (the “Assignee”) who acts as a fiduciary for creditors and in a capacity equivalent to that of a bankruptcy trustee. The Assignee is responsible for liquidating the assets. Similar to a bankruptcy case, there is a claims process. Creditors of Health will receive notice of the ABC and a proof of claim form and are required to submit a proof of claim in order to participate in distribution of net liquidation proceeds by the Assignee. Based on such filing for Health, the Company impaired the goodwill assigned to that reporting unit as of December 31, 2022 by approximately $5.1 million. 61 Revenue Recognition On January 1, 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), as amended. To determine revenue recognition for contractual arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify each contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when (or as) the relevant performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services the Company provides to the customer. The Company generates revenues from the provision of (1) ambulance and medical transportation services (“Transportation Services”) and (2) Mobile Health services. The customer simultaneously receives and consumes the benefits provided by the Company as the performance obligations are fulfilled, therefore the Company satisfies performance obligations immediately. The Company has utilized the “right to invoice” expedient which allows an entity to recognize revenue in the amount of consideration to which the entity has the right to invoice when the amount that the Company has the right to invoice corresponds directly to the value transferred to the customer. Revenues are recorded net of an estimated contractual allowances for claims subject to contracts with responsible paying entities. The Company estimates contractual allowances at the time of billing based on contractual terms, historical collections, or other arrangements. All transaction prices are fixed and determinable which includes a fixed base rate, fixed mileage rate and an evaluation of historical collections by each payor. Income Taxes Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or its tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense. Please see Note 2, “Summary of Significant Accounting Policies” to the Consolidated Financial Statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.