DocGo Inc. 10-Q

Item 2. 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 unaudited Condensed Consolidated Financial Statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. 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 sections entitled “Risk Factors,” included in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, and as may be updated in this and other subsequent Quarterly Reports on Form 10-Q. 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 Inc. 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 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, outcomes, 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, outcomes or expectations. Forward-looking statements are inherently subject to substantial risks, uncertainties and assumptions, many of which are beyond our control, and which may cause actual results to differ materially from those contained in our forward-looking statements. Accordingly, you should not place undue reliance on such statements. All statements other than statements of historical fact are forward-looking. Forward-looking statements include, but are not limited to, statements concerning possible or assumed future actions, business strategies, plans, goals, future events, future revenues or performance, financing needs, business trends, results of operations, objectives and intentions with respect to future operations, services and products, including our transition to non-COVID related services, geographic expansion, our normalization initiative, new and existing contracts, M&A activity, workforce growth, leadership transition, cash position, share repurchase program, impacts of financial institution instability, our competitive position and opportunities, including our ability to realize the benefits from our operating model, and others. In some cases, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “might,” “will,” “should,” “could,” “can,” “would,” “design,” “potential,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or the negative of these terms or similar expressions. Forward-looking statements are not guarantees of performance and speak only as of the date the statements are made. While DocGo believes that these forward-looking statements are reasonable, there can be no assurance that DocGo will achieve or realize these plans, intentions, outcomes or expectations. You should understand that the following important factors, in addition to those discussed under the sections entitled “Risk Factors,” included in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, and as may be updated in this and other subsequent Quarterly Reports on Form 10-Q, could affect the future results and prospects of DocGo and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements in this Quarterly Report on Form 10-Q. We undertake no intent or obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. 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, 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. 33 The Company derives revenue primarily from 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 services performed at home and offices, COVID-19 testing, and event services which include on-site healthcare support at sporting events and concerts. There is also an emphasis on providing total care management solutions to large population groups, which include healthcare services as well as ancillary services, such as shelter. In addition, beginning with the first quarter of 2023, the Company is reporting in three operating segments, adding a Corporate segment to allow for analysis of shared services and personnel that support both the Transportation Services and Mobile Health Services segments. Previously, these costs had been allocated almost entirely to the Transportation Services segment. All of the Company’s revenues and costs of goods sold continue to be reported within the Transportation Services and Mobile Health Services segments. The Corporate segment contains operating expenses such as information technology costs, certain insurance costs and the compensation costs of senior and executive leadership. The segment reporting for the prior-year period has been adjusted to conform to the new methodology, for the purposes of allowing a clearer analysis of year-over-year performance. See Note 11, “Business Segment Information” to the unaudited Condensed Consolidated Financial Statements for additional information regarding DocGo’s segments and “Operating Expenses” below. For the three months ended March 31, 2023, the Company recorded a loss of $3.9 million, compared to net income of $9.4 million in the three months ended March 31, 2022. 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, in 2020, 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, in 2020, 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. While COVID-19 testing has become a minor part of this segment’s business, since 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 the first quarter of 2023, Mobile Health generated approximately $72.9 million in revenue, compared to $90.1 million in the first quarter of 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 of 2022 and the first quarter of 2023, to the point where, as of the date of the filing of this Quarterly Report on Form 10-Q, 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 a 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 Services 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. 34 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 and financial institution instability; 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. 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 three months ended March 31, 2023, the Company completed one acquisition, for a purchase price of $25.8 million. 35 DocGo did not complete any acquisitions during the three months ended March 31, 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, these volumes were recovered in 2021since 2021, and since the first half of 2022, the Company has seen increased demand and trip volumes in nearly all of its Transportation services markets, as the Company expanded its customer base. 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 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 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 with a goal of balancing the optimum, cost-efficient labor mix for our locations. This involves managing the mix of company-employed labor and subcontracted labor as well as full-time and part-time employees. 36 Inflation Beginning in 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. Though the inflation rate has seemingly moderated in the first quarter of 2023, it remains well above historical averages. 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 two interest rate hikes to date in 2023, raising its benchmark rate (the “federal funds rate”) to the current level of 4.75%-5.00% as of the date of the filing of this Quarterly Report on Form 10-Q. Looking to the remainder of 2023, we anticipate a continued moderation of the inflation rate when compared to the levels seen in 2022, as a result of these recent interest rate hikes, but expect that inflation will remain well above the levels seen in the previous 10 years. 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 three reportable segments — Transportation Services, Mobile Health Services and Corporate. All revenue and cost of goods sold are contained within the Transportation Services and Mobile Health Services segments. Accordingly, revenues and cost of goods sold are discussed below on a consolidated level and are also broken down between Transportation Services and Mobile Health Services. Operating expenses are discussed on a consolidated level and broken down among all three segments. The Company evaluates the performance of each of its 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 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, fuel related to Transportation Services, laboratory fees, facility rent, medical supplies and subcontractors. We expect cost of revenue to continue to rise along with 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 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 our 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. 37 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 expenses, 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 expenses 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, advertising and marketing expenses consist of costs directly associated with our sales, advertising and marketing activities, which primarily include sales commissions, marketing programs, trade shows, and promotional materials. We expect that our sales, advertising 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 and financing obligations. Results of Operations Comparison of the Three Months Ended March 31, 2023 and March 31, 2022 Three Months Ended March 31, Change Change $ in Millions 2023 2022 $ % Revenue, net $ 113.0 $ 117.9 $ (4.9 ) (4 %) Cost of revenues 81.2 78.0 3.2 4 % Operating expenses: General and administrative 29.2 23.9 5.3 22 % Depreciation and amortization 3.6 2.2 1.4 64 % Legal and regulatory 3.6 1.3 2.3 177 % Technology and development 1.9 1.1 0.8 73 % Sales, advertising and marketing 0.3 1.3 (1.0 ) (77 %) Total expenses 119.8 107.8 12.0 11 % (Loss) Income from operations (6.8 ) 10.1 Other income (expenses): Interest income (expense), net 0.8 (0.1 ) 0.9 900 % Loss on remeasurement of warrant liabilities - (0.1 ) 0.1 Loss on equity method investments (0.1 ) (0.1 ) - Loss on disposal of fixed assets (0.1 ) - (0.1 ) Other income 0.2 - 0.2 Total other income (expenses) 0.8 (0.3 ) 1.1 367 % Net (loss) income before income tax benefit (provision) (6.0 ) 9.8 Income tax benefit (provision) 2.1 (0.4 ) 2.5 Net (loss) income (3.9 ) 9.4 Net loss attributable to noncontrolling interests (0.5 ) (1.3 ) 0.8 62 % Net (loss) income attributable to stockholders of DocGo Inc. and Subsidiaries $ (3.4 ) $ 10.7 38 Consolidated For the three months ended March 31, 2023, total revenues were $113.0 million, a decline of $4.9 million, or 4.2%, from the total revenues recorded in the three months ended March 31, 2022. Mobile Health For the three months ended March 31, 2023, Mobile Health revenue totaled $72.9 million, a decline of $17.2 million, or 19.1%, as compared with the three months ended March 31, 2022. The decrease in revenues was due to a significant decline in COVID-19 related testing services when compared to the prior year period. The Company estimates that revenues from mass COVID-19 testing programs amounted to approximately $1.0 million in the first quarter of 2023, compared to approximately $38.0 million in first quarter of 2022. The decline in COVID-19 testing revenue was partially offset by the expansion of the services offered by the Mobile Health segment. This expansion has accelerated through 2022 and into 2023 as the Company increased its customer base and geographic reach, while extending several large customer contracts and introducing a broader range of services. Transportation Services For the three months ended March 31, 2023, Transportation Services revenue totaled $40.1 million and increased by $12.3 million, or 44%, as compared with the three months ended March 31, 2022. This increase was due to increases in both transportation trip volumes and the average price per trip. Volumes increased by approximately 21%, from 48,110 trips for the three months ended March 31, 2022, to 58,176 trips for the three months ended March 31, 2023. The increase in trip volumes is due to a combination of growth in the customer base in certain core markets, further penetration of markets that were entered into in 2021 and the early part of 2022 and acquisitions made during the second half of 2022. Our average trip price increased from $353 in the three months ended March 31, 2022, to $415 in the three months ended March 31, 2023. The increase in the average trip price in the 2023 period reflects 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 an 8.7% increase in the average Medicare reimbursement rate for ambulance transports. Cost of Revenue For the three months ended March 31, 2023, total cost of revenue (exclusive of depreciation and amortization) was $81.2 million an increase of by 4.1%, as compared to the three months ended March 31, 2022. Cost of revenue as a percentage of revenue increased to 71.9% in the first quarter of 2023 from 66.2% in the first quarter of 2022. For the remainder of 2023, we expect cost of revenues to account for a smaller percentage of revenue than in the first quarter, as the Company’s ongoing margin enhancement projects provide a larger impact. Areas of focus include subcontracted labor, overtime hours for field staff and vehicle costs, particularly in the area of rental vehicles. In absolute dollar terms, total cost of revenue in the three months ended March 31, 2023 increased by $3.2 million from the levels of the three months ended March 31, 2022. This was primarily attributable to an $15.7 million increase in total compensation, reflecting higher headcount for both the Transportation Services and Mobile Health segments; and a $0.6 million increase in vehicle costs, reflecting the expansion of the Company’s fleet over the past year; and $0.4 million in increases across a variety of cost of revenue categories. These factors were largely offset by a $1.9 million decline in subcontracted labor, as the Company more aggressively transitioned to internal employees toward the latter part of the first quarter; an $8.2 million decrease in medical supplies and a $3.4 million decline in lab fees, both reflecting the significant decline in COVID-19 testing activity in the first quarter of 2023 compared to the first quarter of 2022. For the Mobile Health segment, cost of revenues (exclusive of depreciation and amortization) in the three months ended March 31, 2023 amounted to $52.7 million a decline of $3.8 million, or 6.7% from the three months ended March 31, 2022. Cost of revenues as a percentage of revenues increased to 72.3% in the first quarter of 2023 from 62.7% in the first quarter of 2022, due to the decline in COVID-testing revenues and significantly higher compensation expenses, reflecting headcount growth, which outweighed the impact of reduced lab fees and other medical supplies. In absolute dollar terms, subcontracted labor costs declined, but these costs were higher in the first quarter of 2023 as a percentage of Mobile Health revenues than in the first quarter of 2022. For the Transportation Services segment, cost of revenues (exclusive of depreciation and amortization) in the three months ended March 31, 2023 amounted to $28.5 million, up $7.0 million, or 33%, from the three months ended March 31, 2022. Cost of revenues as a percentage of revenues declined to 71.1% in the first quarter of 2023, from 77.3% in the first quarter of 2022, reflecting the impact of higher per-trip prices, increased number of standby contracts (for which we are paid a daily or hourly rate) and the overall increase in revenue, as well as a decline in the average fuel price. 39 Operating Expenses For the three months ended March 31, 2023, the Company recorded $38.7 million of operating expenses, an increase of $8.9 million, or 30%, compared to the three months ended March 31, 2022. As a percentage of revenue, operating expenses increased from 25.3% in the first quarter of 2022 to 34.3% in the first quarter of 2023. The increase of $8.9 million related primarily to a $6.9 million increase in total compensation due to investments in and expansion of corporate overhead to support revenue growth, largely driven by higher stock compensation expense; a $1.4 million increase in depreciation and amortization due to an increase in assets to support revenue growth, capitalized software amortization and assets that were added as part of acquisitions that the Company completed in the second half of 2022; a $2.3 million increase in legal, accounting, regulatory and other professional fees related to increased revenue and related contract generation, audit fees, Sarbanes-Oxley (SOX) compliance consulting fees and SEC filing-related costs; a $1.2 million increase in insurance costs, reflecting higher headcount and expanded operations; a $1.0 million increase in IT infrastructure, driven by the Company’s business and headcount expansion and acquisitions; and a $0.8 million increase in rent and utilities, relating to the Company’s ongoing geographic expansion. These increased expenses were partially offset by a $3.0 million decline in bad debt expense, as allowances for doubtful accounts were adjusted to better reflect the aging and collection history of the Company’s accounts receivable; a $0.5 million decline in commissions, in the absence of certain per-test and per-vaccination commissions that were paid in relation to certain mass COVID-19 testing and vaccination projects in the first half of 2022; and a $0.5 million decline in marketing costs, reflecting the cessation of certain marketing programs that were run in conjunction with Mobile Health projects that have since expired; and a $0.7 million across various operating expense categories, including travel and entertainment, general office expenses and dues and subscriptions. We anticipate that operating costs over the remainder of 2023, as a percentage of total revenue, will decline from the levels seen in the first quarter of 2023, primarily due to lower total compensation costs as a percentage of total revenue. For the Mobile Health segment, operating expenses in the three months ended March 31, 2023 were $7.2 million, compared to operating expenses of $10.2 million in the three months ended March 31, 2022. Operating expenses as a percentage of Mobile Health revenues decreased to 9.8% from 11.3% in the first quarter of 2022. The decrease in operating expenses was a result of a reduction in non-field headcount in the Mobile Health segment, driven in part by the movement of Mobile Health management personnel into centralized corporate functional areas. For the Transportation Services segment, operating expenses in the three months ended March 31, 2023 were $10.5 million, up $1.72.0 million, or 18.8%, from the three months ended March 31, 2022. Operating expenses as a percentage of revenues decreased to 26.1% from 31.9% in the prior year period, reflecting the increased revenues in the current period. For the Corporate segment, which represents primarily shared services that are not contained within the entities which comprise either the Mobile Health Services or Transportation Services segments, operating expenses in the three months ended March 31, 2023 were $21.12 million, compared to $10.8 million in the three months ended March 31, 2022. The increase was driven by higher headcount, as the Company built out its corporate infrastructure, including areas such as Business Development, Product Development and Corporate Development; as well as significantly higher stock compensation expenses. As a percentage of total consolidated revenues, Corporate expenses amounted to approximately 18.7% of revenues in the first quarter of 2023, compared to 9.2% in the three months ended March 31, 2022. Interest Income/(Expense), Net For the three months ended March 31, 2023, the Company recorded $809,172 of net interest income compared to $135,606 of interest expense in the three months ended March 31, 2022. This was due to a significantly higher amount of interest earned in the three months ended March 31, 2023, due to 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 three months ended March 31, 2023, there were no gains or losses recorded relating to remeasurement of warrant liabilities, as warrants were redeemed during the third quarter of 2022. During the three months ended March 31, 2022, the Company recorded a loss of $58,749 from the remeasurement of warrant liabilities. The warrants were marked-to-market in each reporting period, and this loss reflected the decrease in DocGo’s stock price relative to the beginning of the first quarter of 2022. Gain/(Loss) on Equity Method Investment During the three months ended March 31, 2023, the Company recorded a loss on equity method investments of $115,286, which represented its share of the losses incurred by an entity in which the Company had a minority interest, which was accounted for under the equity method. During the three months ended March 31, 2022, the Company recorded a loss on equity method investments of $83,341 related to the same entity. Gain/(loss) on Disposal of Fixed Assets During the three months ended March 31, 2023, the Company recorded a loss on the disposal of fixed assets of $54,839. No such gain or loss was recorded during the three months ended March 31, 2022. 40 Income Tax Benefit/(Expense) During the three months ended March 31, 2023, the Company recorded income tax benefit of $2.1 million. For the three months ended March 31, 2022, the Company recorded an income tax expense of $0.4 million. The income tax benefit reflects a pretax loss recorded during the three months ended March 31, 2023, compared to pretax income in the prior year period. The income tax benefit in the current year period includes income as well as state income taxes in jurisdictions the Company entered during the past year and current period. Net Loss Attributable to Noncontrolling Interest For the three months ended March 31, 2023, the Company had a net loss attributable to noncontrolling interest of approximately $0.5 million, compared to a net loss attributable to noncontrolling interest of $1.3 million for the three months ended March 31, 2022. The decreased loss reflected improved performance in most of the Company’s joint venture ongoing investments in new markets in the three months ended March 31, 2023. 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. However, even when the Company generates positive net income, 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 may also be affected by factors outside of the Company’s control, such as interest rates, rising inflation, financial institution instability or failure 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 Quarterly Report on Form 10-Q, the Company has not made any draws under the facility and there are no amounts outstanding. 41 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 9, “Line of Credit” to the unaudited Condensed Consolidated Financial Statements) will be sufficient to satisfy operating requirements for at least the next twelve months. Capital Resources Comparison as of March 31, 2023 and March 31, 2022 As of March 31, Change Change $ in Millions 2023 2022 $ % Working capital Current assets $ 258.4 $ 268.2 $ (9.8 ) (4 %) Current liabilities 109.0 61.0 48.0 79 % Total working capital $ 149.4 $ 207.2 $ (57.8 ) (28 %) As of March 31, 2023, available cash totaled $120.1 million, which represented a decrease of $68.3 million as compared to March 31, 2022, as acquisitions made during the second half of 2022 and in the first quarter of 2023 outweighed cash flow from operations. As of March 31, 2023, working capital amounted to $149.4 million, which represented a decrease of $57.8 million as compared to March 31, 2022, primarily reflecting the reduced cash balance. Increased accounts receivable in the three months ended March 31, 2023, which reflected the growth of the business and a shift towards higher credit quality customers, who have longer payment terms, outweighed the increase in current liabilities in the first quarter of 2023, which reflected the growth of the business and amounts due to the seller and contingent consideration resulting from acquisitions. Cash Flows Three months ended March 31, 2023 and 2022 Three Months Ended March 31, Change Change $ in Millions 2023 2022 $ % Cash flow summary Net cash provided by/(used in) operating activities $ (23.1 ) $ 18.3 $ (41.4 ) (226 %) Net cash provided by/(used in) investing activities (1.7 ) $ (1.1 ) (0.6 ) (55 %) Net cash provided by/(used in) financing activities (12.0 ) $ 2.5 (14.5 ) (580 %) Effect of exchange rate changes 0.2 $ - 0.2 0 % Net (decrease) increase in cash $ (36.6 ) $ 19.7 $ (56.3 ) (286 %) 42 Operating Activities During the three months ended March 31, 2023, operating activities used $23.1 million of cash, driven by a net loss of $3.9 million. Non-cash charges amounted to $9.4 million and included $2.3 million in depreciation of property and equipment and right-of-use assets, $1.4 million from amortization of intangible assets, $8.5 million of stock compensation expense, and a $0.1 million loss on an equity investment. These were partially offset by a $1.9 million reduction in bad debt expense related to an adjustment in the provision for potential uncollectible accounts receivable, and a $1.0 gain from a deferred tax asset. Changes in assets and liabilities resulted in approximately $28.6 million in negative cash flow, as a $24.7 million increase in accounts receivable, a $2.6 million decrease in accounts payable, a $1.5 million decrease in accrued liabilities and a $0.2 million increase in prepaid expenses outweighed a $0.3 million reduction in other assets. During the three months ended March 31, 2022, operating activities provided $18.2 million of cash, aided by net income of $9.4 million. Non-cash charges amounted to $4.8 million and included $1.6 million in depreciation of property and equipment and right-of-use assets, $0.6 million from amortization of intangible assets, $1.2 million in bad debt expense primarily related to a provision for potential uncollectible accounts receivable and $1.4 million of stock compensation expense. Changes in assets and liabilities resulted in approximately $4.1 million in additional operating cash flow, as a $1.1 million decrease in accounts receivable, a $2.2 million decrease in other assets and a $3.1 increase in accrued liabilities outweighed the effect of a $1.5 million increase in prepaid expenses and a $0.7 million decline in accounts payable. Operating cash flow in the first quarter of 2022 was aided by collections of large accounts receivable from invoices generated in the fourth quarter of 2021. Investing Activities During the three months ended March 31, 2023, investing activities used $1.7 million of cash and consisted of the acquisition of property and equipment totaling $2.0 million and the acquisition of intangibles in the amount of $1.4 million, partially offset by $1.6 million in cash added via an acquisition and $0.1 million in proceeds from the disposal of property and equipment. During the three months ended March 31, 2022, investing activities used $1.1 million of cash and primarily consisted of the acquisition of property and equipment totaling $0.5 million and the acquisition of intangibles in the amount of $0.6 million to support the ongoing growth of the business. Financing Activities During the three months ended March 31, 2023, financing activities used $12.0 million of cash, due to a reduction of $11.5 million in amounts due to seller, as deferred payments were made under the terms of previously-closed acquisitions, $0.8 million in payments under the terms of finance leases, and $0.1 million in repayments of notes payable. These items were partially offset by $0.4 million in proceeds from the exercise of stock options. 43 During the three months ended March 31, 2022, financing activities provided $2.5 million of cash, due to $1.0 million in proceeds from the Company’s revolving credit line, $2.1 million in noncontrolling interest contributions and $0.4 million in proceeds from the exercise of stock options, which were partly offset by $0.6 million in payments on obligations under the terms of finance leases, $0.1 million in repayments of notes payable, a reduction of $0.2 million in amounts due to seller and $0.1 million of equity cost. Future minimum annual maturities of notes payable as of March 31, 2023 were as follows: Notes Payable 2023, remaining 0.4 2024 0.5 2025 0.5 2026 0.4 2027 0.1 Thereafter 0.0 Total maturities $ 1.9 Current portion of notes payable (0.6 ) Long-term portion of notes payable $ 1.3 Future minimum lease payments under operating leases as of March 31, 2023, and for the following four fiscal years and thereafter are as follows: Operating Leases 2023, remaining $ 2.2 2024 2.6 2025 2.6 2026 1.9 2027 and thereafter 1.7 Total future minimum lease payments 11.0 Less effects of discounting (1.3 ) Present value of future minimum lease payments $ 9.7 Future minimum lease payments under finance leases as of March 31, 2023, and for the following four fiscal years and thereafter are as follows: Finance Leases 2023, remaining $ 2.5 2024 2.7 2025 2.4 2026 1.6 2027 and thereafter 0.6 Total future minimum lease payments 9.8 Less effects of discounting (1.0 ) Present value of future minimum lease payments $ 8.8 44 Critical Accounting Policies Basis of Presentation The Company’s unaudited Condensed Consolidated Financial Statements are presented in conformity with accounting principles generally accepted in the United States of America (“U (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Condensed 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”) in the unaudited Condensed Consolidated Financial Statements represent the portion of consolidated joint ventures and a variable interest entity (“VIE”) 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, Inc. 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, Inc. 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, Inc. The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio (645.1452 to 1) established in the Business Combination. Further, Ambulnz, Inc. was determined to be the accounting acquirer in the transaction, as such, the acquisition is considered 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’s unaudited Condensed Consolidated Financial Statements include the accounts of DocGo Inc and its subsidiaries. All significant intercompany transactions and balances have been eliminated in these unaudited Condensed Consolidated Financial Statements. The Company holds a variable interest in MD1 Medical Care P.C. (“MD1”), which contracts with physicians and other health professionals in order to provide services to the Company. MD1 is considered a 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. Net loss for the VIE was $186,637 for the three months ended March 31, 2023. The VIE’s total assets, all of which were current, amounted to $635,620 as of March 31, 2023. Total liabilities, all of which were current for the VIE, was $532,127 as of March 31, 2023. The VIE’s total stockholders’ deficit was $103,493 as of March 31, 2023. 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. 45 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. 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) 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. 46 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 unaudited Condensed Consolidated Financial Statements.