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 risks, uncertainties, and other factors described in the sections entitled “Risk Factors” included in Part I, Item 1A of 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 below entitled “Cautionary Note Regarding Forward-Looking Statements." Unless the context requires otherwise, references to the “Company,” “we,” “us,” and “our” refer to the business and operations of DocGo Inc. and its consolidated subsidiaries. Certain figures included in this section, such as interest rates and other percentages, 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 our unaudited Condensed Consolidated Financial Statements or in the accompanying 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 and Section 21E of 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, results, 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 our actual results or outcomes, or the timing of our results or outcomes, 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 our 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 margin normalization initiative; new and existing contracts and backlog; M&A activity; workforce growth; leadership transitions; cash position; share repurchase program; expected impacts of macroeconomic factors, including inflationary pressures, general economic slowdown or a recession, rising interest rates, foreign exchange rate volatility, changes in monetary pressure , financial institution instability or the prospect of a shutdown of the U.S. federal government; potential changes in federal, state or local government policies regarding immigration and asylum seekers; expected impacts of geopolitical instability, including the conflict in Ukraine, conflict in Israel and surrounding areas and rising tensions between China mainland and Taiwan; our competitive position and opportunities, including our ability to realize the benefits from our operating model; our ability to improve gross margins; cost-containment measures; legislative and regulatory actions; the impact of legal proceedings and compliance risk; the impact on our business and reputation in the event of information technology system failures, network disruptions, cyber-attacks, or losses or unauthorized access to, or release of, confidential information; the ability of the Company to comply with laws and regulations regarding data privacy and protection; 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. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results or outcomes could differ materially from those described in the forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q, and, while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, 40 Table of Contents all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. The forward-looking statements made in this Quarterly Report on Form 10-Q are based on events or circumstances as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as and to the extent required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments. Overview The Company 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 major metropolitan cities in the U.S. and the U.K. The Company derives revenue primarily from two operating segments: • Mobile Health Services: The services offered by this segment include services performed at homes and offices, testing and vaccinations, and event services such as 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. • 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. In addition, beginning with the first quarter of 2023, the Company began 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 for 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 the Company’s segments and “Operating Expenses” below. For the three months ended September 30, 2023, the Company recorded net income of $4.6 million, compared to net income of $2.5 million in the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company recorded net income of $2.1 million, compared to net income of $23.6 million in the nine months ended September 30, 2022. COVID-19 The spread of COVID-19 and the related shutdowns and restrictions had a mixed impact on the Company’s business. In the ambulance transportation business, which predominantly comprises non-emergency medical transportation, the Company initially saw a decline in volumes from historical and expected levels, as elective surgeries and other procedures were postponed. In some of the Company’s larger markets, such as New York and California, there were declines in trip volume. In addition, the Company experienced lost revenues associated with sporting, concerts and other events, as those events were cancelled or significantly restricted (or entirely eliminated) the number of permitted attendees. Ambulance transports and event-related revenues have both since recovered to pre-COVID levels or higher. There were two areas in which the Company initially experienced positive business impacts from COVID-19. In April and May 2020, the Company participated in an emergency project with FEMA in the New York City area. This engagement resulted in incremental transportation revenue. In addition, in response to the need for widespread COVID-19 testing, EMTs and paramedics, the Company formed a new subsidiary, 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 Services segment. 41 Table of Contents As COVID-19 testing activity slowed to account for a minor portion of the Company’s revenues, RRT expanded its services beyond COVID-19 testing to a wide variety of tests, vaccinations and other procedures. The Company’s current business plan assumes increased demand for Mobile Health Services, a demand that was accelerated by the pandemic, but which is also being driven by longer-term secular factors, such as the increasing desire on the part of patients to receive treatments outside of traditional settings, such as doctor’s offices and hospitals. 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, financial institution instability and the prospect of a shutdown of the U.S. federal government; availability of healthcare professionals and other personnel; changes in the cost of labor; and production schedules of our suppliers. Some of these key factors are briefly discussed below. Future revenue growth and improvement in operating results will be largely contingent on our ability to penetrate new markets, to further penetrate existing markets and to successfully bid on contracts, which are subject to a number of uncertainties, many of which are beyond our control. Operating Licenses We have historically pursued a strategy of applying for ambulance operating licenses in the states, counties and cities we have identified for future new market entry. The approval of a new operating license may take an extended period of time. We aim to reduce this risk through our acquisition strategy, pursuant to which we identify businesses and/or underlying licenses in these new markets that may be for sale. Acquisitions Historically, we have pursued an acquisition strategy to obtain ambulance operating licenses from small operators or to obtain enhanced capabilities to offer Mobile Health Services. Future acquisitions may also include larger companies that may help drive revenue, profitability, cash flow and stockholder value. During the nine months ended September 30, 2023, the Company completed two acquisitions for an aggregate purchase price of $32.8 million. During the nine months ended September 30, 2022, the Company completed three acquisitions for an aggregate purchase price of $34.1 million, excluding $1.3 million held in escrow. Healthcare Services Market The Mobile Health Services market is dependent on several factors, including increased patient acceptance of services that are provided outside of traditional health care facilities, such as in homes, businesses or other designated locations; healthcare coverage of the various Mobile Health Services; and continued desire on the part of government and municipal entities to fund programs to assist currently underserved patient segments via “population health” programs. These programs have increased in number, scale and scope since the beginning of the COVID-19 pandemic. While COVID-19 testing and vaccination programs have been scaled back from their levels at the pandemic’s peak, there have been expansions of these population health programs into other areas, such as the provision of healthcare and related services to recent migrants and asylum seekers. The Transportation Services market is highly dependent on patients requiring transportation after surgeries and other medical procedures and treatments. The Company primarily focuses on the non-emergency medical transport market, which includes services that are provided to patients who need assistance getting to and from medical appointments. Key drivers of this market are the increase in chronic conditions and the number of elective surgeries as well as the ongoing aging of the population, as the older demographics tend to be much more frequent consumers of medical transportation services. The market will also grow if hospitals and other healthcare facilities continue to outsource more of their transportation needs to independent providers, such as the Company. 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 Services and Mobile Health Services, interest rates, or 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. 42 Table of Contents 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, the Company believes it is a good 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 the total number of trips by the total number of trips 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 the Company is paid a fixed hourly or daily rate for the use of a fully staffed and equipped ambulance do not factor in the trip counts or average trip prices mentioned above. We expect these fixed rate, “leased hour” programs to account for an increasing proportion of the Transportation Services 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 help drive improvements in productivity per transport and per shift. We regularly analyze our workforce productivity to help achieve 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. Inflation Since 2021, the inflation rate in the U.S., as measured by the Consumer Price Index, 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 moderated in the first nine months of 2023, reaching an annualized level of 3.7% in September, it remains 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 a continued attempt to dampen inflation, the U.S. Federal Reserve implemented four interest rate hikes to date in 2023, raising its benchmark rate to the current level of 5.25-5.50% 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 and additional potential rate hikes, but expect inflation to remain 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 (“R&D”), including our ability to attract and retain highly skilled R&D personnel. We intend to develop and introduce innovative new software services, integrations 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 may be adversely affected. Regulatory Environment The Company 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 — Mobile Health Services, Transportation Services and Corporate. All revenue and cost of goods sold are contained within the Mobile Health Services and Transportation Services segments. Accordingly, revenues and cost of goods sold are discussed below on a consolidated level and are also broken down 43 Table of Contents between Mobile Health Services and Transportation 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 its results of operations. Accordingly, other income and expenses not included in results of operations are only included in the discussion of consolidated results of operations. Revenue The Company’s revenue consists of services provided by its Mobile Health Services segment and its Transportation Services 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 revenues 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 continue to scale our business and grow headcount and as a result of operating as a public company, including our compliance with SEC rules and regulations, audit activities, additional insurance expenses, investor relations activities, and other administrative and professional services. Depreciation and Amortization The Company 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 the Company’s proprietary technology, third-party software and technologies. We expect technology and development expense to increase in future periods to support our growth, including our intent to continue investing in the optimization, accuracy and reliability of our platform and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments, particularly when entering new business lines or customer sales channels. Sales, Advertising and Marketing Expenses Our sales, advertising 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 our sales and marketing expenses to continue to increase over time as we increase our marketing activities, grow our domestic and international operations, and continue to build brand awareness. Interest Expense Interest expense consists primarily of interest on our outstanding borrowings under our outstanding notes payable and financing obligations. 44 Table of Contents Results of Operations Comparison of the Three Months Ended September 30, 2023 and 2022 Three Months Ended September 30, Change $ Change % $ in Millions 2023 2022 Actual Results % of Total Revenue Actual Results % of Total Revenue Revenues, net $ 186.6 100.0 % $ 104.3 100.0 % $82.3 78.9 % Cost of revenues 131.5 70.5 % 71.3 68.3 % 60.2 84.4 % Operating expenses: General and administrative $ 33.6 18.0 % 22.1 21.2 % 11.4 51.4 % Depreciation and amortization 4.3 2.3 % 3.0 2.9 % 1.3 43.3 % Legal and regulatory 3.5 1.9 % 2.2 2.1 % 1.3 59.1 % Technology and development 3.2 1.7 % 1.4 1.3 % 1.8 128.6 % Sales, advertising and marketing 1.7 0.9 % 0.1 0.1 % 1.5 1500.0 % Total expenses 177.8 95.3 % 100.1 96.0 % 77.7 77.6 % Income from operations 8.8 4.7 % 4.2 4.0 % 4.6 Other income (expenses): Interest income, net 0.3 0.2 % 0.3 0.3 % — — % (Loss) on remeasurement of warrant liabilities — — % (1.8) (1.8) % 1.8 Change in fair value of contingent liability 0.2 0.1 % — — % 0.2 (Loss) gain on equity method investments (0.1) (0.1) % 0.1 0.1 % (0.2) Gain on remeasurement of finance leases — — % — — % — (Loss) gain on disposal of fixed assets — — % 0.1 0.1 % (0.1) Other income (expense) — — % — — % — Total other income (expense) 0.4 0.2 % (1.3) (1.3) % 1.7 Net income before income tax provision 9.2 4.9 % 2.9 2.7 % 6.3 Income tax (provision) (4.5) (2.4) % (0.4) (0.4) % -4.1 Net income 4.7 2.5 % 2.5 2.4 % 2.1 Net (loss) attributable to noncontrolling interests (0.1) (0.1) % (0.7) (0.7) % 0.6 (85.7) % Net income attributable to stockholders of DocGo Inc. and Subsidiaries $ 4.8 2.6 % $ 3.2 3.0 % 1.6 Consolidated For the three months ended September 30, 2023, total revenue was $186.6 million, an increase of $82.3 million, or 78.9%, compared to the three months ended September 30, 2022. Mobile Health Services For the three months ended September 30, 2023, Mobile Health Services revenue totaled $139.3 million, an increase of $62.7 million, or 81.8%, compared to the three months ended September 30, 2022. The increase in revenue was primarily due to an expansion in services offered by the Mobile Health Services segment, particularly in the government customer sector. This expansion accelerated during the nine months ended September 30, 2023 as the Company increased its 45 Table of Contents 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 September 30, 2023, Transportation Services revenue totaled $47.2 million, an increase of $19.5 million, or 70.6%, compared to the three months ended September 30, 2022. The increase in Transportation Services revenue reflected higher trip volumes and average trip prices. Volumes increased by approximately 9.4%, from 58,751 trips for the three months ended September 30, 2022, to 64,321 trips for the three months ended September 30, 2023. The increase in trip volumes was due to a combination of growth in the Company's customer base in certain core markets and acquisitions made during the first nine months of 2022. Our average trip price increased from $374 in the three months ended September 30, 2022 to $409 in the three months ended September 30, 2023. The increase in the average trip price in 2023 reflected a shift in mix toward higher-priced transports with existing customers, as well as the acquisition of licenses to provide higher acuity transports that earn 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 Revenues For the three months ended September 30, 2023, total cost of revenue (exclusive of depreciation and amortization) increased by 84.4% compared to the three months ended September 30, 2022, while revenue increased by approximately 78.8%. Cost of revenue as a percentage of revenue increased to 70.5% in the three months ended September 30, 2023 from 68.3% in the three months ended September 30, 2022. In absolute dollar terms, total cost of revenue in the three months ended September 30, 2023 increased by $60.2 million compared to the same period in 2022. This increase was primarily attributable to a $6.3 million increase in total compensation, due to higher headcount for both the Transportation Services and Mobile Health Services segments; a $35.7 million increase in subcontracted labor costs, primarily driven by new projects in both segments that required more personnel than the Company was able to initially provide through its existing staff; a $12.3 million increase in medical and related supplies; a $2.3 million increase in travel costs for field personnel and other clinicians who traveled out of their home regions to provide Mobile Health Services; and a $4.6 million net increase in other cost of revenues categories. These items were partially offset by a $1.0 million decline in vehicle costs, as the Company exited certain rental agreements. For the Mobile Health Services segment, cost of revenue (exclusive of depreciation and amortization) in the three months ended September 30, 2023 amounted to $99.3 million, up 98.6% from $50.0 million in the three months ended September 30, 2022. Cost of revenue as a percentage of revenue increased to 71.2%% from 65.2% in the prior year period, despite a significant increase in revenue, reflecting higher compensation expenses as a result of headcount growth, significantly higher subcontracted labor costs and increased costs for medical supplies. For the Transportation Services segment, cost of revenue (exclusive of depreciation and amortization) in the three months ended September 30, 2023 amounted to $32.2 million, up 51.2% from $21.3 million in the three months ended September 30, 2022. Cost of revenue as a percentage of revenues decreased to 68.3% from 76.8% in the prior year quarter, reflecting the impact of higher per-trip prices, increased revenues from 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. Operating Expenses For the three months ended September 30, 2023, the Company recorded $46.4 million of operating expenses compared to $28.9 million for the three months ended September 30, 2022, an increase of 60.7%. As a percentage of revenue, operating expenses decreased from 27.7% in the third quarter of 2022 to 24.9% in the third quarter of 2023, reflecting the increase in revenues described above. The increase of $17.5 million of operating expenses related primarily to an $8.3 million increase in total compensation due to investments in and expansion of corporate overhead to support revenue growth, partially driven by higher stock compensation expense; a $1.5 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 and the second quarter of 2023; a $1.5 million increase in commissions related to both Mobile Health Services and Transportation Services projects; a $0.8 million increase in IT infrastructure, driven by the Company’s business and headcount expansion and acquisitions; a $0.4 million increase in bad debt expense, reflecting the growth of the business and related increase in accounts receivable; and a net $4.9 million increase spread across a variety of other operating expense categories. The Company anticipates that operating expenses will continue to decline as a percentage of revenue from the levels seen in the first three quarters of 2023. 46 Table of Contents For the Mobile Health Services segment, operating expenses in the three months ended September 30, 2023 were $19.0 million, up from $8.7 million in the three months ended September 30, 2022. Operating expenses as a percentage of revenue increased to 13.4% in the third quarter of 2023, from 11.4% in the third quarter of 2022, reflecting significant expenditures that have been made in recent quarters in the expansion of services and geographic areas of operation, as well as the continued buildout of the Mobile Health Services management infrastructure. For the Transportation Services segment, operating expenses in the three months ended September 30, 2023 were $14.5 million, compared to $10.3 million in the three months ended September 30, 2022. Operating expenses as a percentage of revenue decreased to 30.6% for the three months ended September 30, 2023 from 37.2% in the three months ended September 30, 2022, reflecting the increased revenue in the current year period. For the Corporate segment, which represents primarily shared services that are not contained within the entities included in either the Mobile Health Services or Transportation Services segments, operating expenses in the three months ended September 30, 2023 were $12.9 million, compared to $9.9 million in the three months ended September 30, 2022. Corporate expenses amounted to approximately 6.9% of total consolidated revenues in the third quarter of 2023, compared to 9.5% in the third quarter of 2022, reflecting the significant increase in total consolidated revenues. Interest Income, Net For the three months ended September 30, 2023, the Company recorded $0.3 million of interest income, net compared to $0.3 million of interest income, net in the three months ended September 30, 2022. Higher rates of interest were earned on balances in the Company’s interest-bearing accounts in the three months ended September 30, 2023, offsetting the impact of a decline in average cash balances when compared to the three months ended September 30, 2022. (Loss) on Remeasurement of Warrant Liabilities During the three months ended September 30, 2023, there were no gains or losses recorded relating to remeasurement of warrant liabilities, as all warrants were redeemed during the third quarter of 2022. During the three months ended September 30, 2022, the Company recorded a loss of approximately $1.8 million from the remeasurement of warrant liabilities. The warrants were marked-to-market in each reporting period, and this loss reflected the increase in the Company’s stock price relative to the beginning of the third quarter of 2022. Change in Fair Value of Contingent Liability During the three months ended September 30, 2023, the Company recorded a change in fair value of contingent consideration of $0.2 million. There was no related change in fair value recorded in the three months ended September 30, 2022. (Loss) Gain on Equity Method Investments During the three months ended September 30, 2023, the Company recorded a loss on equity method investments of $0.1 million representing its share of the losses incurred by an entity in which the Company has a minority interest. During the three months ended September 30, 2022, the Company recorded a gain on equity method investments of $0.1 million. Gain on Remeasurement of Finance Leases During the three months ended September 30, 2023 and 2022, there were no gains or losses recorded relating to remeasurement of finance leases. (Loss) Gain on Disposal of Fixed Assets During the three months ended September 30, 2023, the Company recorded a loss on the disposal of fixed assets of $9,983, compared to a gain on the disposal of fixed assets of $42,667 during the three months ended September 30, 2022. Income Tax (Provision) During the three months ended September 30, 2023, the Company recorded an income tax provision of $4.5 million, compared to an income tax provision of $0.4 million in the three months ended September 30, 2022. The increased tax expense was due to higher pretax income in the 2023 period. 47 Table of Contents Net (Loss) Income Attributable to Noncontrolling Interests For the three months ended September 30, 2023, the Company had net loss attributable to noncontrolling interests of approximately $0.1 million, compared to a net loss attributable to noncontrolling interests of approximately $0.7 million for the three months ended September 30, 2022, which reflected improved performance in the Company’s joint venture markets in the three months ended September 30, 2023. 48 Table of Contents Comparison of the Nine Months Ended September 30, 2023 and 2022 Nine Months Ended September 30, Change $ Change % $ in Millions 2023 2022 Actual Results % of Total Revenue Actual Results % of Total Revenue Revenues, net $ 425.0 100.0 % $ 331.7 100.0 % $ 93.3 28.1 % Cost of revenues 296.3 69.7 % 219.4 66.1 % 76.9 35.1 % Operating expenses: General and administrative 93.6 22.0 % 70.7 21.3 % 22.9 32.4 % Depreciation and amortization 11.8 2.8 % 7.3 2.2 % 4.5 61.6 % Legal and regulatory 9.6 2.3 % 6.6 2.0 % 3.0 45.5 % Technology and development 7.7 1.8 % 3.7 1.1 % 4.0 108.1 % Sales, advertising and marketing 2.6 0.6 % 2.3 0.7 % 0.3 13.0 % Total expenses $ 421.6 99.2 % 310.0 93.4 % 111.6 36.0 % Income from operations $ 3.4 0.8 % $ 21.8 6.6 % (18.4) Other income (expenses): Interest income, net 1.7 0.4 % 0.3 0.1 % 1.4 466.7 % (Loss) gain on remeasurement of warrant liabilities — — % 1.1 0.3 % (1.1) Change in fair value of contingent liability 0.2 — % — 0.3 % 0.2 (Loss) gain on equity method investments (0.3) (0.1) % 0.1 — % (0.4) Gain on remeasurement of finance leases — — % 1.4 0.4 % (1.4) (Loss) gain on disposal of fixed assets (0.2) — % 0.1 — % (0.3) Other income (expense) (0.7) (0.2) % — — % (0.7) Total other income (expense) 0.7 0.2 % 3.0 0.9 % (2.3) (76.7 %) Net income before income tax provision 4.1 1.0 % 24.8 7.5 % (20.7) Income tax (provision) (2.0) (0.5) % (1.2) — % (0.8) Net income 2.1 0.5 % 23.6 7.1 % (21.5) Net income (loss) attributable to noncontrolling interests 2.8 0.7 % (2.9) (0.9) % 5.7 196.6 % Net income attributable to stockholders of DocGo Inc. and Subsidiaries $ (0.7) (0.2) % $ 26.5 8.0 % $ (27.2) Consolidated For the nine months ended September 30, 2023, total revenue was $425.0 million, an increase of $93.3 million, or 28.1%, from the total revenue recorded in the nine months ended September 30, 2022. 49 Table of Contents Mobile Health Services For the nine months ended September 30, 2023, Mobile Health Services revenue totaled $292.4 million, an increase of $38.3 million, or 15.1%, compared to the nine months ended September 30, 2022. The increase in revenue was due to an expansion in services offered by the Mobile Health Services segment, particularly in the government customer sector. This expansion has accelerated through the first nine months of 2023 as the Company increased its customer base and geographic reach, while extending several large customer contracts and introducing a broader range of services. This outweighed a significant decline in COVID-19 related mass testing services and related revenue when compared to the prior year period. The Company estimates that revenue from mass COVID-19 testing programs amounted to approximately $3.0 million in the first nine months of 2023, compared to approximately $74.0 million in the first nine months of 2022. Transportation Services For the nine months ended September 30, 2023, Transportation Services revenue totaled $132.7 million, an increase of $55.0 million, or 70.9% compared to the nine months ended September 30, 2022. This increase was due to an increase in both trip volumes and the average price per trip. Trip volumes increased by approximately 20%, from 154,534 trips for the nine months ended September 30, 2022 to 185,404 trips for the nine months ended September 30, 2023. The increase in trip volumes was due to a combination of growth in the Company’s customer base in certain core markets and acquisitions made during the second half of 2022 and second quarter of 2023. Our average trip price increased from $362 in the nine months ended September 30, 2022 to $405 in the nine months ended September 30, 2023. The increase in the average trip price in 2023 reflected a shift in mix toward higher-priced transports with existing customers, as well as the acquisition of licenses to provide higher acuity transports that earn 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 Revenues For the nine months ended September 30, 2023, total cost of revenue (exclusive of depreciation and amortization) increased by 35.1% compared to the nine months ended September 30, 2022, while revenue increased by approximately 28.1%. Cost of revenue as a percentage of revenue increased to 69.7% in the nine months ended September 30, 2023 from 66.1% in the nine months ended September 30, 2022. In absolute dollar terms, total cost of revenue in the nine months ended September 30, 2023 increased by $76.9 million from the prior year period. This was primarily attributable to a $32.3 million increase in total compensation, reflecting higher headcount for both the Transportation Services and Mobile Health Services segments; a $40.2 million increase in subcontracted labor, driven primarily by the Mobile Health Services segment, where revenue increases outpaced the Company’s ability to service such revenue solely with internal resources, as well as certain projects which required more specialized personnel; and a $4.8 million increase in medical and related supplies. These increases were slightly offset by a net decrease of $0.5 million in expenses across a variety of other cost of revenues categories. For the Mobile Health Services segment, cost of revenue (exclusive of depreciation and amortization) in the nine months ended September 30, 2023 amounted to $204.1 million, up $45.2 million, or 29%, from the nine months ended September 30, 2022. Cost of revenue as a percentage of revenue increased to 69.8% in the nine months ended September 30, 2023 from 62.6% in the nine months ended September 30, 2022, despite a significant increase in revenues, reflecting higher compensation expenses as a result of headcount growth, significantly higher subcontracted labor costs and increased costs for medical supplies, which outweighed the impact of reduced lab fees and supplies costs due to the significant decline in COVID testing. For the Transportation Services segment, cost of revenue (exclusive of depreciation and amortization) in the nine months ended September 30, 2023 amounted to $92.2 million, up $31.8 million, or 53%, from the nine months ended September 30, 2022. Cost of revenue as a percentage of revenues decreased to 69.5% in the nine months ended September 30, 2023 from 77.8% in the prior year period, 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. Operating Expenses For the nine months ended September 30, 2023, the Company recorded $125.3 million of operating expenses compared to $90.6 million for the nine months ended September 30, 2022, an increase of 38.4%. As a percentage of revenue, operating expenses increased from 27.3% in the nine months ended September 30, 2022 to 29.5% in the nine months ended September 30, 2023. The increase of $34.4 million related primarily to a $21.3 million increase in total compensation, 50 Table of Contents which included costs for both directly employed and subcontracted staff due to investments in and expansion of corporate infrastructure to support the revenue growth, as well as an increase in stock-based compensation expense; a $4.7 million increase in depreciation and amortization due to an increase in assets to support revenue growth and capitalized software amortization, as well as recently acquired companies; a $3.5 million increase in IT infrastructure, driven by the Company’s business and headcount expansion; a $2.2 million increase in insurance costs, reflecting higher headcount and expanded operations; a $2.0 million increase in rent and utilities relating to the Company’s ongoing geographic expansion; and a $3.1 million net increase across a variety of expense categories. These increased expenses were partially offset by a $2.4 million decrease 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. We anticipate that operating costs over the remainder of 2023, as a percentage of total revenue, will decline from the levels seen in the nine months ended September 30, 2023. For the Mobile Health Services segment, operating expenses in the nine months ended September 30, 2023 were $35.8 million, up 52% from $23.5 million in the nine months ended September 30, 2022. Operating expenses as a percentage of revenues increased to 12.3% in the nine months ended September 30, 2023 from 9.3% in the nine months ended September 30, 2022, reflecting significant expenditures that were made in the nine months ended September 30, 2023 related to the expansion of services and geographic areas of operation, as well as the continued buildout of the Mobile Health Services 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 nine months ended September 30, 2023 were $39.6 million, up 37% from $28.9 million in the nine months ended September 30, 2022. Operating expenses as a percentage of revenues decreased to 29.9% for the nine months ended September 30, 2023 from 37.3% for the nine months ended September 30, 2022, reflecting the increased revenues in the current year period. For the Corporate segment, which represents primarily shared services that are not contained within the entities included in either the Mobile Health Services or Transportation Services segments, operating expenses in the nine months ended September 30, 2023 were $49.6 million, compared to $38.1 million in the nine months ended September 30, 2022. The increase was driven by higher headcount as the Company built out its corporate infrastructure, as well as significantly higher stock compensation expenses. As a percentage of total consolidated revenues, Corporate expenses amounted to approximately 11.7% of revenues in the nine months ended September 30, 2023, compared to 11.5% in the nine months ended September 30, 2022. Interest Income, Net For the nine months ended September 30, 2023, the Company recorded $1.7 million of interest income, net compared to $0.3 million of interest income, net in the nine months ended September 30, 2022. This increase was primarily due to higher rates of interest earned on balances in the Company's interest-bearing accounts in the nine months ended September 30, 2023, which reflected significantly higher market interest rates. (Loss) Gain on Remeasurement of Warrant Liabilities During the nine months ended September 30, 2023, there were no gains or losses recorded relating to remeasurement of warrant liabilities, as all warrants were redeemed during the third quarter of 2022. During the nine months ended September 30, 2022, the Company recorded a gain of approximately $1.1 million from the remeasurement of warrant liabilities. The warrants are marked-to-market in each reporting period, and this gain was due to the decline in the Company’s stock price relative to the beginning of the period. Change in Fair Value of Contingent Liability During the nine months ended September 30, 2023, the Company recorded a change in fair value of contingent consideration of $0.2 million. No change in fair value was recorded during the nine months ended September 30, 2022. (Loss) Gain on Equity Method Investments During the nine months ended September 30, 2023, the Company recorded a loss of $0.3 million on equity method investments, representing its share of the losses incurred by an entity in which the Company has a minority interest. During the nine months ended September 30, 2022, the Company recorded a gain on equity method investments of approximately $0.1 million. Gain on Remeasurement of Finance Leases During the nine months ended September 30, 2023, the Company did not record a gain or loss relating to a change in 51 Table of Contents estimated remaining liabilities under the terms of its leases. During the nine months ended September 30, 2022, the Company recorded a gain of approximately $1.4 million, resulting from a change in estimated remaining liabilities under the terms of its leases. (Loss) Gain on Disposal of Fixed Assets During the nine months ended September 30, 2023, the Company recorded a loss of $0.2 million on the disposal of fixed assets. During the nine months ended September 30, 2022, the Company recorded a gain of $42,667 on the disposal of fixed assets. Income Tax (Provision) During the nine months ended September 30, 2023, the Company recorded an income tax provision of $2.0 million, compared to an income tax provision of $1.2 million in the nine months ended September 30, 2022. Net Income (Loss) Attributable to Noncontrolling Interests For the nine months ended September 30, 2023, the Company had net income attributable to noncontrolling interests of approximately $2.8 million, compared to a net loss attributable to noncontrolling interests of $2.9 million for the nine months ended September 30, 2022. The income compared to the prior year period loss reflected improved performance in the Company’s joint venture markets in the nine months ended September 30, 2023. Liquidity and Capital Resources Since inception and prior to the Business Combination, the Company completed three equity financing transactions as its principal source of liquidity. In November 2021, upon the completion of the Business Combination and the PIPE Financing, the Company received proceeds of approximately $158.1 million, net of transaction expenses. Generally, the Company has utilized proceeds from the financing transactions and the Business Combination to finance operations, invest in assets, acquire ambulance operating licenses and fund accounts receivable. The Company has also funded these activities through operating cash flows. 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 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. The Company’s future capital requirements also depend on many factors, including potential acquisitions, the Company’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. 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 the Credit Agreement, which provides for the Revolving Facility in the initial aggregate principal amount of $90 million. The Revolving Facility includes the ability for the Company to request an increase to the commitment by an additional amount of up to $50 million, though no Lender (nor the Lenders collectively) is obligated to increase its respective commitments. Borrowings under the Revolving Facility bear interest at a per annum rate equal to (i) at the Company’s option, (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 and 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 Credit Agreement. On October 19, 2023, the Company drew down $25 million under the Revolving Facility, and this amount remains outstanding as of the date of the filing of this Quarterly Report on Form 10-Q. Considering the foregoing, the Company anticipates that existing balances of cash and cash equivalents, future expected cash flows generated from our operations and the remaining available line of credit under the Revolving Facility will be sufficient to satisfy operating requirements for at least the next twelve months. 52 Table of Contents Capital Resources Working capital as of September 30, 2023 and December 31, 2022 was as follows: September 30 December 31 Change $ Change % $ in Millions 2023 2022 Working capital Current assets $ 267.1 $ 271.1 $ (4.0) (1.5 %) Current liabilities 113.1 100.2 $ 12.9 12.9 % Total working capital $ 154.0 $ 170.9 $ (17.0) (10.0 %) As of September 30, 2023, available cash totaled $52.9 million, which represented a decrease of $104.4 million compared to December 31, 2022, reflecting a significant increase in accounts receivable and acquisitions made during the nine months ended September 30, 2023. As of September 30, 2023, working capital amounted to $154.0 million, which represented a decrease of $17.0 million compared to December 31, 2022, primarily reflecting the decreased cash balance. Increased accounts receivable in the nine months ended September 30, 2023, which reflected the growth of the business and a shift towards higher credit quality customers who have longer payment terms, partially offset by the decline in cash, resulting in a decline in current assets as of September 30, 2023 compared to December 31, 2022. However, this was outweighed by the increase in current liabilities in the nine months ended September 30, 2023 due to higher accrued liabilities, reflecting the growth of the business and higher amounts of contingent consideration resulting from acquisitions. Cash Flows Cash flows as of the nine months ended September 30, 2023 and 2022 were as follows: As of September 30, Change $ Change % $ in Millions 2023 2022 Cash flow summary Net cash (used in) provided by operating activities $ (58.3) $ 37.6 $ (95.9) (255.1 %) Net cash (used in) investing activities (26.9) (37.8) 10.9 28.8 % Net cash (used in) provided by financing activities (11.9) 0.7 (12.6) (1794.1 %) Effect of exchange rate changes 0.2 (0.3) 0.5 (176.0 %) Net (decrease) increase in cash $ (96.9) $ 0.2 $ (97.1) (48526.6 %) Operating Activities During the nine months ended September 30, 2023, operating activities used $58.3 million of cash, despite net income of $2.1 million. Non-cash charges amounted to $28.1 million and included $7.5 million in depreciation of property and equipment and right-of-use assets, $4.3 million from amortization of intangible assets, $15.2 million of stock compensation expense, a $0.2 million loss on the disposal of assets and a loss of $0.3 million from an investment that is accounted for under the equity method, and $1.0 million in deferred taxes. These were partially offset by a $0.3 million reduction in bad debt expense, and a non-cash gain of $0.2 million resulting from a reduction in the fair value of contingent consideration. Changes in assets and liabilities resulted in approximately $88.4 million in negative operating cash flow, as a $103.5 million increase in accounts receivable, reflecting the growth of the business and primarily driven by an increased amount of business with municipalities, which tend to have longer payment cycles; a $12.6 million decrease in accounts payable, and a $0.3 million increase in prepaid expenses and other current assets, partially offset by a $27.3 million increase in accrued liabilities and a $0.7 million decline in other assets. During the nine months ended September 30, 2022, operating activities provided $37.6 million of cash, aided by net income of $23.6 million. Non-cash charges amounted to $11.9 million and included $5.0 million in depreciation of property and equipment and right-of-use assets, $2.2 million from amortization of intangible assets, $2.7 million in bad debt expense primarily related to a provision for potential uncollectible accounts receivable and $4.6 million of stock compensation expense. These were partially offset by non-cash gains of $1.4 million relating to the remeasurement of finance lease liabilities, $1.1 million from the remeasurement of warrant liabilities and a gain of $0.1 million from an investment that is accounted for under the equity method. Changes in assets and liabilities resulted in an approximately $2.1 million increase to operating cash flow, as a $2.9 million decrease in accounts receivable, a $0.9 million decrease in 53 Table of Contents other assets and a $2.6 million increase in accrued liabilities outweighed the effect of a $0.3 million increase in prepaid expenses and a $4.0 million decline in accounts payable. Investing Activities During the nine months ended September 30, 2023, investing activities used $26.9 million of cash and consisted of the acquisition of property and equipment totaling approximately $4.4 million, the acquisition of intangibles in the amount of $2.5 million, the acquisition of businesses in the amount of $20.2 million, and an equity method investment in the amount of $0.2 million, partially offset by $0.3 million in cash proceeds from the disposal of property and equipment. During the nine months ended September 30, 2022, investing activities used $37.8 million of cash and consisted of the acquisition of property and equipment totaling approximately $2.0 million, the acquisition of intangibles in the amount of $2.0 million and the acquisition of businesses in the amount of $33.8 million, primarily relating to acquisitions the Company completed in the third quarter of 2022. Financing Activities During the nine months ended September 30, 2023, financing activities used $11.9 million of cash, primarily due to a $8.4 million decrease in amounts due to seller, relating to payments made for acquisitions that were completed in the second half of 2022 and second quarter of 2023; $2.3 million in payments on obligations under the terms of finance leases; $2.2 million in payments for taxes related to shares withheld for employee taxes; and $0.5 million in repayments of notes payable. These amounts were partially offset by $1.5 million in proceeds from the exercise of stock options. During the nine months ended September 30, 2022, financing activities provided $0.7 million of cash, and primarily included $2.0 million in non-controlling interest contributions, $1.9 million in proceeds from the exercise of stock options, and proceeds of $1.0 million from a revolving credit line. These factors were partially offset by a $1.0 million decrease in amounts due to seller, $0.6 million in repayments of notes payable, $0.5 million in Common Stock repurchased, and $2.1 million in payments on obligations under the terms of finance leases. Future minimum annual maturities of notes payable as of the nine months ended September 30, 2023 are as follows (in millions): Notes Payable 2023, remaining $ 0.2 2024 0.7 2025 0.6 2026 0.6 2027 0.4 Thereafter 0.2 Total maturities 2.7 Current portion of notes payable (0.7) Long-term portion of notes payable $ 2.0 54 Table of Contents Future minimum lease payments under finance leases as of the nine months ended September 30, 2023 are as follows (in millions): Finance Leases 2023, remaining $ 0.9 2024 3.0 2025 2.7 2026 2.0 2027 0.9 Thereafter 0.1 Total future minimum lease payments 9.6 Less effects of discounting (0.9) Present value of future minimum lease payments $ 8.7 Future minimum lease payments under operating leases as of the nine months ended September 30, 2023 are as follows (in millions): Operating Leases 2023, remaining $ 0.8 2024 3.0 2025 3.0 2026 2.2 2027 1.1 Thereafter 0.8 Total future minimum lease payments 10.9 Less effects of discounting (1.1) Present value of future minimum lease payments $ 9.8 Critical Accounting Estimates Basis of Presentation The Company’s unaudited Condensed Consolidated Financial Statements are presented in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC. The unaudited Condensed Consolidated Financial Statements include the accounts and operations of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated upon consolidation. NCI in the unaudited Condensed Consolidated Financial Statements represent the portion of consolidated joint ventures and a VIE in which the Company does not have direct equity ownership. The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, the Company 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 the Company, accompanied by a recapitalization. The net assets of the Company 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 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 was determined to be the accounting acquirer in the Business Combination, and as such, the Business Combination is considered a business combination under ASC 805 and was accounted for using the acquisition method of accounting. Principles of Consolidation 55 Table of Contents 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, 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 MD1 and therefore appropriately consolidates MD1 as a VIE. Net income for MD1 was $16,839 for the nine months ended September 30, 2023. MD1’s total assets, all of which were current assets apart from other assets amounting to $15,248, amounted to $0.6 million as of September 30, 2023. Total liabilities, all of which were current for MD1, were $0.5 million as of September 30, 2023. MD1’s total stockholders’ equity was $0.2 million as of September 30, 2023. Business Combination The Company accounts for its business combinations under the provisions of 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, Health commenced an 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 the Assignee, who acted as a fiduciary for creditors and in a capacity equivalent to that of a bankruptcy trustee. The Assignee was responsible for liquidating the assets. Similar to a bankruptcy case, there was a claims process. Creditors of Health received notice of the ABC and a proof of claim form and were required to submit a proof of claim in order to participate in distribution of net liquidation proceeds by the Assignee. 56 Table of Contents 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 ASC 606. 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 be able to 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. For both Transportation and 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, 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.