UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from to .
Commission
File Number
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification Number) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| The | ||||
| Redeemable warrants, exercisable for shares of Common Stock at an exercise price of $11.50 per share | DCGOW | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 9, 2022,
Table of Contents
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1
DocGo Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Restricted cash | ||||||||
| Operating lease right-of-use assets | ||||||||
| Finance lease right-of-use assets | ||||||||
| Equity method investment | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Line of credit | ||||||||
| Notes payable, current | ||||||||
| Due to seller | ||||||||
| Operating lease liability, current | ||||||||
| Finance lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Notes payable, non-current | ||||||||
| Operating lease liability, non-current | ||||||||
| Finance lease liability, non-current | ||||||||
| Warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Common stock ($ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity attributable to DocGo Inc. and Subsidiaries | ||||||||
| Noncontrolling interests | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
DocGo Inc. and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue, net | $ | $ | ||||||
| Expenses: | ||||||||
| Cost of revenues (exclusive of depreciation and amortization, which is shown separately below) | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Legal and regulatory | ||||||||
| Technology and development | ||||||||
| Sales, advertising and marketing | ||||||||
| Total expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income (expenses): | ||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||
| Loss on remeasurement of warrant liabilities | ( | ) | ||||||
| Loss on initial equity method investments | ( | ) | ||||||
| Other income (loss) | ( | ) | - | |||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net income (loss) before income tax benefit (expense) | ( | ) | ||||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net income (loss) | ( | ) | ||||||
| Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ||||
| Net income (loss) attributable to stockholders of DocGo Inc. and Subsidiaries | ( | ) | ||||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Total comprehensive gain (loss) | $ | $ | ( | ) | ||||
| Net income (loss) per share attributable to DocGo Inc. and Subsidiaries - Basic | $ | $ | ( | ) | ||||
| Weighted-average shares outstanding - Basic | ||||||||
| Net income (loss) per share attributable to DocGo Inc. and Subsidiaries - Diluted | $ | $ | ( | ) | ||||
| Weighted-average shares outstanding - Diluted | ||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
DocGo Inc. and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Series
A Preferred Stock | Class
A Common Stock | Class
B Common Stock | Additional Paid-in- | Accumulated | Accumulated
Other Comprehensive | Noncontrolling | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income | Interests | Equity | ||||||||||||||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
| Effect of reverse acquisition | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of share due to merger recapitalization | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Effect of reverse acquisition | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Share issued for services | ||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest contribution | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to Noncontrolling interests | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net income attributable to stockholders of DocGo Inc. and Subsidiaries | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Equity cost | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| UK Ltd. Restricted Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest contribution | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss attributable to Noncontrolling interests | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net income attributable to stockholders of DocGo Inc. and Subsidiaries | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
DocGo Inc. and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of finance lease right-of-use assets | ||||||||
| Loss from equity method investment | ||||||||
| Bad debt expense | ||||||||
| Stock based compensation | ||||||||
| Loss on remeasurement of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of intangibles | ( | ) | ( | ) | ||||
| Acquisition of businesses | - | ( | ) | |||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from revolving credit line | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Due to seller | ( | ) | - | |||||
| Noncontrolling interest contributions | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Equity costs | ( | ) | - | |||||
| Payments on obligations under finance lease | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
DocGo Inc. and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
| Supplemental disclosure of cash and non-cash transactions: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for interest on finance lease liabilities | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease liabilities | $ | $ | ||||||
| Reconciliation of cash and restricted cash | ||||||||
| Cash | $ | $ | ||||||
| Restricted Cash | ||||||||
| Total cash and restricted cash shown in statement of cash flows | $ | $ | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Organization and Business Operations
The Business
On November 5, 2021 (the “Closing Date”), DocGo Inc., a Delaware corporation (formerly known as Motion Acquisition Corp) (prior to the Closing Date, “Motion” and after the Closing Date, “DocGo”), consummated the previously announced business combination (the “Closing”) pursuant to that certain Agreement and Plan of Merger dated March 8, 2021 (the “Merger Agreement”), by and among Motion Acquisition Corp., a Delaware corporation (“Motion”), Motion Merger Sub Corp., a Delaware corporation and a direct wholly owned subsidiary of Motion (“Merger Sub”), and Ambulnz, Inc., a Delaware corporation (“Ambulnz”). In connection with the Closing, the registrant changed its name from Motion Acquisition Corp. to DocGo Inc.
As
contemplated by the Merger Agreement and as described in Motion’s definitive proxy statement/consent solicitation/prospectus filed
with the U.S. Securities and Exchange Commission (the “SEC”) on October 14, 2021 (the “Prospectus”), Merger Sub
was merged with and into Ambulnz, with Ambulnz continuing as the surviving corporation (the “Merger” and, together with the
other transactions contemplated by the Merger Agreement, the “Business Combination”). As a result of the Merger, Ambulnz
is a wholly-owned subsidiary of DocGo and each share of Series A preferred stock of Ambulnz, no par value (“Ambulnz Preferred Stock”),
Class A common stock of Ambulnz, no par value (“Ambulnz Class A Common Stock”), and Class B common stock of Ambulnz, no par
value (“Ambulnz Class B Common Stock,” together with Ambulnz Class A Common Stock, “Ambulnz Common Stock”) was
cancelled and converted into the right to receive a portion of merger consideration issuable as common stock of DocGo, par value $
In connection with the Business Combination, DocGo raised $
The Business
DocGo Inc. and its Subsidiaries (collectively, the “Company”) is a healthcare transportation and mobile health services (“Mobile Health”) company that uses proprietary dispatch and communication technology to provide quality healthcare transportation and healthcare services in major metropolitan cities in the United States and the United Kingdom. Mobile Health performs in-person care directly to patients in the comfort of their homes, workplaces and other non-traditional locations.
Ambulnz, LLC was originally formed in Delaware on June 17, 2015, as a limited liability company. On November 1, 2017, with an effective date of January 1, 2017, Ambulnz converted its legal structure from a limited liability company to a C-corporation and changed its name to Ambulnz, Inc. Ambulnz is the sole owner of Ambulnz Holdings, LLC (“Holdings”) which was formed in the state of Delaware on August 5, 2015, as a limited liability company. Holdings is the owner of multiple operating entities incorporated in various states in the United States as well as within England and Wales, United Kingdom.
7
DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.
The Condensed Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP.
The 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”) on the Condensed Consolidated Financial Statements represent a portion of consolidated joint ventures and a variable interest entity in which the Company does not have direct equity ownership. Accounts and transactions between consolidated entities have been eliminated. Certain amounts in the prior years’ consolidated statements of changes in stockholders’ equity and statements of cash flows have been reclassified to conform to the current year presentation.
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 accompanying Condensed Consolidated Financial Statements include the accounts of DocGo Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated in these 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 variable interest entity (“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of MD1 and funds and absorbs all losses of the VIE and appropriately consolidates MD1.
Net
loss for the VIE was $
8
DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Foreign Currency
The Company’s functional currency is the U.S. dollar. The functional currency of our foreign operation is the respective local currency. Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date, except for equity accounts which are translated at historical rates. The Condensed Consolidated Statements of Operations and Comprehensive Income are translated at the weighted average rate of exchange during the applicable period. The resulting unrealized cumulative translation adjustment is not material to the financial statements.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in its financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s financial statements relate to revenue recognition related to the allowance for doubtful accounts, stock based compensation, calculations related to the incremental borrowing rate for the Company’s lease agreements, estimates related to ongoing lease terms, software development costs, impairment of long-lived assets, goodwill and indefinite-lived intangible assets, business combinations, reserve for losses within the Company’s insurance deductibles, income taxes, and deferred income tax. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.
Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Concentration of Credit Risk and Off-Balance Sheet Risk
The Company is potentially subject to concentration of credit risk with respect to its cash, cash equivalents and restricted cash, which the Company attempts to minimize by maintaining cash, cash equivalents and restricted cash with institutions of sound financial quality. At times, cash balances may exceed limits federally insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the funds are held. The Company has no financial instruments with off-balance sheet risk of loss.
Major Customers
The
Company has
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
9
DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non- emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
Reclassifications
Certain reclassifications of amounts previously reported have been made to the accompanying Condensed Consolidated Financial Statements to maintain consistency between periods presented. The reclassifications had no impact on previously reported net income or retained earnings.
Cash and Cash Equivalents
Cash
and cash equivalents include all highly liquid investments with an original maturity of three months or less. The Company maintains most
of its cash and cash equivalents with financial institutions in the United States. The accounts at financial institutions in the United
States are insured by the Federal Deposit Insurance Corporation (“FDIC”) and are in excess of FDIC limits. The Company had
cash balances of approximately $
Restricted Cash and Insurance Reserves
Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash in the Condensed Consolidated Balance Sheets. Restricted cash is classified as either a current or non-current asset depending on the restriction period. The Company is required to pledge or otherwise restrict a portion of cash and cash equivalents as collateral for its line of credit, transportation equipment leases and a standby letter of credit as required by its insurance carrier (see Notes 8 and 13).
The Company utilizes a combination of insurance and self-insurance programs, including a wholly-owned captive insurance entity, to provide for the potential liabilities for certain risks, including workers’ compensation, automobile liability, general liability and professional liability. Liabilities associated with the risks that are retained by the Company within its high deductible limits are not discounted and are estimated, in part, by considering claims experience, exposure and severity factors and other actuarial assumptions. The Company has commercial insurance in place for catastrophic claims above its deductible limits.
ARM Insurance, Inc. a Vermont-based wholly-owned captive insurance subsidiary of the Company, charges the operating subsidiaries premiums to insure the retained workers’ compensation, automobile liability, general liability and professional liability exposures. Pursuant to Vermont insurance regulations, ARM Insurance, Inc. maintains certain levels of cash and cash equivalents related to its self-insurance exposures.
The Company also maintains certain cash balances related to its insurance programs, which are held in a self-depleting trust and restricted as to withdrawal or use by the Company other than to pay or settle self-insured claims and costs. These amounts are reflected in “Restricted cash” in the accompanying Condensed Consolidated Balance Sheets.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2022 and December 31, 2021. For certain financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, restricted cash, accounts payable and accrued expenses, and due to seller, the carrying amounts approximate their fair values as it is short term in nature. The notes payable are presented at their carrying value, which based on borrowing rates currently available to the Company for loans with similar terms, approximates its fair values.
10
DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Accounts Receivable
The Company contracts with hospitals, healthcare facilities, businesses, state and local government entities, and insurance providers to transport patients and to provide Mobile Health services at specified rates. Accounts receivable consist of billings for transportation and healthcare services provided to patients. The billings will either be paid or settled on the patient’s behalf by health insurance providers, managed care organizations, treatment facilities, government sponsored programs, businesses, or patients directly. Accounts receivable are net of insurance provider contractual allowances, which are estimated at the time of billing based on contractual terms or other arrangements. Accounts receivable are periodically evaluated for collectability based on past credit history with payors and their current financial condition. Changes in the estimated collectability of accounts receivable are recorded in the results of operations for the period in which the estimate is revised. Accounts receivable deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for accounts receivable.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. When an item is sold or retired, the costs and related accumulated depreciation or amortization are eliminated, and the resulting gain or loss, if any, is recorded in operating expenses in the Condensed Consolidated Statement of Operations and Comprehensive Income. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the respective assets. A summary of estimated useful lives is as follows:
| Asset Category | Estimated Useful Life | |
| Buildings | ||
| Office equipment and furniture | ||
| Vehicles | ||
| Medical equipment | ||
| Leasehold improvements |
Expenditures for repairs and maintenance are expensed as incurred. Expenditures that improve an asset or extend its estimated useful life are capitalized.
Software Development Costs
Costs incurred during the preliminary project stage, maintenance costs and routine updates and enhancements of products are expensed as incurred. The Company capitalizes software development costs intended for internal use in accordance with ASC 350-40, Internal-Use Software. Costs incurred in developing the application of its software and costs incurred to upgrade or enhance product functionalities are capitalized when it is probable that the expenses would result in future economic benefits to the Company and the functionalities and enhancements are used for their intended purpose. Capitalized software costs are amortized over its useful life.
Estimated useful life of software development activities are reviewed annually or whenever events or changes in circumstances indicate that intangible assets may be impaired and adjusted as appropriate to reflect upcoming development activities that may include significant upgrades or enhancements to the existing functionality.
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 purchase 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.
11
DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 based on 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.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of the recorded amount of long-lived assets, primarily property and equipment and finite-lived intangible assets, whenever events or changes in circumstance indicate that the recorded amount of an asset may not be fully recoverable. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. If an asset is determined to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets targeted for disposal are reported at the lower of the carrying amount or fair value less cost to sell. For the periods ending March 31, 2022 and December 31, 2021, management determined that there was no impairment loss required to be recognized for the carrying value of long-lived assets.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the fair value of amounts assigned to assets acquired and liabilities assumed. Goodwill and indefinite-lived intangible assets, consisting primarily of operating licenses, are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, the Company makes assumptions regarding the estimated future cash flows, including forecasted revenue growth, projected gross margin and the discount rate to determine the fair value of these assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.
The Company tests goodwill for impairment at the reporting unit level, which is one level below the operating segment. The Company has the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the one-step quantitative assessment. If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, the Company compares the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, goodwill impairment is recognized.
Any excess in carrying value over the estimated fair value is recorded as impairment loss and charged to the results of operations in the period such determination is made. For the periods ended March 31, 2022 and 2021, management determined that there was no impairment loss required to be recognized in the carrying value of goodwill or other intangible assets. The Company selected December 31 as its annual testing date.
12
DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Line of Credit
The costs associated with the Company’s line of credit are deferred and recognized over the term of the line of credit as interest expense.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates its financial instruments to determine if such instruments contain features that qualify as embedded derivatives.
Related Party Transactions
The
Company defines related parties as affiliates of the Company, entities for which investments are accounted for by the equity method,
trusts for the benefit of employees, principal owners (beneficial owners of more than
Related party transactions are recorded within operating expenses in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income. For details regarding the related party transactions that occurred during the periods ended March 31, 2022 and 2021, refer to Note 15.
Revenue Recognition
On January 1, 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), as amended.
To determine revenue recognition for contractual arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify each contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when (or as) the relevant performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services the Company provides to the customer.
The Company generates revenues from the provision of (1) ambulance and medical transportation services (“Transportation Services”) and (2) Mobile Health services. The customer simultaneously receives and consumes the benefits provided by the Company as the performance obligations are fulfilled, therefore the Company satisfies performance obligations immediately. The Company has utilized the “right to invoice” expedient which allows an entity to recognize revenue in the amount of consideration to which the entity has the right to invoice when the amount that the Company has the right to invoice corresponds directly to the value transferred to the customer. Revenues are recorded net of an estimated contractual allowances for claims subject to contracts with responsible paying entities. The Company estimates contractual allowances at the time of billing based on contractual terms, historical collections, or other arrangements. All transaction prices are fixed and determinable which includes a fixed base rate, fixed mileage rate and an evaluation of historical collections by each payer.
Nature of Our Services
Revenue is primarily derived from:
| i. | Transportation Services: These services 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. |
| ii. | Mobile Health Services: These services include services performed at home and offices, COVID-19 testing and vaccinations, and event services which include on-site healthcare support at sporting events and concerts. |
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DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company concluded that Transportation Services and any related support activities are a single performance obligation under ASC 606. The transaction price is determined by the fixed rate usage-based fees or fixed fees which are agreed upon in the Company’s executed contracts. For Mobile Health, the performance of the services and any related support activities are a single performance obligation under ASC 606. Mobile Health services are typically billed based on a fixed rate (i.e., time and materials separately or combined) fee structure taking into consideration staff and materials utilized.
As the performance associated with such services is known and quantifiable at the end of a period in which the services occurred (i.e., monthly or quarterly), revenues are typically recognized in the respective period performed. The typical billing cycle for Transportation Services and Mobile Health services is same day to 5 days with payments generally due within 30 days. For Transportation Services, the Company estimates the amount of revenues unbilled at month end and recognizes such amounts as revenue, based on available data and customer history. The Company’s Transportation Services and Mobile Health services each represent a single performance obligation. Therefore, allocation is not necessary as the transaction price (fees) for the services provided is standard and explicitly stated in the contractual fee schedule and/or invoice. The Company monitors and evaluate all contracts on a case-by-case basis to determine if multiple performance obligations are present in a contractual arrangement.
For Transportation 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 at the same time. For Transportation Services, where the customer pays fixed rate usage-based fees, the actual usage in the period represents the best measure of progress. Generally, for 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 at the same time. For certain Mobile Health services that have a fixed fee arrangement, and the services are provided over time, revenue is recognized over time as the services are provided to the customer.
In the following table, revenue is disaggregated by as follows:
| Three
Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Primary Geographical Markets | ||||||||
| United States | $ | $ | ||||||
| United Kingdom | ||||||||
| Total revenue | $ | $ | ||||||
| Major Segments/Service Lines | ||||||||
| Transportation Services | $ | $ | ||||||
| Mobile Health | ||||||||
| Total revenue | $ | $ | ||||||
Stock Based Compensation
The Company expenses stock-based compensation over the requisite service period based on the estimated grant-date fair value of the awards. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company accounts for forfeitures as they occur. All stock-based compensation costs are recorded in operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.
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DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Earnings per Share
Earnings per share represents the net income attributable to stockholders divided
by the weighted-average number of shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock of the Company during the reporting periods. Potential dilutive common stock equivalents consist
of the incremental common shares issuable upon exercise of warrants and the incremental shares issuable upon conversion of stock options.
In reporting periods in which the Company has a net loss, the effect is considered anti-dilutive and excluded from the diluted earnings
per share calculation. On March 31, 2021, the Company excluded from its calculation
Equity Method Investment
On October 26, 2021, the Company acquired a
Under the equity method, the Company’s investment is initially measured at cost and subsequently increased or decreased to recognize the Company’s share of income and losses of the investee, capital contributions and distributions and impairment losses. The Company performs a qualitative assessment annually and recognizes an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value.
Leases
The Company categorizes leases at its inception as either operating or finance leases based on the criteria in FASB ASC 842, Leases, (“ASC 842”). The Company adopted ASC 842 on January 1, 2019, using the modified retrospective approach, and has established a Right-of-Use (“ROU”) Asset and a current and non-current lease liability for each lease arrangement identified. The lease liability is recorded at the present value of future lease payments discounted using the discount rate that approximates the Company’s incremental borrowing rate for the lease established at the commencement date, and the ROU asset is measured as the lease liability plus any initial direct costs, less any lease incentives received before commencement. The Company recognizes a single lease cost, so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.
The Company has lease arrangements for vehicles, equipment, and facilities. These leases typically have original terms not exceeding 10 years and, in some cases contain multi-year renewal options, none of which are reasonably certain of exercise. The Company’s lease arrangements may contain both lease and non-lease components. The Company has elected to combine and account for lease and non-lease components as a single lease component. The Company has incorporated residual value obligations in leases for which there is such occurrences. Regarding short-term leases, ASC 842-10-25-2 permits an entity to make a policy election not to apply the recognition requirements of ASC 842 to short-term leases. The Company has elected not to apply the ASC 842 recognition criteria to any leases that qualify as short-term leases.
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DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 the Company’s 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.
Recently Issued Accounting Standards Not Yet Adopted
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), that eliminates accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40 Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 also requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. This ASU only affects entities that already adopted ASU 2016-13, which is effective for fiscal years beginning after December 15, 2022. The Company expects that this ASU will not have a material impact on the Company’s Condensed Consolidated Financial Statements.
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DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. Property and Equipment, net
Property and equipment, net, as of March 31, 2022 and December 31, 2021 are as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Office equipment and furniture | $ | $ | ||||||
| Buildings | ||||||||
| Land | ||||||||
| Transportation equipment | ||||||||
| Medical equipment | ||||||||
| Leasehold improvements | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
The
Company recorded depreciation expense of $
4. Acquisition of Businesses and Asset Acquisitions
LJH Ambulance Acquisition
On
November 20, 2020, AF WI LNZ, LLC, a subsidiary of Ambulnz-FMC North America LLC (“FMC NA”), a subsidiary of Holdings, entered
into the Share Purchase Agreement (the “Agreement”) with LJH Ambulance (“LJH”). LJH was in the business of providing
medical transportation services. The purchase price consisted of $
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DocGo Inc. and Subsidiaries
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. Goodwill
The Company recorded goodwill in connection with its acquisitions. The changes in the carrying value of goodwill for the period ended March 31, 2022 are as noted in the tables below:
| Carrying Value | ||||
| Balance at December 31, 2021 | $ | |||
| Goodwill acquired during the period | ||||
| Balance at March 31, 2022 | $ | |||
6. Intangibles
Intangible assets consist of the following as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Carrying Amount | Additions | Accumulated Amortization | Net Carrying Amount | ||||||||||||||
| Patents | $ | $ | $ | ( | ) | $ | ||||||||||||
| Computer software | $ | - | ( | ) | ||||||||||||||
| Operating licenses | $ | |||||||||||||||||
| Internally developed software | $ | ( | ) | |||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||||
| December 31, 2021 | ||||||||||||||||||
| Estimated Useful Life (Years) | Gross Carrying Amount | Additions | Accumulated Amortization | Net Carrying Amount | ||||||||||||||
| Patents | $ | $ | $ | ( | ) | $ | ||||||||||||
| Computer software | ( | ) | ||||||||||||||||
| Operating licenses | - | |||||||||||||||||
| Internally developed software | ( | ) | ||||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||||
The
Company recorded amortization expense of $
Future amortization expense at March 31, 2022 for the next five years and in the aggregate are as follow:
| Amortization Expense | ||||
| 2022, remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. Accrued Liabilities
Accrued liabilities consist of the following as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Accrued bonus | $ | $ | ||||||
| Accrued lab fees | ||||||||
| Accrued payroll | ||||||||
| Medicare advance | ||||||||
| FICA/Medicare liability | ||||||||
| Accrued general expenses | ||||||||
| Accrued subcontractors | ||||||||
| Accrued fuel and maintenance | ||||||||
| Accrued workers compensation | ||||||||
| Other current liabilities | ||||||||
| Accrued legal fees | ||||||||
| Credit card payable | ||||||||
| Total accrued liabilities | $ | $ | ||||||
8. Line of Credit
On May 13, 2021, the Company entered into a revolving loan and security
agreement with a bank (the “Lender”), with a maximum revolving advance amount of $
On December 17, 2021, Ambulnz-FMC North America,
LLC (“FMC NA”), entered into a revolving loan and bridge credit and security agreement with a subsidiary of one of its members
with a maximum revolving advance amount of $
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. Notes Payable
The Company has various loans with finance companies with monthly installments
aggregating $
The following table summarizes the Company’s notes payable:
| March 31, 2022 | December 31, 2021 | |||||||
| Equipment and financing loans payable, between | $ | $ | ||||||
| Total notes payable | ||||||||
| Less: current portion of notes payable | $ | $ | ||||||
| Total non-current portion of notes payable | $ | $ | ||||||
Interest
expense was $
Future minimum annual maturities of notes payable as of March 31, 2022 are as follows:
| Notes Payable | ||||
| 2022, remaining | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total maturities | $ | |||
| Current portion of notes payable | ( |
) | ||
| Long-term portion of notes payable | $ | |||
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. Business Segment Information
The
Company conducts business as
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its Transportation Services and Mobile Health services segments based primarily on results of operations.
Operating results for the business segments of the Company are as follows:
| Transportation Services | Mobile Health Services | Total | ||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||
| Revenues | $ | $ | $ | |||||||||
| Income (loss) from operations | ( | ) | $ | |||||||||
| Total assets | $ | $ | $ | |||||||||
| Depreciation and amortization expense | $ | $ | $ | |||||||||
| Stock compensation | $ | $ | $ | |||||||||
| Long-lived assets | $ | $ | $ | |||||||||
| Three Months Ended March 31, 2021 | ||||||||||||
| Revenues | $ | $ | ||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||
| Total assets | $ | $ | $ | |||||||||
| Depreciation and amortization expense | $ | $ | $ | |||||||||
| Stock compensation | $ | $ | $ | |||||||||
| Long-lived assets | $ | $ | $ | |||||||||
Long-lived assets include property, plant and equipment, goodwill and intangible assets.
Geographic Information
Revenues by geographic location are included in Note 2.
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. Equity
Preferred Stock
In November 2021, the Company’s Series A preferred stock was
cancelled and converted into the right to receive a portion of merger consideration issuable as common stock of DocGo, par value $
Prior
to the reverse merger, on May 23, 2019, the Series A preferred stock was formed, and
Series
A preferred stockholders had voting rights equivalent to the number of common stock shares issuable upon conversion. The Series A preferred
stockholders were entitled to a non-cumulative dividend equal to
The
holders of the Series A preferred stock had preferential liquidation rights and rank senior to the holders of common stock. If a liquidation
were to occur, the holders of the Series A preferred stock would have been paid an amount equal to $
Common Stock
On
November 1, 2017, Ambulnz, Inc. converted its legal structure from a limited liability company to a corporation and converted its membership
units into shares of common stock at a rate of
Prior
to the reverse merger, on May 23, 2019, the Ambulnz, Inc amended and restated its articles of incorporation and the total authorized
common shares increased to
Preacquisition Warrants
On February 15, 2018, the Company issued warrants to purchase
On June 5, 2019, the Company issued warrants to purchase
22
DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. Stock Based Compensation
Stock Options
In 2021, the Company established the DocGo Inc.
Equity Incentive Plan (the “Plan”), which replaced Ambulnz, Inc’s 2017 Equity Incentive Plan. The Company reserved
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Before the Company’s shares of stock were publicly traded, management took the average of several publicly traded companies that were representative of the Company’s size and industry in order to estimate its expected stock volatility. The expected term of the options represented the period of time the instruments are expected to be outstanding. The Company based the risk-free interest rate on the rate payable on the U.S. Treasury securities corresponding to the expected term of the awards at the date of grant. Expected dividend yield was zero based on the fact that the Company had not historically paid and does not intend to pay a dividend in the foreseeable future.
The Company utilized contemporaneous valuations in determining the fair value of its shares at the date of option grants. Prior to the Merger, each valuation utilized both the discounted cash flow and guideline public company methodologies to estimate the fair value of its shares on a non-controlling and marketable basis. The December 31, 2020 valuations also included an approach that took into consideration a pending non-binding letter of intent from Motion Acquisition Corp. The March 11, 2021 valuation report relied solely on the fair value of the Company’s shares implied by the March 8, 2021 Merger Agreement with Motion Acquisition Corp.
A discount for lack of marketability was applied to the non-controlling and marketable fair value estimates determined above. The determination of an appropriate discount for lack of marketability was based on a review of discounts on the sale of restricted shares of publicly traded companies and put-based quantitative methods. Factors that influenced the size of the discount for lack of marketability included (a) the estimated time it would take for a Company stockholder to achieve marketability, and (b) the volatility of the Company’s business.
The following assumptions were used to compute the fair value of the stock option grants during the period ended March 31, 2022 and 2021:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | . | |||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
The following table summarizes the Company’s stock option activity under the Plan for the period ended March 31, 2022:
| Options Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
| Balance as of, December 31, 2021 | $ | $ | ||||||||||||||
| Granted/ Vested during the year | ||||||||||||||||
| Exercised during the year | ||||||||||||||||
| Cancelled during the year | ( | ) | ||||||||||||||
| Balance as of, March 31, 2022 | $ | |||||||||||||||
| Options vested and exercisable at March 31, 2022 | $ | $ | ||||||||||||||
The aggregate intrinsic value in the above table
is calculated as the difference between fair value of the Company’s common stock price and the exercise price of the stock options.
The weighted average grant date fair value per share for stock option grants during the periods ended March 31, 2022 and December
31, 2021 was $
Restricted Stock Units
The fair value of restricted stock units (“RSUs”) is determined on the date of grant. The Company records compensation expense in the Condensed Consolidated Statement of Operations and Comprehensive Income on a straight-line basis over the vesting period for RSUs. The vesting period for employees and members of the Board of Directors ranges from one to four years.
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Activity under RSUs was as follows:
| RSUs | Weighted- Average Grant Date Fair Value Per RSU | |||||||
| Balance as of, December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested and issued | ( | ) | ||||||
| Forfeited | ||||||||
| Balance as of, March 31, 2022 | ||||||||
| Vested and unissued at March 31, 2022 | ||||||||
| Non-vested at March 31, 2022 | ||||||||
The total grant-date fair value of RSUs granted
during the period ended March 31, 2022 was $
For the period ended March 31, 2022, the Company
recorded stock-based compensation expense related to RSUs of $
As of March 31, 2022, the Company had $
13. Leases
Operating Leases
The Company is obligated to make rental payments under non-cancellable operating leases for office, dispatch station space, and transportation equipment, expiring at various dates through . Under the terms of the leases, the Company is also obligated for its proportionate share of real estate taxes, insurance and maintenance costs of the property. The Company is required to hold certain funds in restricted cash and cash equivalents accounts under some of these agreements.
Certain leases for property and transportation equipment contain options to purchase, extend or terminate the lease. Determining the lease term and amount of lease payments to include in the calculation of the right-of-use (ROU) asset and lease obligations for leases containing options requires the use of judgment to determine whether the exercise of an option is reasonably certain and whether the optional period and payments should be included in the calculation of the associated ROU asset and lease obligation. In making such judgment, the Company considers all relevant economic factors that would require whether to exercise or not exercise the option.
The
Company’s lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach
to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and
comparable quality and derived imputed rates, which were used to discount its real estate lease liabilities. The Company used estimated
borrowing rates of
Lease Costs
The table below comprise lease expenses for the periods ended March 31, 2022 and 2021:
| Components of total lease cost: | March 31, 2022 | March 31, 2021 | ||||||
| Operating lease expense | $ | $ | ||||||
| Short-term lease expense | ||||||||
| Total lease cost | $ | $ | ||||||
Lease Position as of March 31, 2022
Right-of-use lease assets and lease liabilities for the Company’s operating leases were recorded in the consolidated balance sheets as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Lease right-of-use assets | $ | $ | ||||||
| Total lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Lease liability - current portion | $ | $ | ||||||
| Noncurrent liabilities: | ||||||||
| Lease liability, net of current portion | ||||||||
| Total lease liability | $ | $ | ||||||
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Lease Terms and Discount Rate
| Weighted average remaining lease term (in years) - operating leases | ||||
| Weighted average discount rate - operating leases | % |
Undiscounted Cash Flows
Future minimum lease payments under the operating leases at March 31, 2022 are as follows:
| Operating Leases | ||||
| 2022, remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| Total future minimum lease payments | ||||
| Less effects of discounting | ( |
) | ||
| Present value of future minimum lease payments | $ | |||
Operating lease expense were approximately $
For the quarter ended March 31, 2022, the Company
made $
Finance Leases
The Company leases vehicles under a non-cancelable
finance lease agreements with a liability of $
Depreciation expense for the vehicles under non-cancelable
lease agreements amounted to $
Lease Payments
The table below presents lease payments for the periods ended March 31, 2022 and 2021:
| Components of total lease payment: | March 31, 2022 | March 31, 2021 | ||||||
| Finance lease payment | $ | $ | ||||||
| Short-term lease payment | ||||||||
| Total lease payments | $ | $ | ||||||
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DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Lease Position as of March 31, 2022
Right-of-use lease assets and lease liabilities for the Company’s finance leases were recorded in the consolidated balance sheet as follows:
| March 31, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Lease right-of-use assets | $ | $ | ||||||
| Total lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Lease liability - current portion | $ | $ | ||||||
| Noncurrent liabilities: | ||||||||
| Lease liability, net of current portion | ||||||||
| Total lease liability | $ | $ | ||||||
Lease Terms and Discount Rate
The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s finance leases as of March 31, 2022:
| Weighted average remaining lease term (in years) - finance leases | ||||
| Weighted average discount rate - finance leases | % |
Undiscounted Cash Flows
Future minimum lease payments under the finance leases at March 31, 2022 are as follows:
| Finance Leases | ||||
| 2022, remaining | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| Total future minimum lease payments | ||||
| Less effects of discounting | ( |
) | ||
| Present value of future minimum lease payments | $ | |||
26
DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. Other Income
As
of March 31, 2022, the Company recognized other loss of $
15. Related Party Transactions
Historically, the Company has been involved in transactions with various related parties.
Pride Staff provides subcontractor services to
the Company. Pride Staff is owned by an operations manager of the Company and his spouse, and therefore, is a related party. The Company
made subcontractor payments to Pride Staff totaling $
There were no amounts due in accounts payable to related parties as of March 31, 2022 and December 31, 2021, respectively.
16. Income Taxes
As a result of the Company’s history of
net operating losses (“NOL”), the Company had historically provided for a full valuation allowance against its deferred tax
assets for assets that were not more-likely-than-not to be realized. The Company’s income tax expense for the three months ended
March 31, 2022 and 2021 was $
17. 401(K) Plan
The Company has established a 401(k) plan in January 2022 that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. All U.S. employees that complete two months of service with the Company are eligible to participate in the plan. The Company did not make any employer contributions to this plan as of March 31, 2022.
18. Legal Proceedings
From time to time, the Company may be involved as a defendant in legal actions that arise in the normal course of business. In the opinion of management, the Company has adequate legal defense on all legal actions, and the results of any such proceedings would not materially impact the Condensed Consolidated Financial Statements of the Company. The Company provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. In accordance with such guidance, the Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the Condensed Consolidated Financial Statements.
As of March 31, 2022 and December 31, 2021, the Company recorded a
liability of $
27
DocGo Inc. and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
19. Risk and Uncertainties
COVID-19 Risks, Impacts and Uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 Outbreak”) and the risks to the international community as the virus spreads globally. In March 2020, the WHO classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in exposure globally.
The spread of COVID-19 and the related country-wide shutdowns and restrictions have had a mixed impact on the Company’s business. In the ambulance transportation business, which predominantly comprises non-emergency medical transportation, the Company has seen a decline in volumes from historical and expected levels, as elective surgeries and other procedures have been postponed. In some of the Company’s larger markets, such as New York and California, there have been declines in trip volume. In addition, the Company experienced lost revenues associated with sporting, concerts and other events, as those events have been cancelled or have a significantly restricted (or entirely eliminated) the number of permitted attendees.
There are two areas where the Company has experienced positive business impacts from COVID-19. In April and May 2020, the Company participated in an emergency project with Federal Emergency Management Agency (“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 and available Emergency Medical Technicians (“EMT”) and Paramedics, the Company formed a new subsidiary, Rapid Reliable Testing, LLC (“RRT”), with the goal to perform COVID-19 tests at nursing homes, municipal sites, businesses, schools and other venues. RRT is part of the Mobile Health segment.
Medicare Accelerated Payments
Medicare accelerated payments of approximately
$
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context requires otherwise, references to “DocGo,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of DocGo Inc. The following discussion and analysis should be read in conjunction with DocGo’s Condensed Consolidated Financial Statements and related notes thereto included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause DocGo’s actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein and under the caption, “Cautionary Note Regarding Forward-Looking Statements.”
Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in DocGo’s Condensed Consolidated Financial Statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of our management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. More information regarding the risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Risk Factors” in Part I, Item 1A. in DocGo’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022 (the “2021 Form 10-K”), and as may be updated in this and other subsequent Quarterly Reports on Form 10-Q. Forward-looking statements are not guarantees of future performance and speak only as of the date hereof. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law.
Overview
DocGo, which was originally incorporated in 2015, is a healthcare transportation and mobile services company that uses proprietary dispatch and communication technology to provide quality healthcare transportation and mobile, in-person medical treatment directly to patients in the comfort of their homes, workplaces and other non-traditional locations, in major metropolitan cities in the United States and the United Kingdom.
The Company derives revenue primarily from its two operating segments: Transportation Services and Mobile Health services.
| ● | Transportation Services: The services offered by this segment encompass both emergency response and non-emergency transport services. Non-emergency transport services include ambulance transports and wheelchair transports. Net revenue from Transportation Services is derived from the transportation of patients based on billings to third party payors and healthcare facilities. |
| ● | Mobile Health Services: The services offered by this segment include services performed at home and offices, COVID-19 testing, and event services which include on-site healthcare support at sporting events and concerts. |
See Note 10, “Business Segment Information” to the Condensed Consolidated Financial Statements for additional information regarding DocGo’s segments.
For the three months ended March 31, 2022, the Company recorded net income of $9.4 million, compared to a net loss of $2.0 million in the three months ended March 31, 2021.
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COVID-19
The spread of COVID-19 and the related shutdowns and restrictions have had a mixed impact on our business. In the ambulance transportation business, which comprises of, predominantly, non-emergency medical transport, the Company experienced a decline in transportation volumes versus historical levels, as elective surgeries and other non-emergency surgical procedures were postponed or cancelled. In addition, the Company experienced lost revenue associated with sporting, concerts and other events, as those events were either cancelled or have experienced a significantly restricted number of permitted attendees.
There are two areas where the Company experienced positive business impacts from COVID-19. In April and May 2020, the Company participated in an emergency project with Federal Emergency Management Agency in the New York City area. This engagement resulted in incremental transportation revenue that partially offset some of the lost non-emergency transport revenues. In addition, in response to the need for widespread COVID-19 testing and available EMTs and paramedics, the Company expanded its operations to include Rapid Reliable Testing (“RRT”), with the goal of performing COVID-19 tests at nursing homes, municipal sites, businesses, schools and other venues. RRT is part of the Mobile Health business line. Mobile Health generated approximately $90.1 million in revenue in the three months ended March 31, 2022, as compared to $30.6 million in the first quarter of 2021.
During 2020 and the early part of 2021, the Company continued to operate with several back-office employees working remotely. To date, the Company has not witnessed any degradation in productivity from these employees, the large majority of whom have now returned to their respective offices, and our operations have proceeded without major interruption. By early 2021, nearly all remote employees had returned to work in their respective offices and other locations. DocGo also utilized several government programs in 2020 related to the pandemic, receiving approximately $1.0 million in payments through the Public Health and Social Services Emergency Fund authorized under the Coronavirus Aid, Relief and Economic Security Act and related legislation as well as various state and local programs, net of amounts that will be repaid to HHS. DocGo also received accelerated Medicare payments of approximately $2.4 million that were required to be repaid beginning in April 2021. Through March 31, 2022, approximately $2.2 million of this advance had been recouped by Medicare.
While it is very difficult to accurately predict the future direction of the effects of the COVID-19 pandemic, and the related impact on medical transportation levels, the revenue from the Transportation Services segment during 2021 exceeded that of 2020 by approximately 33%. Since the beginning of 2021, trip volumes in most of our markets have started to return to more normal historical levels. The Company generated, during 2021, COVID-19 testing revenue, including its Mobile Health services segment, above the levels projected, and this persisted in the first quarter of 2022. The Company estimates that COVID-19 testing revenue in the first quarter of 2022 amounted to approximately $38 million. In a broader, strategic sense, the consumer focus on Mobile Health services and the formation of RRT, and its emergence as a significant contributor to overall revenues have accelerated the diversification in the Company’s business by more rapid expansion of the Mobile Health segment.
The Company’s current business plan assumes gradual recovery of industry-wide transportation volumes to historical levels, plus an increased demand for mobile health services, a demand that was accelerated by the pandemic, but which is also being driven by longer-term secular factors, such as the increasing desire on the part of patients to receive treatments outside of traditional settings, such as doctor’s offices and hospitals. However, given the unpredictable, unprecedented, and fluid nature of the pandemic and its economic consequences, we are unable to predict the duration and extent to which the pandemic and its related positive and negative impacts will affect our business, financial condition, and results of operations in future periods.
Factors Affecting Our Results of Operations
Our operating results and financial performance are influenced by a variety of factors, including, among others, obtaining operating licenses, acquisitions, conditions in the healthcare transportation and mobile health services markets and economic conditions generally, availability of healthcare professionals, changes in the cost of labor, and production schedules of our suppliers. Some of the more important factors are briefly discussed below. Future revenue growth and improvement in operating results will be largely contingent on DocGo’s ability to penetrate new markets and further penetrate existing markets, which is subject to a number of uncertainties, many of which are beyond DocGo’s control. The COVID-19 pandemic has also significantly impacted DocGo’s business, as discussed above.
30
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. DocGo did not complete any acquisitions during the three months ended March 31, 2022. During the 12 months ended December 31, 2021, DocGo completed one acquisition, for a purchase price of $2.3 million, which contributed approximately $0.3 million to 2021 revenues. During the 12 months ended December 31, 2020, DocGo completed one acquisition, for a purchase price of $0.8 million, which contributed approximately $0.1 million to 2020 revenues.
Healthcare Services Market
The transportation services market is highly dependent on patients requiring transportation after surgeries and other medical procedures and treatments. During the pandemic, DocGo experienced a decrease in transportation volumes as a result of fewer elective surgeries. However, the Company was able to reallocate assets to locations where demand increased as a result of the pandemic.
Overall Economic Conditions in the Markets In Which We Operate
Economic changes both nationally and locally in our markets may impact our financial performance. Unfavorable changes in demographics, health care coverage of transportation and mobile health services, interest rates, ambulance manufacturing, a weakening of the national economy or of any regional or local economy in which we operate and other factors beyond our control could adversely affect our business.
Trip Volumes and Average Trip Price
A “trip” is defined as an instance where the Company completes the transportation of a patient to a specific destination, for which we are able to charge a fee. This metric does not include instances where a trip is ordered and subsequently either canceled (by the customer) or declined (by the Company). As trip volume represents the most basic unit of transportation service provided by the Company, it is the best measure of the level of demand for the Company’s Transportation Services, and is used by management to monitor and manage the scale of the business.
The average trip price is calculated by dividing the aggregate revenue from completed transports (“trips”) by the total number of transports, and is an important indicator of the effective rate at which the Company is being compensated for its provision of Transportation Services.
Revenues generated from programs under which DocGo is paid a fixed rate for the use of a fully staffed and equipped ambulance do not factor in the trip counts or average trip prices mentioned above.
Our Ability to Control Expenses
We pay close attention to the management of our working capital and operating expenses. Some of our most significant operating expenses are labor costs, medical supplies and vehicle-related costs, such as fuel, maintenance, repair and insurance. Insurance costs include premiums paid for coverage as well as reserves for estimated losses within the Company’s insurance policy deductibles. We employ our proprietary technology to drive improvements in productivity per transport. We regularly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our locations.
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Inflation
Beginning in April 2021, the inflation rate in the US, as measured by the Consumer Price Index (CPI) has steadily increased. In 2019, the inflation rate was approximately 1.8%, while it dropped to approximately 1.2% in 2020. These data are reported monthly, showing year-over-year changes in prices across a basket of goods and services. For 2021, inflation increased from the 1.4%-2.6% range in the first quarter, to 4.2% in April, and was in the 5.0% area through the end of the third quarter of 2021, before increasing to the 6.0%-7.0% range in the fourth quarter. For the full year, the inflation rate was 4.7% in 2021, the highest annual rate since the 5.4% rate recorded in 1990. The inflation rate continued to increase throughout the first quarter of 2022, reaching approximately 8.5% in March 2022. The increased inflation rate has had an impact on the Company’s expenses in several areas, including wages, fuel and medical and other supplies. This has had the impact of compressing gross profit margins, as the Company is generally unable to pass these higher costs on to its customers, particularly in the short term. Looking to the rest of 2022, we anticipate a moderation of the inflation rate when compared to the first quarter of the year but expect that inflation will remain above the levels seen in the previous 10 years, when the annual inflation rate ranged from 0.1% to 2.4%. If inflation is above the levels that the Company anticipates in 2022, gross margins could be below plan and our business, operating results and cash flows may be adversely affected.
Investing in R&D and Enhancing Our Customer Experience
Our performance is dependent on the investments we make in research and development, including our ability to attract and retain highly skilled research and development personnel. We intend to continually develop and introduce innovative new software services, integrate with third-party products and services, mobile applications and other new offerings. If we fail to innovate and enhance our brand and our products, our market position and revenue will likely be adversely affected.
Regulatory Environment
DocGo is subject to federal, state and local regulations including healthcare and emergency medical services laws and regulations and tax laws and regulations. The Company’s current business plan assumes no material change in these laws and regulations. In the event that any such change occurs, compliance with new laws and regulations may significantly affect the Company’s operations and cost of doing business.
Components of Results of Operations
Our business consists of two reportable segments — Transportation Services and Mobile Health services. The Company evaluates the performance of both segments based primarily on results of its operations. Accordingly, other income and expenses not included in results from operations are only included in the discussion of consolidated results of operations.
Revenue
The Company’s revenue consists of services provided by its ambulance Transportation Services segment and its Mobile Health segment.
Cost of Revenues
Cost of revenues consists primarily of revenue generating wages paid to employees, vehicle insurance costs (including insurance premiums and costs incurred under the insurance deductibles), maintenance, and fuel related to Transportation Services, and laboratory fees, facility rent, medical supplies and subcontractors. We expect cost of revenue to continue to rise in proportion to the expected increase in revenue.
Operating Expenses
General and administrative expenses
General and administrative expense consists primarily of salaries, bad debt expense, insurance expense, consultant fees, and professional fees for accounting services. We expect our general and administrative expense to increase as we scale up headcount with the growth of our business, and as a result of operating as a public company, including compliance with SEC rules and regulations, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Depreciation and Amortization
DocGo depreciates its assets using the straight-line method over the estimated useful lives of the respective assets. Amortization of intangibles consists of amortization of definite-lived intangible assets over their respective useful lives.
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Legal and Regulatory
Legal and regulatory expenses include legal fees, consulting fees related to healthcare compliance, claims processing fees and legal settlements.
Technology and Development
Technology and development expense, net of capitalization, consists primarily of cost incurred in the design and development of DocGo’s proprietary technology, third-party software and technologies. We expect technology and development expense to increase in future periods to support our growth, including our intent to continue investing in the optimization, accuracy and reliability of our platform and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we may choose to make more significant investments.
Sales, Advertising and Marketing
Our sales and marketing expenses consist of costs directly associated with our sales and marketing activities, which primarily include sales commissions, marketing programs, trade shows, and promotional materials. We expect that our sales and marketing expenses will continue to increase over time as we increase our marketing activities, grow our domestic and international operations, and continue to build brand awareness.
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, 2022 and March 31, 2021
Three Months Ended March 31, |
Change | Change | ||||||||||||||
| $ in Millions | 2022 | 2021 | $ | % | ||||||||||||
| Revenues, net | $ | 117.9 | $ | 49.7 | $ | 68.2 | 137 | % | ||||||||
| Cost of revenue | 78.0 | 35.9 | 42.1 | 117 | % | |||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 23.9 | 12.0 | 11.9 | 99 | % | |||||||||||
| Depreciation and amortization | 2.2 | 1.6 | 0.6 | 38 | % | |||||||||||
| Legal and regulatory | 1.3 | 0.7 | 0.6 | 86 | % | |||||||||||
| Technology and development | 1.1 | 0.6 | 0.5 | 83 | % | |||||||||||
| Sales, advertising and marketing | 1.3 | 0.8 | 0.5 | 63 | % | |||||||||||
| Total expenses | 107.8 | 51.6 | 56.2 | 109 | % | |||||||||||
| Income/(loss) from operations | 10.1 | (1.9 | ) | 12.0 | ||||||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income (expense), net | (0.1 | ) | (0.1 | ) | 0.0 | 0 | % | |||||||||
| Gain (loss) on remeasurement of warrant liabilities | (0.1 | ) | - | (0.1 | ) | |||||||||||
| Gain (loss) on initial equity method investment | (0.1 | ) | - | (0.1 | ) | |||||||||||
| Other income | (0.0 | ) | - | (0.0 | ) | |||||||||||
| Total other expense | (0.3) | (0.1) | (0.2) | 200 | % | |||||||||||
| Net income/(loss) before income tax | 9.8 | (2.0 | ) | 11.8 | ||||||||||||
| Income tax (expense) benefit | (0.4 | ) | (0.0 | ) | (0.4 | ) | 0 | % | ||||||||
| Net income (loss) | 9.4 | (2.0 | ) | 11.4 | ||||||||||||
| Net income (loss) attributable to Non-controlling interests | (1.2 | ) | (0.3 | ) | (1.0 | ) | 300 | % | ||||||||
| Net income (loss) attributable to the shareholders of DocGo Inc and Subsidiaries | $ | 10.6 | $ | (1.7 | ) | $ | 12.3 | |||||||||
33
Consolidated
For the three months ended March 31, 2022, total revenues were $117.9 million, an increase of $68.2 million, or 137%, from the total revenues recorded in the three months ended March 31, 2021.
Transportation Services
For the three months ended March 31, 2022, Transportation Services revenue totaled $27.8 million and increased by $8.8 million, or 46%, as compared with the three months ended March 31, 2021. This increase was due to increases in both transportation trip volumes and the average price per trip. Volumes increased by approximately 5%, from 46,012 trips for the three months ended March 31, 2021, to 48,110 trips for the three months ended March 31, 2022. The increase in trip volumes is due to a combination of growth in the customer base in certain core markets and entry into new markets in 2021. Our average trip price increased from $283 in the three months ended March 31, 2021, to $353 in the three months ended March 31, 2022. The increase in the average trip price in the 2022 period reflects a shift in mix toward higher-priced transports, as well as a shift in the customer (payer) mix towards higher-priced transports. The average trip price also benefited from a 5.1% increase in the average Medicare reimbursement rate for ambulance transports. Transportation Services revenues were also driven higher in the first quarter of 2022 by a 201% increase in revenues generated from programs under which DocGo is paid a daily or hourly “standby” rate for the use of a fully staffed and equipped ambulance, which were driven by new customer acquisition and large new projects. These services do not factor in the trip counts or average trip prices mentioned above.
Mobile Health
For the three months ended March 31, 2022, Mobile Health revenue totaled $90.1 million, an increase of $59.4 million, or 194%, as compared with the three months ended March 31, 2021. This significant increase was mainly due to the expansion of the services offered by this segment, particularly with respect to COVID-19 related testing and vaccination and other healthcare services revenues included in the Mobile Health segment. This expansion accelerated through 2021 and into 2022 as the Company increased its customer base and geographic reach, while extending several large customer contracts and introducing a broader range of services.
Cost of Revenue
For the three months ended March 31, 2022, total cost of revenue (exclusive of depreciation and amortization) increased by 117%, as compared to the three months ended March 31, 2021, while revenue increased by approximately 137%. Cost of revenue as a percentage of revenue decreased to 66.2% in the first quarter of 2022 from 72.2% in the first quarter of 2021.
In absolute dollar terms, total cost of revenue in the three months ended March 31, 2022 increased by $42.1 million from the levels of the three months ended March 31, 2021. This was primarily attributable to an $11.7 million increase in total compensation, reflecting higher headcount for both the Transportation Services and Mobile Health segments; a $22.6 million increase in subcontracted labor, driven mostly by the Mobile Health segment, where revenue increases outpaced the Company’s ability to service such revenue solely with internal resources, temporarily causing the Company to rely increasingly on subcontracted labor; a $6.5 million increase in medical supplies, due to the purchase of COVID-19 test kits and the need for increased personal protective equipment (PPE) and related supplies, and the increased cost thereof as a result of increased demand during the pandemic; and a $3.2 million increase in vehicle costs, driven by a continued increase in the Company’s vehicle fleet and higher fuel and maintenance costs; and a $2.4 million increase in facilities and other costs of sales, relating to the Company’s increased scale and geographic presence. These items were partially offset by a $4.2 million decrease in lab fees related to COVID-19 testing activity, reflecting lower per-test lab fees, and a shift toward rapid tests.
For the Transportation Services segment, cost of revenues (exclusive of depreciation and amortization) in the three months ended March 31, 2022 amounted to $21.5 million, up $6.8 million, or 46%, from the three months ended March 31, 2021. Cost of revenues as a percentage of revenues was unchanged at 77.3% in both periods, as 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 was offset by the impact of higher hourly wages in certain markets and increased overtime for field employees, and increased fuel costs, as described above.
For the Mobile Health segment, cost of revenues (exclusive of depreciation and amortization) in the three months ended March 31, 2022 amounted to $56.5 million up 167% from $21.2 million in the three months ended March 31, 2021. Cost of revenues as a percentage of revenues decreased to 62.7% from 69.0%, due to the increase in revenues, lower average per-test lab fees and the increased number of higher-margin, hourly-based programs in the first quarter of 2022, which outweighed the increased use of higher cost subcontracted labor and significant increases in medical and general supply costs, as described above.
34
Operating Expenses
For the three months ended March 31, 2022, the Company recorded $29.8 million of operating expenses compared to $15.7 million for the three months ended March 31, 2021, an increase of 90%. As a percentage of revenue, operating expenses declined from 31.6% in the first quarter of 2021 to 25.3% in the first quarter of 2022, due primarily to the significant increase in overall revenues described above, coupled with the semi-fixed nature cost of the corporate infrastructure. The increase of $14.1 million related primarily to a $10.4 million increase in payroll due to investments in and expansion of corporate infrastructure to support the revenue growth; a $0.5 million increase in sales and marketing cost, driven by higher sales commissions and increased marketing activity arising from the expansion of the Mobile Health segment; a $0.8 million increase in travel and entertainment expenses, reflecting both the growth of the overall employee base, as well as increased business development related activities for both the Transportation Services and Mobile Health segments; a $0.6 million increase in depreciation and amortization due to an increase in assets to support revenue growth and capitalized software amortization; a $1.0 million increase in legal, accounting and other professional fees related to increased revenue and related contract generation, Directors and Officers insurance and SEC filing-related costs; a $0.5 million increase in office-related expenses, owing to the Company’s ongoing growth and geographic expansion; a $0.5 million increase in IT infrastructure, driven by the Company’s business and headcount expansion; a $0.5 million increase in bad debt expense, in line with the increase in overall revenues during the period. These were partially offset by a $0.7 million net decline in insurance expenses, reflecting the Company’s new captive insurance program for automobile and workers compensation insurance.
For the Transportation Services segment, operating expenses in the three months ended March 31, 2022 were $15.6 million, up $7.0 million, or 82%, from the three months ended March 31, 2021. Operating expenses as a percentage of revenues increased to 56.1% from 45.2% in the prior year period, despite the increase in Transportation Services revenues, due to a significant increase in corporate infrastructure, all of which is allocated to the Transportation Services segment. The increased operating expenses, in dollar terms, in the three months ended March 31, 2022 primarily reflected higher costs for payroll, travel and entertainment, professional fees and depreciation, as described above.
For the Mobile Health segment, operating expenses in the three months ended March 31, 2022 were $14.2 million, compared to operating expenses of $7.1 million in the three months ended March 31, 2021. Operating expenses as a percentage of revenues decreased to 15.7% from 23.1% in 2020, despite significant expenditures made in the expansion of services and geographic areas of operation, as well as the buildout of the Mobile Health management infrastructure throughout 2021 and the early part of 2022, due to the faster rate of increase in Mobile Health revenues. The increased operating expenses, in dollar terms, in 2021 were primarily driven by higher costs for payroll, subcontracted labor costs, travel and entertainment, marketing and IT infrastructure, and facilities costs, as described above.
Interest Income/(Expense), Net
For the three months ended March 31, 2022, the Company recorded $135,606 of net interest expense compared to $115,009 of interest expense in the three months ended March 31, 2021. The increase in net interest expense in the current period reflects an increase in payments made for leased vehicles, as the Company’s fleet expanded. This outweighed the impact of higher interest income in the 2022 period, resulting from an increase in the Company’s cash balances in income-bearing accounts.
Gain/(loss) on Remeasurement of Warrant Liabilities
During the three months ended March 31, 2022, the Company recorded a loss of $58,749 from the remeasurement of warrant liabilities, The warrants are marked-to-market in each reporting period, and this gain reflects the decline in DocGo’s stock price relative to the beginning of the period. No gain or loss was recorded in relation to the remeasurement of warrant liabilities in the first quarter of 2021.
Gain/(Loss) on Equity Method Investment
During the three months ended March 31, 2022, the Company recorded a loss of $83,341 representing its share of the losses incurred by an entity in which the Company has a minority interest, which is accounted for under the equity method. This investment was made in the second half of 2021, and as such, no gain or loss was recorded in relation to an equity method investment in the first quarter of 2021.
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Income Tax (Expense)/Benefit
During the three months ended March 31, 2022, the Company recorded income tax expense of $0.4 million, compared to an income tax expense of $10,029 in the three months ended March 31, 2021. The increase in income tax expense resulted from the higher level of pretax income as well as state income taxes in jurisdictions the Company entered during the past year.
Noncontrolling Interest
For the three months ended March 31, 2022, the Company had a net loss attributable to noncontrolling interest of approximately $1.3 million, compared to a net loss attributable to noncontrolling interest of $0.3 million for the three months ended March 31, 2021. The increased loss reflected ongoing investments in new markets that were entered into during 2021.
Liquidity and Capital Resources
Since inception, DocGo has completed three equity financing transactions that served as the Company’s principal source of liquidity, with minimal debt incurred. Generally, the Company utilized equity raised to finance operations during its development phase, investments in assets, ambulance operating licenses and funding working capital. The Company has also funded these activities through operating cashflows. In November 2021, upon the completion of the merger between Motion Acquisition Corp. and Ambulnz, Inc., the Company received proceeds of approximately $158.1 million, net of transaction expenses. Although the Company generated positive net income in the three months ended March 31, 2022, operating cash flows may not be sufficient to meet immediate obligations arising from current operations. For example, as the business has grown, the Company’s expenditures for human capital and supplies has expanded accordingly, and the timing of the payments for payroll and to associated vendors, compared to the timing of receipts of cash from customers frequently results in the Company using existing cash balances to fund these working capital needs. The Company’s working capital needs depend on many factors, including the overall growth of the company and the various payment terms that are negotiated with customers and vendors. Future capital requirements depend on many factors, including potential acquisitions, our level of investment in technology, and rate of growth in existing and into new markets. The cost of ongoing technology development is another factor that is considered. Capital requirements might also be affected by factors which the Company cannot control, such as interest rates, and other monetary and fiscal policy changes to the manner in which the Company currently operates. Additionally, as the impact of the COVID-19 on the economy and operations evolves, the Company will continuously assess its liquidity needs. If the Company’s growth rate is higher than is currently anticipated, resulting in greater-than-anticipated capital requirements, the Company might need or choose to raise additional capital through debt or equity financings.
Considering the foregoing, DocGo anticipates that existing balances of cash and cash equivalents, future expected cash flows generated from our operations and an available line of credit (as discussed in Note 8, “Line of Credit” to the 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, 2022 and March 31, 2021
Three Months Ended
| ||||||||||||||||
| $ in Millions | 2022 | 2021 | Change $ | Change % | ||||||||||||
| Working capital | ||||||||||||||||
| Current Assets | $ | 268.2 | $ | 62.7 | $ | 205.5 | 328 | % | ||||||||
| Current Liabilities | 61.0 | 31.0 | 30.0 | 97 | % | |||||||||||
| Total working capital | $ | 207.2 | $ | 31.7 | $ | 175.5 | 554 | % | ||||||||
As of March 31, 2022, available cash totaled $188.4 million, which represented an increase of $160.2 million as compared to March 31, 2021, reflecting the receipt of the proceeds from the merger described above, as well as positive cash flow. As of March 31, 2022, working capital amounted to $207.2 million, which represented an increase of $175.5 million as compared to March 31, 2021, primarily reflecting the increased cash balance. Increased accounts receivable, reflecting the growth of the business in 2021 and the early part of 2022, were partially offset by increases in current liabilities, which reflected the growth of the business and resulted from extended payment terms from vendors.
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Cash Flows
Three months ended March 31, 2022 and 2021
| Three Months Ended March 31, | ||||||||||||||||
| $ in Millions | 2022 | 2021 | Change | Change | ||||||||||||
| Cash Flow Summary | ||||||||||||||||
| Net cash provided by/(used in) operating activities | $18.2 | $(1.4) | 19.6 | |||||||||||||
| Net cash provided by/(used in) investing activities | (1.1 | ) | (1.3 | ) | 0.2 | (15 | %) | |||||||||
| Net cash provided by/(used in) financing activities | 2.5 | (0.6 | ) | 1.9 | ||||||||||||
| Effect of exchange rate changes | 0.0 | 0.0 | (0.0 | ) | 0 | % | ||||||||||
| Net (decrease) increase in cash | $ | 19.6 | $ | (3.3 | ) | 21.7 | ||||||||||
Operating Activities
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.
During the three months ended March 31, 2021, operating activities used $1.4 million of cash and primarily resulted from a net loss of $2.0 million and changes in assets and liabilities, which were partially offset by non-cash charges of $2.7 million. The non-cash items included $0.7 million of bad debt expense primarily related to a provision for potential uncollectible accounts receivable, $1.2 million resulting from the depreciation of property and equipment and right-of-use assets, $0.4 million from amortization of intangible assets, and $0.4 million of stock compensation expense. Changes in assets and liabilities resulted in approximately $2.0 million in negative operating cash flow and were primarily driven by a $7.1 million increase in accounts receivable and a $1.1 million increase in prepaid expenses and other current assets, which were partially offset by a $6.2 million increase in combined accounts payable and accrued expenses.
Investing Activities
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.
During the three months ended March 31, 2021, investing activities used $1.3 million of cash and primarily consisted of the acquisition of property and equipment totaling $0.8 million and the acquisition of intangibles in the amount of $0.5 million to support growth of new transportation and mobile health markets.
Financing Activities
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 non-controlling 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 a $0.1 million of equity cost.
During the three months ended March 31, 2021, financing activities used $0.5 million of cash, as noncontrolling interest contributions were outweighed by repayments made on notes payable and finance leases.
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Future minimum annual maturities of notes payable as of March 31, 2022 are as follows:
| Notes Payable | ||||
| 2022, remaining | $ | 0.4 | ||
| 2023 | $ | 0.5 | ||
| 2024 | $ | 0.3 | ||
| 2025 | $ | 0.3 | ||
| 2026 | $ | 0.2 | ||
| 2027 and thereafter | $ | 0.1 | ||
| Total maturities | $ | 1.8 | ||
| Current portion of notes payable | $ | (0.6 | ) | |
| Long-term portion of notes payable | $ | 1.2 | ||
Future minimum lease payments under operating leases as of March 31, 2022, and for the following five fiscal years and thereafter are as follows:
| Operating Leases | ||||
| 2023 | $ | 1.2 | ||
| 2024 | $ | 1.3 | ||
| 2025 | $ | 0.9 | ||
| 2026 | $ | 0.9 | ||
| 2027 | $ | 0.4 | ||
| 2028 and thereafter | $ | 0.0 | ||
| Total future minimum lease payments | $ | 4.7 | ||
| Less effects of discounting | $ | (0.5 | ) | |
| Present value of future minimum lease payments | $ | 4.2 | ||
Future minimum lease payments under finance leases as of March 31, 2022, and for the following five fiscal years and thereafter are as follows:
| Finance Leases | ||||
| 2023 | $ | 2.9 | ||
| 2024 | $ | 3.0 | ||
| 2025 | $ | 1.8 | ||
| 2026 | $ | 1.8 | ||
| 2027 | $ | 1.2 | ||
| 2028 and thereafter | $ | 0.1 | ||
| Total future minimum lease payments | $ | 10.8 | ||
| Less effects of discounting | $ | (1.1 | ) | |
| Present value of future minimum lease payments | $ | 9.7 | ||
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Critical Accounting Policies
Basis of Presentation
The Company’s Condensed Consolidated Financial Statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The 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”) on the Condensed Consolidated Financial Statements represent the portion of consolidated joint ventures and a variable interest entity in which the Company does not have direct equity ownership. Accounts and transactions between consolidated entities have been eliminated.
Pursuant to the Business Combination, the merger between Motion and Ambulnz, 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 Condensed Consolidated Financial Statements include the accounts of DocGo Inc and its subsidiaries. All significant intercompany transactions and balances have been eliminated in these 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 variable interest entity (“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of MD1 and funds and absorbs all losses of the VIE and appropriately consolidates MD1.
Net loss for the VIE was $85,379 as of March 31, 2022. The VIE’s total assets, all of which were current, amounted to $509,769 on March 31, 2022. Total liabilities, all of which were current for the VIE, was $1,020,254 on March 31, 2022. The VIE’s total stockholders’ deficit was $510,485 on March 31, 2022.
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.
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Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the fair value of amounts assigned to assets acquired and liabilities assumed. Goodwill and indefinite-lived intangible assets, consisting primarily of operating licenses, are not amortized, but are evaluated for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. In assessing the recoverability of goodwill and indefinite-lived intangible assets, the Company makes assumptions regarding the estimated future cash flows, including forecasted revenue growth, projected gross margin and the discount rate to determine the fair value of these assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges against these assets in the reporting period in which the impairment is determined.
The Company tests goodwill for impairment at the reporting unit level, which is one level below the operating segment. The Company has the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the one-step quantitative assessment. If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, the Company compares the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, goodwill impairment is recognized.
Any excess in carrying value over the estimated fair value is recorded as impairment loss and charged to the results of operations in the period such determination is made. For the periods ended December 31, 2021 and 2020, management determined that there was no impairment loss required to be recognized in the carrying value of goodwill or other intangible assets. The Company selected December 31 as its annual testing date.
Revenue Recognition
On January 1, 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), as amended.
To determine revenue recognition for contractual arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify each contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when (or as) the relevant performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services the Company provides to the customer.
The Company generates revenues from the provision of (1) ambulance and medical transportation services (“Transportation Services”) and (2) Mobile Health services. The customer simultaneously receives and consumes the benefits provided by the Company as the performance obligations are fulfilled, therefore the Company satisfies performance obligations immediately. The Company has utilized the “right to invoice” expedient which allows an entity to recognize revenue in the amount of consideration to which the entity has the right to invoice when the amount that the Company has the right to invoice corresponds directly to the value transferred to the customer. Revenues are recorded net of an estimated contractual allowances for claims subject to contracts with responsible paying entities. The Company estimates contractual allowances at the time of billing based on contractual terms, historical collections, or other arrangements. All transaction prices are fixed and determinable which includes a fixed base rate, fixed mileage rate and an evaluation of historical collections by each payer.
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 Condensed Consolidated Financial Statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and other participants in the healthcare industry are subject to legal proceedings, claims and litigation arising in the ordinary course of our business. Descriptions of certain legal proceedings to which we are a party are contained in Note 18, “Legal Proceedings” of the Notes to our Condensed Consolidated Financial Statements.
From time to time, in the ordinary course of business and like others in our industry, we receive requests for information from government agencies in connection with their regulatory or investigational authority. These requests can include subpoenas or demand letters for documents to assist the government in audits or investigations. We review such requests and notices and take what we believe to be appropriate action. We have been subject to certain requests for information and investigations in the past and could be subject to such requests for information and investigations in the future.
Item 1A. Risk Factors
Factors that could materially and adversely affect our business, financial condition and/or results of operations are described in the 2021 Form 10-K. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business, financial condition and/or results of operations. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our 2021 Form 10-K, other than the inflation rate risk discussed below.
Inflation Rate Risk
Beginning in April 2021, the inflation rate in the US, as measured by the Consumer Price Index (CPI) has steadily increased. In 2019, the inflation rate was approximately 1.8%, while it dropped to approximately 1.2% in 2020. These data are reported monthly, showing year-over-year changes in prices across a basket of goods and services. For 2021, inflation increased from the 1.4%-2.6% range in the first quarter, to 4.2% in April, and was in the 5.0% range through the end of the third quarter of 2021, before increasing to the 6.0%-7.0% range in the fourth quarter. For the full year, the inflation rate was 4.7% in 2021, the highest annual rate since the 5.4% rate recorded in 1990. The inflation rate continued to increase throughout the first quarter of 2022, reaching approximately 8.5% in March 2022. The increased inflation rate has had an impact on the Company’s expenses in several areas, including wages, fuel and medical and other supplies. This has compressed gross profit margins, as the Company is generally unable to pass these higher costs on to its customers, particularly in the short term. Looking to the rest of 2022, we anticipate a moderation of the inflation rate when compared to the first quarter of the year, but expect that inflation will remain above the levels seen in the previous 10 years, when the annual inflation rate ranged from 0.1% to 2.4%. If inflation is above the levels that the Company anticipates in 2022, gross margins could be below plan and our business, operating results and cash flows may be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DocGo Inc. | ||
| Date: May 10, 2022 | By: | /s/ Andre Oberholzer |
| Andre Oberholzer | ||
| Chief
Financial Officer (Principal Financial and Accounting Officer and Authorized Signatory) | ||
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