Description
Background
Founded in 2015 by Russian immigrant Stan Vashovsky to “revolutionize the ambulance industry,” DocGo was taken public via SPAC Motion Acquisition in November 2021, raising $158M.
DocGo aims to “redefine access to healthcare” by leveraging its “proprietary technology powered by artificial intelligence.” Historically DocGo provides non-emergency ambulatory services (Ambulnz brand in the US and UK) and mobile health solutions (testing, vaccinations, patient monitoring etc.).
Low-Quality, Non-Recurring and Unprofitable Revenue
DocGo has been chasing quick growth across various hardly related businesses via a combination of M&A and aggressive bidding for short-term contracts (typically 1-3 years and often cancelable). Government contracts are around two-thirds of revenue and concentrated in NYC (potentially ~35% of revenue in 2022).
DocGo capitalized on the pandemic to win a lot of COVID testing and, later, vaccine-related revenue. The company also moved into broader homeless aid and migrant care government contracts.
DCGO claimed approximately $110M and 75M in COVID testing revenue in 2021 and 2022. Coincidentally these are the only 2 years DocGo has reported positive net income.
Management Red Flags
In November 2022, DocGo announced that Stan Vashovsky would retire (at the age of 50) as CEO, director, and chair. DocGo announced that president Anthony Capone (age 35) would be succeeding him as CEO in a “planned transition” while another board member would serve as chair. Then barely over a month later, in December, the company announced that Vashovsky would continue to serve as non-executive chairman “given the strong growth outlook for the company.”
Capone previously served as CTO and CPO at DocGo sub/predecessor Ambulnz, joining Vashosky early on according to this interview where he also made the following comments that now appear quite ironic:
The reality is that what is best for other people is also in your best interest. That’s the connection that most people don’t take the leap on. They just are focused on right now, “I can benefit by cheating, by lying, by stealing, by not caring about others — that’s what’s beneficial for me now.” But that lacks foresight and an understanding of the interdependence of the world.
https://medium.com/authority-magazine/the-future-is-now-anthony-capone-of-docgo-on-how-their-technological-innovation-will-shake-up-the-2d1a7ab4aab3
Before that, Capone was CEO, CTO, and Head of Sales at Fundbase, “the world’s largest marketplace for hedge funds” according to Capone. Capone also claimed,
“Investors can easily gain 3-5% a year” using Fundbase and its “community driven data computed by advanced machine learning algorithms enables our investors to make decisions that they couldn’t have otherwise made consistently at scale…Because of the immense sophistication of each computational model inside of Fundbase, our investors can make decisions far superior to their peers.”
https://familyofficeinsights.com/pir-qa/anthony-capone/
In September 2023, the Times Union reported that Capone falsely claimed an undergraduate degree as well as a graduate degree in AI from Clarkson.
https://www.timesunion.com/state/article/concerns-remain-docgo-shelters-migrants-face-18366896.php?IPID=Times-Union-HP-spotlight
Capone resigned from all positions at the company a day later on September 15, as the company put out a press release admitting his degree claims were false. Just a month earlier, he claimed at an investor conference,
“Originally, we started the company, I was Chief Technology Officer. My graduate degrees in Computational Learning theory, which is a subset of Artificial Intelligence.”
Yet then a month after removal, he was then given a $45K/month consulting agreement lasting into March 2024.
Capone was succeeded as CEO by COO Lee Bienstock, who first rose to prominence after finishing second in the 5th season of the Apprentice, before joining Trump Mortgage.
https://therealdeal.com/magazine/new-york-october-2006/despite-you-re-fired-runner-up-lands-trump-job/
Vashovsky meanwhile has been reducing his holdings since the IPO, most recently gifting 1.2M shares for “estate planning purposes” in August. Other insiders continue to sell down.
Largest Contract Under Investigation
In May 2023, DocGo won a NYC contract to handle the asylum seeker crisis, including arranging for the resettlement to hotels outside of the city (transportation, meals, onsite medical services, security, etc.) The contract is overseen by the NYC Department of Housing Preservation and Development (HPD) and not any state agency, and was reportedly a “no-bid” contract. The NYC asylum contract has not been released publicly though it has been reportedly worth $432M for 12 months, though in August, Capone said that included $120M of pass-throughs that would not be recognized as revenues. The remainder represents the maximum under the contract, while Capone suggested around half was likely to come in between 2H23-1H24 and the other half was achievable upside.
The New York Times among others reported between July and September of various allegations and complaints related to administration of the contract.
https://www.nytimes.com/2023/07/30/nyregion/migrants-albany-docgo.html
https://www.nytimes.com/2023/08/21/nyregion/nyc-migrants-docgo-investigation.html?searchResultPosition=1
https://www.nytimes.com/2023/08/20/nyregion/docgo-migrant-sexual-assaults.html
The Times Union also investigated one hotel, to find that the hotel manager was the brother of CEO Capone. “One of the managers at the Red Roof Inn is Enrico Capone, who identified himself as the younger brother of the company’s CEO. The family is from Erie County.”
https://www.timesunion.com/state/article/concerns-remain-docgo-shelters-migrants-face-18366896.php
The contract is being investigated by the NYC comptroller as well as the NYS Attorney General.
In August, the Attorney General said it was investigating in response to reports of mistreatment and falsified papers.
On Sep. 7, NYC Comptroller Lander released the following:
“My office did not make this decision lightly. After a careful review, we are declining to approve this contract due to numerous outstanding concerns,” said Comptroller Brad Lander. “The agency’s contract submission to our office fails to describe how the $432 million price tag was reached. There was little evidence to show that this company has the experience to provide the services it has been contracted for. Contradictory information was provided regarding their fiscal capacity and serious questions were raised about the integrity and responsibility of this vendor and their subcontractors. After thorough review, we are returning the contract to HPD and encouraging them to reconsider whether this vendor is appropriate for the services described.”
https://comptroller.nyc.gov/newsroom/nyc-comptroller-lander-declines-to-approve-432-million-docgo-contract-for-work-on-asylum-seeker-emergency/
However, NYC Mayor Adams has defended the contract, which is not cancellable by the comptroller. DocGo has hired a PR firm linked to Adams. Mr. Adams is also being investigated by the FBI related to “campaign finance, favors, and possible foreign influence.”
https://www.cnn.com/2023/11/14/politics/mayor-eric-adams-investigation-campaign-money-foreign-influence/index.html
Reputational Damage
Regardless of the ultimate outcome, the investigations call into question DocGo’s reputation and ability to win future contracts. Just in August, Capone suggested the “enormous credibility” from the NYC contract would help its bid to win a potential $4b federal CPB migrant contract that the company had submitted a proposal for in 2022.
We did this in large part because it gave us off the credibility to win the Border Patrol RFP which we've been working on for seven to eight months and that's a five-year contract worth over $4 billion, that contract is almost a billion dollars a year, that contract is worth and that one allows us to treat all the asylum seekers as soon as they come across the border and that 72-hour stint.
And we've been working on that for a very long time now that we are one of the largest care providers for asylum seekers in the country. It gives us enormous credibility.
We have references from the city who handles the largest (inaudible). New York City has 93,000 asylum seekers in it right now.
Government sources later said the potential contract was around half that, and DCGO appears no closer to a deal.
https://www.timesunion.com/state/article/docgo-ceo-falsely-told-investors-earned-graduate-18368860.php
FCF and Valuation
DCGO has an accumulated deficit of ($29M). Cumulative FCF after M&A spend since the start of 2021 is ($106M), with another ($39M) in liabilities due to sellers and contingent considerations.
DCGO has generated ($0.7M) of GAAP net income for shareholders YTD and ($65M) of FCF.
Receivables have ballooned. DCGO blamed the receivables on phasing-in of the HPD contract, with NYC a notoriously slow payer. On the other hand, allowance against the receivables fell to $4.8M from $7.8M at YE22 despite the growth in receivables.
While friendly analysts have EBITDA and earnings growing nicely next year, this largely rests on the back of the NYC asylum contract which is extremely contentious and even if paid out, unlikely to be renewed given the political complications.
Given the circumstances, a 1x book value valuation seems aggressive, but implies over 50% downside from current share price.
Price 5.75 DSO 105 Market Cap 603.75 Net cash 50.2 EV 553.55 Equity 287.6 Book value $ 2.74 Implied downside -52%
v. 4.20
