American Well Corp Q3 FY2024 earnings call

• Defense Health Agency (DHA): Completed the second milestone with converged scheduled and group visits live for the Armed Forces and their dependents, planning enterprise-wide deployment by the end of 2024. - Cost transformation: Improved 2024 EBITDA guidance due to cost alignment initiatives, with a strong balance sheet having $245 million in cash and no debt. - Growth strategy: Focus on higher margin growth in 2025, with improving pipeline quality and RFP traction; notable Q3 expansions include Sanford Health, Wellstar, and Capital Blue Cross; significant renewals like Baystate Health, Advent Health, and Children's Medical Center of Dallas. - Market for digital-enabled health care: Amwell's Converge platform addresses pain points in digital-enabled care, enabling a single clinical consumer engagement pathway to multiple clinical programs.

Total revenue for Q3 was $61 million, flat to the year-ago quarter. Subscription revenue was $26.2 million in Q3, down 5% from the previous quarter. Visit metrics: approximately 1.4 million visits in Q3, 4.6% lower than the year-ago quarter; scheduled visits represented 70% of total visits; visit volume on Converge held steady at ~70% of total Q3 visits. AMG visit revenue was $27.5 million in Q3, slightly higher than last year, but the number of AMG visits was slightly lower; average revenue per visit was $83, 7% higher than last year. Services and care points revenue was $7.3 million in Q3, up from $6.6 million last quarter, driven by professional services for the government business. Gross profit margin remained at 37% in Q3, flat to Q2. R&D expense declined 5% in Q3 vs Q2; sales and marketing expenses were $16.8 million, down $1.6 million from the previous quarter; G&A expense was $25.2 million, down $3.3 million from the previous quarter. Adjusted EBITDA for Q3 was negative $31 million, better than negative $35 million last quarter and negative $39 million in Q3 2023.

• Revenue: Revised 2024 revenue guidance to the range of $247 to $252 million. - AMG visits: Revised range to 1.4 million to 1.5 million visits, down from the previous range of 1.6 million to 1.7 million visits. - Adjusted EBITDA: Revised 2024 adjusted EBITDA to the range of negative $142 million to $137 million from the prior range of negative $150 million to $145 million; 2025 guidance to be provided when reporting Q4 2024 results. - Path to cash flow positive: On track to be cash flow positive in 2026.

• Execution risks: Achieving cash flow positive in 2026 depends on new revenue coming together and maintaining cost reduction targets. - Market and client execution: Softness in visits due to market-wide and client execution challenges. - Contract renewal: DHA contract renewal process with the Leidos partnership, where intent to sole source to Leidos is likely but not final.

Q: Ido, on your comments of focusing on high quality, profitable growth in 2025, can you just expand on that?

A: It's about enhancing subscription-heavy core services for payers and providers, with visibility into high quality growth in 2025 dominated by subscription revenue, de-emphasizing less accretive areas.

Q: Mark, when you look at the path to achieving cash flow positive for 2026, what sort of a risk do you see?

A: Twofold risks: new revenue coming together and achieving cost levels as planned.

Q: Ryan MacDonald on the DHA contract rollout. I think that obviously the expectation all along has been sort of a fourth quarter enterprise-wide deployment, but I think you heard the comment by year end. Should we be reading into that at all as sort of maybe a slight pushback in that deployment timeframe? And then as we think ahead to 2025, just any updates on sort of the contract renewal process with the DHA as well?

A: No, we did not mean anything by the nomenclature. On track for enterprise-wide deployment by year end. DHA contract renewal process with Leidos, intent to sole source to Leidos is likely but not final.

Q: Jessica Tassan on how does SilverCloud kind of interact or get integrated with other virtual behavioral health providers in a given network?

A: Amwell's role is orchestration of singular experience to multiple clinical programs, SilverCloud is one program among others, not cannibalistic as it's about orchestration.

Q: Stan Berenshteyn on monetization of routing capacity with third parties.

A: Rev share agreements in place with partners, similar to app store model, incremental revenue opportunity.

Q: Jailendra Singh on GLP-1 medication, weight management solutions.

A: Amwell facilitates access to various programs, clients decide which programs to use, focus on orchestration and outcome reporting.

Q: Charles Rhyee on the revised guidance and visit softness impact on 2025 revenues.

A: Less dependence on variable visit revenues in 2025 due to significant subscription revenue contribution.

Q: Dave Larsen on the cost reduction program and 2025 EBITDA guide.

A: Ongoing cost initiatives to right-size cost basis, 2025 guidance to be provided in Q4 2024 results.

Q: Jack Wallace on the sources of the sequential increase in expected subscription revenue in the fourth quarter and what that means for a jumping point for next year.

A: Expected revenue from new contract milestone, confidence in meeting milestone and adding material subscription revenue for 2025