American Well Corp (AMWL) 2024 Q1 法說會逐字稿

Good afternoon. My name is Briana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amwell Q1 2024 earnings call. (Operator Instructions) Thank you. I would now like to hand the call over to Sue Dooley, Head of Investor Relations with Amwell. You may begin.

Hello, everyone. Welcome to Amwell conference call to discuss our first fiscal quarter of 2024. This is Sue Dooley of Amwell Investor Relations. And joining me today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Bob Shepardson, our CFO.

Earlier today, we distributed a press release detailing our announcement. Our earnings release is posted on our website at investor.amwell.com and is also available through normal new sources. This conference call is being webcast live on the IR page of our website, where a replay will be archived.

Before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the course of the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities

This forward-looking information is subject to the risks and uncertainties described in our filings with the SEC, and actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements.

On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. With that, I would like to turn the call over to Ido.

Thank you, Sue, and hello, everyone. I'm pleased to report that Q1 was a busy quarter for our company, one that provided a strong start for an important year for us. As a reminder, on our last call, we shared our guidance for step function in our growth it will help us achieve our profitability goal in 2026.

Before I show some highlights on our first quarter, I would like to open with a few general comments. It is now clear that the need for digital care enablement is significant. It is also clear that Converge is performing well in power sophisticated solutions across diversified clients on a large scale. And finally, it is evident that new large customers are recognizing the value of our platform as reflected by the size and revenue mix of our recent wins.

Importantly, as we deploy our offering in the government sector, modernizing the military health system, we also expand into a new sizable market. In addition, we believe that implementing our platform in the demanding government environment is demonstrating important proof points that are also relevant in our existing commercial markets.

Those include scale, versatility and cybersecurity capabilities that will shine a spotlight on our market differentiation across all our sectors. During the past three months, we've taken major steps to adapt and transform our organization that will result in a greatly reduced cost structure as reflected in our forward guidance. In addition, we have good visibility into strong top-line growth in 2025, coupled with greatly improved margins.

The guidance we gave on our last call described a 30% jump in our 2025 topline reach with subscription software that will drive gross margin expansion to over 50%. We believe this is a clear indication of the completion of our re-platforming investment period. We believe our technology offering is unique and will continue to drive favorable high-margin software revenue mix and our strong balance sheet fuels us well beyond our needs to achieve profitability.

We are proud of our many clients, big and small that are now committed to utilizing converted their platform. Converged connects their healthcare services with millions of healthcare consumers. It drives efficiencies and fueled new revenue opportunities for them on a foundation of very high user satisfaction scores and NPS ratings.

The market for digital health is just starting and we are well positioned to benefit. What we do is complicated. Value to patients, providers and payers is significant, and we believe our deep integrations and vast deployments from long term bonds we've helped organizations that make up a big part of the US ecosystem. We are proud of what we've accomplished in the past three years and believe it is beginning to pay off. And now I would like to review some highlights from Q1.

First, we are delivering for our clients. In addition to the successful go-lives and migrations, we completed this quarter for several clients. We are steadily completing critical milestones as we deploy our solution for the military health system, working alongside the latest partnership for defense health.

Following our successful rollout of our digital behavioral health solution in Q1, we're now targeting the next capability offering go-live for Q3. Our efforts are on schedule, and we look forward to supporting NHS in their full enterprise deployment of our solution scheduled for Q4. Interest in the work we're doing together with the DHA is growing.

Early in Q1, its health.mil website, the DHA also announced its launch of our digital be able to have solutions in the beginning of this journey. Also recently, an article for modern healthcare described the DHA commitment to modernization with our offering at its core. Second, we solidified important initiative in our growth organization aimed at reaccelerating our bookings and increasing our mix of subscription software revenue.

Our growth is embracing the changes we have put in place and tonight we'll share an example of our booking success. Third, we continue to drive for efficiency. We are optimizing our company by instituting a cost structure that provides a baseline for meaningful profit expansion as a growth scales. In a very active Q1, we successfully migrated a large portion of our visit volume onto our Converge platform via some of the most strategic payer migrations, including previously announced Elemance and Highmark.

Visits on Converge with nearly 70% in Q1, meaningfully higher than 54% in Q4. Our platform is scaling and performing well and client feedback remains strong, with funds operating consistently well over 90%. And now I would like to provide some color around the successful Q1 client expansion demonstrating the growth potential within our existing client base.

With the sizable expansion with an existing East Coast Blue payer client that will deploy several of automated programs to drive engagement, reduced costs, and compete for members in a crowded regional market for health insurance. Leveraging our programs, the fair intends to identify high-risk members and proactive encourage them to engage with high value care programs like diabetics management.

We also had a good quarter for client renewals, including Highmark, Intermountain, Melamine Health, Penn State, and Cleveland Clinic. Concluding my discussions on our growth initiatives, we think we have the right team structure in place and engagement with existing and prospective clients is high. We have completed detailed client reviews and creating rigorous account plans with metrics and compensation plans to emphasize a high value ROI selling approach and a focus on selling subscription software.

Our new Argus team embracing a robust enterprise selling motion, which we believe will accelerate our growth, fueled by demand for our hybrid care expertise and a differentiated approach, enabling hybrid care delivery across the health landscape. Based on these achievements, we continue into 2024 with high conviction regarding our guidance for meaningful growth next year in our plan to achieve profitability in 2026.

With that, I would like to turn the call over to Bob to review our financials and key metrics and our guidance. Bob?

Thanks, Ido, and good evening to everybody on the call. We ended the first quarter in a position of continued strong visibility into our future growth and our path to adjusted EBITDA breakeven.

Tonight, I will walk you through a few operating metrics and financial results from the first quarter then I will review our guidance for 2024 as well as our expectations for 2025 and 2026. To begin, total visits were approximately $1.67 million in the first quarter, a small decline versus $1.7 million last year. Visit volume this quarter was negatively impacted by two onetime events.

First, the change healthcare security breach; and second, a temporary disruption associated with our largest client migrations to Converge to date. We resolve those issues before quarter end, scheduled visits represented 63% of total continuing to highlight the evolution of our company from providing virtual urgent care through a platform provider, enabling hybrid care.

We continue to make good progress migrating our clients to Converge as we announced in February, we successfully migrated some of our largest payer clients, and we saw volume from them ramp this quarter. With their volume now migrated the percentage of visits on Converge is materially higher than the 52% from last quarter and for 1Q was over 68%.

Turning to our Q1 financials. Total revenue was $59.5 million for the quarter, down $4.5 million or 7% from a year ago. Approximately $4 million of the decline in revenue versus last year was subscription related driven primarily by legacy platform declines with the balance driven by lower visit revenue, offset by higher services and Carepoint revenue.

Subscription revenue declined 9% from Q4 and was $24.9 million in Q1. We believe the first quarter was our low point for the year for subscription. We believe that subscription revenue will increase each quarter this year with contracted customer go-lives, the full benefit of which we will see in the fourth quarter from a run rate perspective.

We continue to expect our subscription revenue for 2024 to be approximately flat to 2023. AMG visit revenue trended 4% lower than last year and was $31 million in Q1. AMG visits were 6% lower this quarter versus a year ago, due in part to the onetime dynamics I just mentioned. Average revenue per visit was slightly higher this quarter than last year at $77 driven by a mix shift within AMG away from on-demand urgent care visits.

Our AMG business continues to be strategically important to client expansions and new client wins. Our services and Carepoint revenue was $3.6 million for the quarter, a decline of $7.7 million from last quarter, driven primarily by the timing of professional services and marketing. These revenues are uneven from quarter to quarter due to customer buying patterns for marketing services programs and for Carepoint as well as the professional services milestones that precede deployments.

We anticipate that our services and Carepoint's revenue will represent approximately 10% of our total revenue for 2024 two-thirds of which will be recognized in the second half of the year, driven primarily by go-lives of contracted deployments.

Turning to profitability. Our fourth quarter gross profit margin was 31%, a decline of approximately 300 basis points from last quarter. We view this decline as temporary, and it was largely due to lower subscription software and services revenue combined with onetime costs related to the very large payer migrations we completed this quarter.

For the year, we expect our gross margin to approximate the levels we saw in 2023 and expand meaningfully in future years as our mix of subscription software increases. We are tracking well on our path to normalizing R&D spending. GAAP R&D expense was flat to last quarter and with 7% higher after adjusting for $3 million of software development capitalization associated with our government work. Inclusive of this spend, software cap adjusted R&D spend is 10% lower than a year ago.

We continue to expect our total R&D spend to decline at least mid-teens percent this year versus 2023. Sales and marketing expense was $4 million higher than 4Q '23, driven by severance and other costs associated with our growth transformation. We also had higher compensation accrual compared to last quarter, which was offset by lower salary expense due to our headcount reductions. Overall we expect GAAP sales and marketing costs to be level year over year, inclusive of one-time costs.

G&A expense was [$8 million] higher versus last quarter, driven primarily by higher compensation accruals plus higher stock-based compensation expense due to the partial vesting of 2024 grants. We expect our quarterly run rate for stock-based comp for the remainder of 2024 to be below the level we achieved in the fourth quarter of last year.

Adding it all together, adjusted EBITDA for the quarter was negative $45.7 million versus negative $44.6 million last year. Our gross profit contribution is lower by $7 million, driven by lower subscription software and onetime migration expenses, offset by lower R&D. Transitioning to the balance sheet. We ended the fourth quarter with $309 million of cash and marketable securities.

Turning to our outlook, Q1 represents a good start to our year and tonight we are reiterating our 2024 guidance. We continue to expect revenue for 2024 to be in the range of $259 million to $269 million for the year. We expect subscription revenue to be roughly similar to that of 2023 and to grow incrementally each quarter this year with contracted go-lives, the full impact of which will be evident in the fourth quarter.

As to adjusted EBITDA, we continue to expect our 2024 adjusted EBITDA to be in the range of negative $160 million to negative $155 million. Additional context around our assumptions remains unchanged. We are on track to reduce our converge related R&D spend annually by 25% to 30%.

However, government related customization of our platform will moderate the overall decline in R&D to a circa mid-teens percent reduction for the year. Our headcount actions will result in over $15 million in compensation related savings. So our guidance assumes we return to normal levels of incentive compensation versus 2023.

The progress we have made in recent quarters, significantly adds to our financial visibility and meaningfully derisks our path to adjusted EBITDA breakeven. The impact of our plans supporting the DHA, including the enterprise expansion, it's not fully visible with a single year of guidance for 2024. And so in February, we took the extra step of providing a range of longer-term financial expectations the highlights of which are as follows.

We expect revenue in 2025 to be in the range of $335 million to $350 million, representing growth of circa 30% compared to 2024, primarily driven by go-lives of contracted software backlog, including our plan to enterprise-wide DHA deployments.

We further expect an approximate 70% improvement in our adjusted EBITDA to a range of negative $45 million to negative $35 million. We expect the change in our revenue mix towards subscription software to lift gross margins from the high 30% area in 2024 to over 50% in 2025. After configuring our platform for operation in the government ecosystem, it will be fully scalable and ready to deliver complete hybrid care across the entire NHS enterprise with minimal future development required.

And finally, rounding out our forward-looking expectations, we currently expect to achieve adjusted EBITDA breakeven in 2026 with a cash investments balance of approximately $150 million. In conclusion, we are encouraged by the strides we have made in our business. And in Q1, we made good progress toward our goals.

We believe we are just beginning to capitalize on the opportunity in front of us, and this guidance marks the early days for the long term profitable growth trajectory we envision. Thank you for listening. With that, I'll turn the call back to Ido for some closing remarks. Ido?

Thank you, Bob. In closing, I would like to thank our team for the work we completed in Q1. We are on track for our goals and we made progress towards our strategic initiatives and if we deploy and migrate our customers and the market takes note of the benefits of the hybrid care we enable we are solidifying our role as a digital transformation partner. We believe we are just getting started.

With that, we are ready to conclude our formal remarks. Thank you for listening today. Operator, we are ready to open the line for questions. Thank you.

(Operator Instructions)

Charles Rhyee, TD Cowen.

Yeah. Thanks for taking the questions. One thing I wanted to first ask about the number of the renewals that you kind of highlighted or Intermountain, Cleveland Clinic, et cetera, and maybe get a little bit more details on maybe these are your length of these renewals, if they were adding any new capabilities, any kind of additional commentary you can provide on sort of value they are currently benefiting from Converge and sort of what their roadmap looks like in terms of advancing further with you guys. Thanks.

Hi, Charles, and thank you for your question. On the duration of our agreements did not change much in and it's roughly around the three years, give or take. The renewals are first and foremost, a growth of confidence in the Converge virtually all clients between you are looking at the new platform and each new client does look to add new elements to it. And of course, those elements in those solutions in addition to traditional a virtual visit of on-demand or scheduled a vary from one client to another.

I'll give you a few examples. Payers typically and Elevance is a good example of that a virtual primary care, we believe Elevance is enormously valuable and has a lot of potential for growth, adding a lot of value to members and creating a lot of saving and impact clinical and financial aid to the sponsors.

In addition to that, we see same-store growth and certainly relevant for renewal in all the area of automated interaction, automated interactions are very broad in their impact. They could be as simple as facilitating a bureaucratic activities like showing up for appointments for colonoscopy, all the way to managing complex illnesses like diabetes and others. And that's certainly something that we've seen.

And I gave at least one example of a Blue plan, and that's a new client actually -- that's an expansion. So that's really very relevant to your question.

Another example that we see now in renewals and expansions is virtual nursing. There is a very big shortage of a staff in hospitals and the ability to add to the roster, nurses that extend their career and could be very helpful in setting hours and hours of time in facilitating things like admissions and discharges is very significant to many of our customers.

Lastly, last example, and there are others that you're short of time, the whole notion of a collaborative care as it relates to be every health, our ability to use single cloud technologies to help primary care providers drastically improve access to behavioral health services is something that many of our customers are very interested in.

So in short, I believe that all of our renewals are really focusing on the broad capabilities of the Amwell platform today, which is very different from our legacy offerings.

Appreciate all that detail then and you mentioned Elevance adding sort of virtual care. Just curious your thoughts here, the recent announcement of United with the [Optum] virtual care platform being kind of wound down here. Just curious your thoughts on what that says about the market here for virtualcare and the role that payers play in that? Thanks.

Sure. So as you know, United is a very old partner of Amwell. We have very strong relationship that they'd make a really long time. In those relationship are strong and internal events within the United Group do not expect to have material impact on our relationship or is it impact on our guidance as to the specific case that you've mentioned. But certainly we've seen and you absolutely right, we've seen quite a few examples.

We're a tech oriented companies offered the care, and it was very challenging for them. And quite a few exit this business. In many ways, we believe the testimonial of a how difficult a offering doing what we do is in the sense that it's really important to work with existing providers that are trusted managing this network for digital services is far from obvious. And the technology that is required in order to do that is nothing but a commodity like some people suggested.

United and many others reaffirmed their deep commitment to hybrid care and digital care. So it's important to understand that those people that exit including Walmart and others do not say that a easier access to health services is not something important. They just realize that some of their initial models, a really were struggling a little bit to find their way.

We see that as affirming our view where we offer technology to connect existing trusted the providers with consumers, but opening the gate to [title] wave of technology innovation that we believe could be very, very impactful.

And if you want, one example is the use of automation and AI. We believe that those technologies could have far-reaching effects on improving the outcomes in healthcare. It's almost impossible to use them as a standalone. And in the context of interacting between trusted providers and patients, they could find a very good way to realize this potential.

Craig Hettenbach, Morgan Stanley.

Yes, thank you. Just question on the DHA program, and really looking for just any key milestones to watch as we progress through this year and what that means for the visibility of the program and the setup into 2025?

Absolutely. And Bob can follow with some financial observations. But essentially our relationship with the DHA and with the Leidos partnership on healthy is really terrific They're very experienced. This is a very large project and it's going very well and we're going to really do everything we can to make sure that it continues to grow well.

As I shared in the prepared remarks, the first milestone for the year is behind us. We went live with the EverHealth, which according to the client preference was the most urgent thing for them to deploy. As I mentioned earlier, there are two more milestones, the deployment of converged, which we are focused on right now. And lastly, the deployment of automated care towards the end of the year with expected enterprise rollout at the end of the year. We believe this timeline is still a very realistic and very viable, a going forward. Any other comments Bob?

Yes, Craig, thanks for the question. I guess I would say from a revenue perspective, you can expect to see the lion's share of the impact in the fourth quarter with a lot of that revenue coming on with go-lives in the fourth quarter. And for the first couple of quarters, Q2 and Q3, you're going to see a lot of services revenue come online.

There's two components to the services revenue that we'll be recognizing as we go forward here on the customization of the platform. One is tied the recognizing the revenue is tied to go live. So there's that aspect that we won't see in the next few quarters. But then there's another leg of that we will see and it will drive a significant growth in our services and Carepoint's revenue in Q2 and Q3.

So from a financial perspective, you'll see a few things going on. Our revenue's highly fourth, fourth quarter focus there. Services revenue, you'll see come on in Q2 and Q3 in a meaningful way. Those will be our largest quarters from a revenue perspective and services and Carepoint's. And then you'll also see some capitalization of software spend, R&D spend much higher in the second and third quarters as well. So I think financially, that's what you can expect as it relates to that DHA book.

That's helpful Bob, I appreciate it. Just a quick follow-up and Bob you touched on just some of the cost initiatives and kind of path to breakeven. What are some key variables that you are mindful of in terms of marching towards that breakeven might some any potential tailwinds or headwinds on the cost side of things?

I feel like we've got it pretty programmatic at this point, Craig, in terms of as I think about the components, I think gross profit is going to rise very meaningfully over the next few quarters. It's getting us back to about what we did last year on the cost of goods sold side and the resulting gross margin. And then increasing to north of 50% the next year.

So I don't see much a concern around that. And then as we think about the operating expense line items, we have a very good bead on what the Converge related spend and the declines there continue to expect that's going to be in this area of 30% year-over-year. And have a very good idea and a lot of comfort, I think, built into and what we're spending for customization in the government sector.

So I don't I feel like we've been conservative in how we've estimated that and the mid teens decline reflects that level of conservatism and the contingencies built in for that work. And SG&A, I think we've taken some actions in January. I expect that we'll find incremental efficiencies going forward on the SG&A side. I think historically, we've been talking about a lot of operating leverage there I think there's we've got scope to actually take those costs down year over year. So I think those are really the points I'd make. I don't know Ido, if you had anything you wanted to add.

Yeah, maybe giving you some color from another angle. As Bob mentioned, the big events, of course, is the completion of Converge the platform we've built and proven, and that allows us to really greatly reduce the R&D investment.

In addition to that, we spent the last few months really focusing on efficiency and effectiveness in the company across the entire company with special focus around the efficiency and effectiveness of our growth organization. So we together with third-party consultants and our own team, we took a fresh look on on the market. A lot has changed in the market and that drove some some very interesting opportunity as it relates to our strategy and the focus. We redefine our TAM and SAM and chose to basically redefine also our business lines with special emphasis around the profitability.

We used to -- we took the new market segments and we decided to focus on segments where we have the highest right to win and the best opportunity to generate a better gross margin, especially driven by favorable mix towards a subscription software or a subscription. We did change our entire growth organization. We built a whole new structure around sales operation to support the strategy that is fit for the current market condition the competitors and Converge.

Our marketing that is really resonating right now with the market. We revisited. We upskilled our talent. We brought some people from the outside that area that needed to and trimmed on people that are less relevant to what we're doing. We trained the entire staff on the new plan and we created new complaints that they really are encouraging our team to focus on higher margin software subscriptions.

And clearly, one of the outputs that we have less quota carriers in the bag they are carrying is much a broader that's not only interesting financially and where the effectiveness. That means that these people are able to tell a story. We have a much more broad end-to-end solution that we believe the clients appreciate. We no longer have separation around business line, but other consultants are able to talk about our entire portfolio will no longer have hunters and farmers.

We really have one team that is nurturing the relationship with both new customers and existing customers. So these are some examples on what happened in the past few months Amwell. And the net of it is that we believe that we have already achieved a much more focused in efficiency in our organization, and we fully expect to continue those efforts over the next a couple of quarter, which will be demonstrated also in our cost structure.

Jessica Tassan, Piper Sandler.

Hi, guys, and thanks for the question. So I wanted to confirm first up the sequential growth you're guiding to from a subscription perspective that contemplates kind of known and understood. Attrition is net of that attrition?

Yes, that's correct.

Okay, awesome. And then my follow-up is just and I I think you guys mentioned that the DHA has expanded in some respects into behavioral capabilities that were not part of the initial deployment. And can you just help us understand what's the scope of the initial deployment from a product perspective? And then what is this incremental behavioral business.

And my last one is just can you confirm that the DHA enterprise-wide deployment is like locked and loaded funded and that's going to occur in the fourth quarter of the year? Thank you.

I just [couldn't] hear your voice. So the behavioral health was always part of what the DHA wanted to deploy. In fact, their taking care of people initiatives is really focusing on the overall health for our men and women in uniform. So that's why it was always the plan and indeed, the plan was executed to start with the automated, the behavioral health, which we deploy.

The product basically allows a providers to prescribe different treatment plans that are highly automated but with a hybrid approach together with coaches around things like depression, anxiety, a long list of other ailments that are and be able to help a specific. So we've done that. And if you remember, the initial year is about deploying the services in five demonstrative sites across the DHA. And once this is done and working well to go to an enterprise expansion.

So this first milestone is deploying those services in the site of the DHA. And we went live with it and it's operating. The other two milestones are the converts deployments that we're focused on right now. And the last one is the automated, the care opportunity that I mentioned earlier. All that is done a complying with long list of requirements for cyber security for our staff, a credentials for the [GovCloud] day operation and many other things.

So we are really investing here in capability that will be very relevant across the government market. And now also very nice showcase that some of our commercial customers are looking at. As far as the a contract in the budget is a reminder, the $180 million budget for this part of the $4 billion, a task order vehicle for DHA and all that it was a grant in this budget is both for the initial deployment that I mentioned, but also for the enterprise expansion that is planned to take place on the fourth quarter.

While declined, of course, have always the right to delay or stop anything that we are doing. We believe that so far, everything that we are doing is going very well and generates much value. And there is no budgetary or contractual barrier for the enterprise expansion as part of the existing funded vehicles.

Jailendra Singh, Truist Securities.

Thank you, and thanks for taking my questions. So I want to follow up on your comment earlier about visit volumes being impacted by Change Healthcare and the temporary disruption from the large client migration. First, are you willing to quantify how much was the revenue impact in the quarter? And the second did Change Healthcare impact in any ways in our decision-making process at your potential prospective clients in terms of as they were preoccupied with this problem dealing with change the ratio?

And the the client migration disruption, any other color you can provide what exactly happened.

Sure. I'll give you Jailendra -- I'll give you the details on what place and then Bob can add his view on the impact to the extent we can share. So essentially, I think what happened in Change is evident to everybody as it relates to us when we went live with the likes of Elevance and Highmark.

The experience was consumers logged in and they were not able to continue with the visit because they were not able to see their co-pay in really going forward. So we had lots of doctors waiting to see patients that couldn't go in lots of patients that couldn't see their doctors. Obviously, that's a serious barrier. Our initial solution was to find an alternative to change. I took some time that we pull through. And of course, after a while Change brought solution and we were able to resume may resume the service.

Many, many participants in the ecosystem were affected by this. We certainly were not only one. So I don't think that this has an impact -- I don't remember any example of an impact on our pipeline or discussion with potential customers or with existing clients. Maybe a little bit in the reserve the fact that we're able to recover from such a major challenge is somewhat of a plus in our reliability in the markets.

Generally, the migration itself it was the largest migration we had in our history. It was very interesting because it took place at the beginning of the year, a time or access to provider the harvest and demand the highest. In addition to that, we also launched a new product within Elevance, the virtual primary care that we haddiscussed staff.

So there was really an interesting uplift there and to all our operations, both a technical and sales building, two-way integration with a lot of clients, the systems that were ramping up over time. In addition to that, we had to manage a network that was in full capacity in a very high a demand. Pleased to report that we were able to execute in the system did go-live and scale is now in full production for both a Highmark and Elevance. Bob, maybe you have some more comments.

Jailendra, we estimate that the changed, if that change not happened. We would have been flat from a visit perspective year over year. So that cost us the volume decline that we saw in May in the first quarter here. And so I think that was the question you asked. But the absent that we would have been at least flat. And then and then what Ido described about the the migrations, that was also a one-time event that cost us some volume, but that would have been the growth on top of being flat vis-a-vis the changes here.

Ryan MacDonald, Needham & Company.

This is Matt Shea on for Brian. Thanks for taking the question. Just wanted to circle back on the Optum shuttering Digital Health as well as Walmart closing their digital health operations. Do you see this as creating a potential opportunity for Amwell to move more into the retail space or see kind of some greenfield opportunity that wasn't there before?

And maybe kind of in conjunction with that, these announcements change at all how CVS is thinking about their digital health programming either seeing more opportunity here, anything to call out there?

So, Matt, these are really great questions. And of course, I cannot opine or share anything about specific clients of ours, but more a more a generally. So is zooming out for a second, do we believe that a people will use digital care is an opportunity to access the healthcare system. And I think that everybody agrees that the answer is very stronger.

Yes, we don't think that that trend is going anywhere. There is so much potential convenience, cost savings, improvement of outcome, the access to higher quality care that is possible when you use hybrid care. I think that some of the events that you mentioned demonstrate that this is really complicated and the solution is not very, very easy, not only for a single organization, but it really requires integration.

The answer is not by having one here or do it all, but rather have a solution that is working across the ecosystem to build bridges and really combine in a hybrid way The solutions that exist. There is no substitute to the trusted brands of providers, and there is no substitute for very sophisticated network management to take into account conscious of considerations, there is no substitute to reinvest in what would it actually take to allow patients and consumers to navigate through this very important complex, settle the options.

So having said all that, we believe that we build an infrastructure that facilitates that connection and does not overlap with the traditional roles of traditional players that we believe continue to be there. Saying it another way, we believe that what we build is proceeding very well to benefit from everything we said. And just to give an example, UnitedHealth Group was very vocal saying a after what they announced that they are very committed to a to Telehealth to hybrid care.

The definitely plan to continue to sponsor it and it they said it to us, to the world. So in many ways, my short answer to your long mile -- after the long detail is that we are here, we're still serving a big part of the US ecosystem. When they are going to be less players the math is that we are likely to net benefit it. But we it's early days and we're not trying to suggest right now how quickly this trend is going to evolve from our vantage point.

Stan Berenshteyn, Wells Fargo Securities.

Hi. Thanks for taking my questions. Ido, first on maybe just a follow-up on your comments regarding the go-to-market strategy. You mentioned, there some changes there? Can you maybe just expand specifically what are the changes, what are the focal points that are different versus historically? And maybe if you can also comment on how is your sales team now splitting their time between upselling existing clients versus going to market for new clients?

Sure. So as I mentioned earlier, the market today is so different from a few years ago. Essentially, buyers want to complete solutions. When you think about the solution, it's helpful to. I think, talk about it in a way or what does what do patients want? What does, what do consumers want? And we all want to go digital, go online, either proactively or reactively and have the richest set of options from trusted sources with a combination of in-person automated and digital.

And in addition to that, a providers are key to that solution. So providers want to have a solution that is very intuitive, very easy, but is fully embedded in the workflow allows protects the licensure allows them to get paid for the time in a fair way. And all those things are not not very easy.

And we believe Converge solve for it in a really comprehensive fashion. We also believe that the combination of our own network together with long list of partners that is getting longer value day like Cleveland Clinic and Dario and many others allows us to offer the full game, not only urgent care, but also diabetes and hypertension and nutrition and GLP-1 and [telescope] psychiatry, psychology and therapy and so on and so forth in a really efficient, efficient way.

So you have trusted services from nonbrand across the full care continuum for an interface and certain you need that connects you to people that you trust. Having said all that as it relates to the market demand, what I just said, appeals to subsegments and that we have defined and we just don't have the time to go through within the payer and provider a community where this is the most compelling where what we created has the best right to win.

So together with our friends at McKinsey and others, we will map those out in mix and package our products in the right way to address those needs. The team that we built are no longer separated by productline or by a new logos and existing customers

Basically, the idea is that each support of consultants is able to basically establish new relationships, but then continue this relationship and manage it to expand it or focus on existing relationship and just expand it. And the metric here is more relates to capacity rather than the type of people that do that and that may sound like a small change, but it's actually very profound change.

Anyone that is facing our client number today knows that there from the first interaction that they are going to own this relationship for many years. And that change the dynamics both on our end, but very importantly and for our customers.

Hanna Lee, Bank of America.

This is Hanna Lee for Allen Lutz. Thanks for taking my question. And so just over the past few months, have there have been any changes with what you've been seeing in the spending environment and just overall macro pressures with health systems? We just have to hear your thoughts on recent customer trends? And how much you expect growth in 2025 and '26 come from either new customers versus expansion with the customers?

Hi, Hannah Lee. Well, I think that the biggest change we've seen is maybe from two or three years ago to today. And we think that many of those changes are permanent. The what we've seen, first and foremost is dramatic rise in sophistication of health systems. If say Telehealth was somewhat exciting in some cases naive today, hybrid care is a very effective tool that is known to do important things for health systems to retain staff, to improve efficiency, to save time to engage patient in a very meaningful way to manage risk in meaningful way to name a few.

So the RSPs that we see and the dialogue with health system, both existing customers and new ones, is a very different dialogue than the one that we held only a couple of a years ago, and the ROI is really front and center to those dialogues on and it's no longer enough to talk about in broad platform. It's very important to dig deeper into specific solutions.

And I gave a few examples earlier on the call today is the benefit of having Converge today is it's really it's already coming out of the door with a very broad set of solutions, but it's very open to get new ones, not only for Amwell, but also from a newly partners into also invest solutions that our clients bring to the table. And that's a really important attribute.

So I would say that there is ready to pay for clear ROI. The model that is preferred is a model risk-sharing whenever a possible, but there is growing conviction that we see in making those payments. So in summary, we believe that it is Telehealth two or three years ago was a part of the innovation differentiation vision part of the health system.

It's really much closer today to the operational mundane part of the infrastructure that has very clear goals and very clear ROI to be proven by a department.

Dave Larsen, BTIG.

Jenny Shen for Dave Larsen. Thanks for taking my question. I just wanted to ask you've mentioned it 90% plus of the revenue increase that you need from 2024 to '25 is associated with contract go-lives or backlog. Can you give us some more color there, any update just to have better idea on concentration, how much of that is related to the DHA contract? And any additional comments you can give us in terms visibility how you're feeling longer term outlook for profitability by '26 and any comments on your good bookings, which you made some positive comments on earlier?

Yes, Jenny, I think we gave really specific guidance back in February. Nothing's really changed there in terms of those of the statistics and the percentage of growth that's underpinned by contracted go-lives still in that same ZIP code. And if anything, we have higher conviction around around all that. So I don't really have anything incremental to share on that.

And then as far as you know, the path beyond that and to profitability, again, I would say higher conviction as we've really dug in on our cost structure. We're going to show just independent of all of the goodness that we're going to see topline in gross profit. If you just look at where we were in 2023 from an operating expense perspective.

We're going to be down high single digit this year and then we'll be down, call it circa 25% from that level in in 2025. So costs are coming out of the business very quickly. And again, on the revenue side, and the mix side and the gross profit margin side, we continue to feel really good about the guidance we gave in February.

Jack Wallace, Guggenheim Securities.

Thanks and congrats on what looks to be an increasingly positive outlook here. Just question on the provider business for the providers that have migrated have we seen any churn there. And I say that because I -- my hunch is if most of the providers have been migrated at this point, there shouldn't be much of a churn element in the subscription line going forward? Do I have that correct?

We have many clients, but I'm not -- I think you're right, but I need to check all of them some of them are very small. So I don't want to mislead anyone obviously on the call, but as a general rule, I don't recall any migrated customer that terminated or departed that I'm aware of.

Notwithstanding the people that had some non-market events that we cannot talk about, it are not connected necessarily through to us at all, but as a whole in whatever market people that migrated are very happy and I'm not going anywhere anytime soon as hard our vantage point is concerned. Bob, any color on that?

No, I think that's right.

Great. Thanks so much.

You're welcome, Jack.

There are no further questions at this time. I will now turn the call back to Mr. Ido Schoenberg for any closing remarks.

Well, thank you, everyone. We really appreciate your support of Amwell and going through this enormous period of transformation, it was along road. But we are excited that it's nearing the hard part and we're excited about what's to come. So thank you for joining us on this journey, and thank you for joining us this evening.

That concludes today's conference call. You may now disconnect.