AMERICAN-WELL Earningcall Transcript Of Q2 of 2024

Ido Schoenberg -- Chairman and Chief Executive Officer

Thank you, Sue, and good evening, everyone. Q2 was a busy quarter for our company, marked by

progress on all fronts. Our focus is strong as we deliver on key strategies that support our guidance,

which  calls  for  a  step  function  in  our  growth  in  2025,  leading  to  our  plan  for  adjusted  EBITDA

breakeven in 2026. We see three ways in which we advance our business during Q2.

First, we continue the successful deployment of the Defense Health Agency's Digital First initiative.

Second,  we  had  a  high  degree  of  focus  on  cost-cutting  initiatives  in  the  first  half  of  the  year  that

drove  the  improved  2024  EBITDA  guidance  in  tonight's  release.  And  finally,  our  growth

transformation  is  progressing  well.  Engagement  with  prospects  is  high  and  our  deal  pipeline  is

expanding.

Now, let me get into a little more detail. Our self-guided behavioral health solution for the DHA is live

in  production  at  all  five  designated  sites.  Converge  and  automated  care  implementations  are

progressing  well  as  planned.  We're  targeting  the  next  capability  offering  Go  Live  for  Q3  and

enterprise Go Live is still scheduled for Q4.

We  are  honored  to  have  the  opportunity  to  positively  impact  the  health  and  readiness  of  our  men

and  women  in  uniform  and  their  families.  We  remain  fully  committed  to  our  partners  to  improve

access to care and support the Military Health System's Digital First transformation. Turning to our

cost  structure,  we  continue  to  make  good  progress  in  rightsizing  and  optimizing  our  company  to

benefit  from  our  new  platform  and  go-to-market  focus.  Bo  will  provide  you  with  details  on  Q2

cost-related results that led to our improved guidance for 2024 EBITDA.

Across all aspects of our business, we continue to drive for efficiency. We are beginning to deliver

the  significant  savings  and  efficiencies  that  are  part  of  our  path  to  profitability.  Importantly,  our

strong balance sheet fuels us well beyond what we need to achieve profitability. Our sales team is

embracing  a  robust  enterprise  selling  motion  to  accelerate  our  bookings  and  deliver  sustained

long-term revenue growth.

Notable Q2 expansions include Elevance, Aultman Health System, and CommonSpirit. We believe

these wins demonstrate the opportunity to grow within our existing client base. We also documented

significant renewals, including St. Luke's, Prisma Health, and Lower Health.

We continue to deliver for our clients. Our patient thumbs-up rating for Converge is above 90%, and

visits on Converge are 70% of total. One notable migration to Converge late in Q2 was Capital Blue

Cross, where we saw one of our most efficient and streamlined migrations to date. Now, I would like

to recap that we recently announced some important steps to evolve our company beyond this time

of transformation.

As we shared earlier, our co-CEO, Roy Schoenberg, stepped away from day-to-day operations. As

our  executive  vice  chairman,  Roy  maintains  an  active  role  furthering  Amwell's  mission  as  a  global

provider of our world-class platform for digitally enabled care delivery. This change reflects the end

of  our  replatforming  era  and  is  designed  to  streamline  decision-making  across  the  company  to

propel profitable growth. Second, we are fortunate to add a new member to our board of directors,

Ricky Goldwasser.

Ricky  is  the  senior  industry  veteran  many  of  you  know.  She  has  a  strong  financial  and  health

technology  leadership  track  record.  We  are  confident  she  will  bring  new  perspective  and  intense

focus  to  her  role.  Ricky  takes  the  seat  of  Governor  Deval  Patrick,  who  departs  aboard  after  nine

years of early service.

We thank Governor Patrick for his pivotal role in Amwell's history to date. Wrapping up, I would like

to  speak  for  a  moment  about  the  market  for  digital  healthcare,  and  this  time  it  is  evident  that  the

digital-first  approach  is  resonating.  Facing  operational  challenges,  payers  and  health  systems  are

looking to unify, personalize, and simplify the healthcare consumer experience. They also aspire to

mobilize  longitudinal  whole-person  data  sets  to  improve  care  and  outcomes,  all  that  to  help

consumers cost-effectively engage in a broad array of digitally enabled clinical programs across the

care continuum.

Related  to  this,  in  Q2,  we  signed  a  new  partner  agreement  with  Hello  Heart,  adding  to  our  list  of

valuable clinical programs enabled by our ecosystem. Amwell is uniquely positioned to address the

challenges our clients are facing, realize their aspirations, and help them deliver on these goals. We

offer  an  end-to-end,  comprehensive  solution.  It  is  dependable,  safe,  secure,  with  a  proven  track

record at scale.

It  powers  a  large  part  of  the  U.S.  ecosystem  and  can  enable  the  exchange  of  data  and  services

between  entities  across  our  client  base  to  make  care  even  more  efficient  and  accessible.  The

partnering  approach  we  are  pursuing  is  unique.  The  value  to  patients,  providers,  and  payers  is

significant.

We  believe  our  deep  integrations  and  vast  deployments  form  long-term  bonds  with  healthcare

organizations that make up a big part of the U.S. ecosystem. With that, I would like to turn to Bob to

review our financials, some key metrics, and our positively revised guidance. Bob?

Bob Shepardson -- Chief Financial Officer

Thank you, Ido, and good evening to everybody on the call. The highlights of this quarter versus last

are  a  total  revenue  increase  of  5%,  a  gross  profit  margin  increase  of  660  basis  points,  and  an

adjusted EBITDA increase of 23%. And as Ito mentioned, based on our first-half performance and

expectations for the second half, we are improving our guidance range for 2024 adjusted EBITDA

by $10 million. To begin with a few operating metrics, total visits were approximately 1.5 million in

the first quarter, approximately flat to last year.

Scheduled visits represented 66% of total. Continuing to highlight the evolution of our company from

providing virtual urgent care to a platform provider enabling hybrid care, volume on converge held

steady  at  approximately  70%  of  Q2  visits.  Turning  to  our  Q2  financials,  total  revenue  was  $62.8

million for the quarter, similar to last year. Higher visit revenue offset a small decline in subscription

revenue compared to a year ago, with services and CarePoint flat.

Subscription revenue increased $2.6 million or 11% from Q1 and was $27.5 million in Q2. This was

a  bit  ahead  of  our  earlier  expectations.  Approximately  $1.5  million  of  the  increase  is  one-time  in

nature and relates to a change from our expected timing of the completion of certain contracts. With

this  as  context,  we  expect  a  small  quarter-over-quarter  decline  in  subscription  revenue  in  Q3,

followed by a substantial increase in 4Q to bring total subscription software revenue for the year to

approximately flat.

With  last  year,  AMG  revenue  trended  slightly  higher  than  last  year  at  $28.7  million  in  Q2.  The

number of AMG visits were slightly lower than a year ago. Average revenue per visit was 4% higher

this quarter than last year at $80, driven by a mix shift within AMG away from urgent care visits. Our

AMG business continues to be strategically important to successful client expansions and new client

wins.

Our  Services  and  CarePoint's  revenue  were  $6.6  million  for  the  quarter,  an  increase  of  $3  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  continue  to  anticipate  that  our  services  and  CarePoint's  revenue  will  represent

approximately  10%  of  our  total  revenue  for  2024,  driven  primarily  by  go-lives  of  contracted

deployments. Turning to profitability, our second quarter gross profit margin was 37%, an increase

of  approximately  660  basis  points  from  last  quarter  on  higher  subscription  revenue  and  as  we  put

some of the one-time cost impacts from Q1 behind us.

As a reminder, these costs were related to the Change Healthcare breach and the very large client

migrations  which  we  successfully  completed  in  Q1.  For  the  year,  we  expect  our  gross  margin  to

approximate the levels that we saw in 2023. We are tracking really well on our path to normalizing

R&D spending. We are currently at peak spending for our government work, and yet our GAAP R&D

expense for Q2 declined 22% to Q1.

This is 12% lower after adjusting for $5 million of software development capitalization. Compared to

a  year  ago,  software  cap-adjusted  R&D  spend  is  21%  lower.  We  continue  to  expect  total  R&D

expense to decline mid-teens percent this year versus 2023, with most of the remaining decline to

be in Q4 as we complete the bulk of our government work. Sales and marketing expenses were $7

million  lower  than  last  quarter,  driven  by  cost  initiatives  as  well  as  declines  in  one-time  growth

transformation costs compared to Q1.

Overall,  we  expect  GAAP  sales  and  marketing  costs  to  decline  mid-single-digits  year  over  year,

inclusive of one-time transformation costs. G&A expense was $4.3 million lower versus last quarter,

driven  primarily  by  lower  stock-based  compensation  expense  along  with  some  benefit  from  lower

head  count.  We  expect  our  quarterly  run  rate  for  stock-based  compensation  for  the  remainder  of

2024 to be around our second-quarter level. Adding it all together, we are now beginning to see the

impact of our planned cost initiatives and we are putting some nonrecurring expenses behind us.

As a result, adjusted EBITDA for the quarter was negative $35 million versus negative $45.6 million

last quarter and negative $45.3 million last year. And transitioning to the balance sheet, we ended

the second quarter with $277 million in cash and marketable securities. Turning to our outlook, we

are  pleased  with  our  progress  in  the  first  half  of  the  year,  and  tonight  we  are  revising  our  2024

adjusted EBITDA guidance. We continue to expect revenue for 2024 to be in the range of $259 to

$269 million for the year.

We expect subscription revenue to be roughly similar to that of 2023, with the balance of the growth

for the year to occur in the fourth quarter, with the full impact of contracted go-lives. As to adjusted

EBITDA on the strength of our first half and expectations for the second half, we are improving our

guide  for  2024  adjusted  EBITDA  by  $10  million  to  negative  $150  million  to  negative  $145  million

from  our  prior  range  of  negative  $160  million  to  negative  $155  million.  In  conclusion,  we  are

encouraged  by  the  strides  we  have  made  in  our  business,  and  in  Q2,  we  made  good  progress

toward  our  goals  which  support  our  confidence  in  our  path  to  adjusted  EBITDA  breakeven  in

2026.Thank you for listening. With that, I'd like to turn the call back to Ido for some closing remarks.

Ido?

Ido Schoenberg -- Chairman and Chief Executive Officer

Thank  you,  Bob.  We  are  executing  well  and  energized  by  our  results  and  the  improved  financial

visibility that underscores our path to growth and profitability. At this time, I would like to thank our

team for their hard work, passion, and perseverance. We will now open the call to questions.

Operator, please go ahead. Thank you.

Operator

Questions & Answers: