American Well Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

There are 12 speakers on the call.

Operator

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amwell Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Session. Thank you. I would now like to hand the call over to Sue Dooley, Head of Investor Relations with Amoil. You may begin.

Speaker 1

Hello, everyone. Welcome to Amoil's conference call to discuss our 2nd fiscal quarter of 2024. This is Sue Dooley of Amol Investor Relations and joining me today are Amol's Chairman and CEO, Doctor. Ito Schonberg and Bob Shepherdsen, our CFO. Earlier today, we distributed a press release detailing our announcement.

Speaker 1

Our earnings release is posted on our website at investors. Amwell.com and is also available through normal news sources. The 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 this 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.

Speaker 1

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 Ito.

Speaker 2

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 3 ways in which we advance our business during Q2. First, we continue the successful deployment of the Defense Health Agency's Digital First initiatives.

Speaker 2

2nd, 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 prospect 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 5 designated sites.

Speaker 2

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.

Speaker 2

Bob 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.

Speaker 2

Notable Q2 expansions include 11ce, Altman Health System and Common Spirits. 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 Loa Health. We continue to deliver for our clients. Our patient thumbs up rating for CONVERGE is above 90% and visit on converge are 70% of total.

Speaker 2

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 Amo's mission as a global provider of our world class platform for digital 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.

Speaker 2

2nd, we are fortunate to add a new member to our Board of Directors, Ricky Godwasser. Ricky is a 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 our Board after 9 years of early service.

Speaker 2

We thank Governor Patrick for his pivotal role in Amel's history to date. Wrapping up, I would like to speak for a moment about the market for digital health care. At 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 datasets to improve care and outcomes.

Speaker 2

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. Amul 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.

Speaker 2

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.

Speaker 2

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.

Speaker 3

Bob?

Speaker 4

Thank you, Ito, 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 6 60 basis points and 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 $10,000,000 To begin with a few operating metrics, total visits were approximately $1,500,000 in the Q1, 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 business.

Speaker 4

Turning to our Q2 financials, total revenue was $62,800,000 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 CarePoints flat. Subscription revenue increased $2,600,000 or 11% from Q1 and was $27,500,000 in Q2. This was a bit ahead of our earlier expectations. Approximately $1,500,000 of the increase is one time in nature and relates to a change from our expected timing of the completion of certain contracts.

Speaker 4

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 $28,700,000 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.

Speaker 4

Our services and CarePoints revenue was $6,600,000 for the quarter, an increase of $3,000,000 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 CarePoints 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 2nd quarter gross profit margin was 37%, increase of approximately 6.60 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.

Speaker 4

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 and D spending. We are currently at peak spending for our government work and yet our GAAP R and D expense for Q2 declined 22% to Q1. This is 12% lower after adjusting for $5,000,000 of software development capitalization. Compared to a year ago, software cap adjusted R and D spend is 21% lower.

Speaker 4

We continue to expect total R and 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 $7,000,000 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 and A expense was 4 point versus last quarter, driven primarily by lower stock based compensation expense along with some benefit from lower headcount. We expect our quarterly run rate for stock based compensation for the remainder of 2024 to be around our 2nd quarter level.

Speaker 4

Adding it all together, we are now beginning to see the impact of our planned cost initiatives and we are putting some non recurring expenses behind us. As a result, adjusted EBITDA for the quarter was negative $35,000,000 versus negative $45,600,000 last quarter and negative $45,300,000 last year. And transitioning to the balance sheet, we ended the 2nd quarter with $277,000,000 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 $259,000,000 to $269,000,000 for the year.

Speaker 4

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 Q4 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 $10,000,000 to negative $150,000,000 to negative $145,000,000 from our prior range of negative to negative $155,000,000 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 Ito for some closing remarks. Ito?

Speaker 2

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.

Speaker 2

Thank you.

Operator

Your first question comes from the line of Craig Hettenbach from Morgan Stanley. Your line is open.

Speaker 5

Thanks. And it's encouraging to see the improving trend in lowering EBITDA loss. Ito, can you just touch on just the change in go to market strategy with the sales force? Any proof points in terms of what's resonating with clients and what that might mean for the setup for 2025?

Speaker 3

Sure. Hi, Craig. Absolutely. So in essence, we are in a situation where Converge that used to be a new promising and exciting platform is rapidly becoming a clear best of breed in the market with 70% of our volume on it and practically all our strategics, including the contemplated DHA is on this platform. We are pleased to see that people are using this platform really across the board for multiple programs.

Speaker 3

So there is a long list of programs for payers that are interested to cater for digitally first members that want to use digital services across the care continuum. There are programs that are more popular than other like virtual primary care, but it's really across the board. It's a very wide variety and every client is typically starting with the most important program with the most important pain points. The same is true for providers. Providers are looking for efficiency and growth and better services to their own patients, which we are able to provide as an envelope to EHRs that typically miss out on certain important areas like specialty visit, telestroke, telebehavioral health, e nursing and the like.

Speaker 3

The listing there is also quite significant. So we're encouraged to see that automated program is another important high demand area that we are definitely seeing in the provider space. So what we see right now is, and I mentioned a few examples this evening, is more and more clients that are expanding on their initial investment with Amwell on Converge. And I think what's resonating the most is the peace of mind that you get by starting from really important ROI driven choices and ability to scale with the same level of integration quite quickly. We believe that that trend is going to become stronger and stronger as more and more people begin their interaction with digital health online.

Speaker 5

Got it. And maybe just building on one of your comments in terms of how customers start and then they can scale over time. What do you see more broadly just in the demand environment just from a sales cycle perspective across providers and health systems?

Speaker 3

I think they're very, very different in their DNA and what they are looking for. Providers are really looking for better way to offer more effective and efficient care with Digital First experience. The cost of engaging a member is pretty high and the fragmentation is pretty enormous. The opportunity to have 1 digital door that is helping with orchestration of care to a whole person long list of programs is incredibly important to reduce the member acquisition cost and engagement, also realize the promise of those digital programs and provide a level of transparency and reporting that is necessary for those payers to turn around and show to their clients the employers. I believe that the main pain points of providers relate mostly to efficiency.

Speaker 3

So we gave in the last earnings call a few examples which are resonating with health systems as it relates to automation. The ability to use text in a very personalized way to make sure that people show up to their outpatient clinics or avoid the readmissions on the ongoing frequency or manage their ER interactions in a better way are just a few examples of that. So the system really benefits from those 2 strong value propositions at the two parts of the market. And growingly, we see more and more opportunities where connections between those market segments are becoming very relevant. Because at the end of the day to achieve a better, more effective care for payers, you do need to build on the brand trust of community providers and providers that want to grow beyond their catchment areas need to be able to package their services digitally and make them available to growing number of payers.

Speaker 5

Got it. Thanks for that.

Operator

Your next question comes from the line of Jack Wallace from Guggenheim Securities. Your line is open.

Speaker 6

Hey, thanks for taking my questions. It seems like there's an incremental commitment to getting a streamlined organization to getting the profitability. Can you talk a little bit more about over the last month and a half or so since you've been the sole CEO, what you've seen from when you're looking into the R and D department from areas that maybe you weren't directly focused on that Roy was, areas where either there's better lines of communication, elimination of some processes, potentially consolidation of divisions, whatever it is where that part of the house is you got opportunity to get leaner and more efficient. And then just kind of broadly elsewhere in the organization, if there's any other incremental places where you believe the organization become more efficient? Thank you.

Speaker 3

Absolutely, Jack. So the net of it that for the past few years, as you know, we had an enormous undertaking in building converge and that was led by Roy and the organization. And we are glad that we did it this way. Now it's very clear that this effort is very much behind us as indicated also both by the dramatic decline that Bob shared in the R and D cost, which will continue also through the rest of this year. In addition to that, the asset that we have today is very different from the asset that we had.

Speaker 3

And we were able to really revisit our go to market strategy to select sub segments where the ACV potential is much greater and the mix of clients and the mix of products favors high margin reoccurring revenue and long term very accretive relationships. We had to change our SG and A and mostly our sales organization to realize what I just said and create something that is not only very efficient with smaller headcount and yet much more impactful results, but also really geared to grow. The new platform is much more efficient. So our delivery organization is just operating much better. So you see a change in the spends and layers in the company, in the org structure, in the headcount, you also see alignment in processes that are laser focused on really being as efficient as we can, as effective as we can, meaning addressing the key markets that we selected and also accelerate growth.

Speaker 3

That type of operation is really all about execution and calls for a very streamlined and calls for a very streamlined clear decision making structure with new processes and the more orthodox structure of a single CEO fits that very well. Royo remains very active as our Executive Vice Chairman and continue to offer a very differentiated and important vision for the company. But the team is really all hands down laser focused on reaching our path to profitability as quickly as we can because as I talk to a lot of our shareholders and we care deeply about our shareholders, that's what they're talking about. That's what they want to see in the company right now And that's exactly what we are going to deliver.

Speaker 6

I appreciate those comments. And then just a question about the kind of the revenue, the billings this quarter. It sounds like we had a little bit of a one time good guy on the subscription line, but otherwise seem to be pretty strong under the surface. Billings were up 45% year over year at about were about $10,000,000 or so. Was there any pull forward in billings associated with the MHS contract, just associated with the staging of that?

Speaker 6

It sounded like there's some really good renewals and upsells in the quarter. Can you just talk a little bit about how much additional billing activity there was? Because it does seem like there was a nice change in direction there. Thank you.

Speaker 4

Hey, Jack, a good bit of it was related to the government contract. And so the growth there was the lion's share of the increase. The yes, the good guy, I just wanted to make sure everybody was aware and cognizant that that growth is terrific and it looks really good. But we have talked about growth every quarter in subscription. We're going to get to the same place.

Speaker 4

We just had we had to recognize a bit more of it in the Q2 than we expected. And so there'll be a little bit of a dip, a small dip for the Q3 and then a very large increase to get us to what we've been talking about for the year. Go ahead, Ivo.

Speaker 3

Zooming out a little bit, Jay. Can you hear me?

Speaker 7

Yes.

Speaker 3

Yeah. Zooming out a little bit, we are very satisfied to see our pipeline growing significantly, the conversion rate accelerating. We're also very pleased to see next year with a very big jump in top line, with a very big jump in margin and very big progress in our path to profitability. So all that in World Big Picture is very much there for us without any heroic effort, without any substantial go get left or unforeseen event this point. So that's beyond the queue, just a reconfirmation of the trajectory that we talked about before, but as we near the time of delivery, it's nice to see that we are getting closer.

Speaker 6

Awesome. Thank you. I'll hop back in queue.

Operator

Your next question comes from the line of Ryan MacDonald from Needham and Company. Your line is open.

Speaker 8

Hey, guys. This is Matt Shea on for Ryan. Thanks for taking the question and nice quarter here. So good to hear about the pipeline development. Wondering if there's any ability to parse out the contributions from net new versus client expansion.

Speaker 8

It sounds like maybe expansions are a bigger portion. And then with the go to market changes, are you seeing expansions happen faster or net new clients land larger or any changes of that nature to call out alongside those go to market changes?

Speaker 3

So we see both. We see both very, very clearly. Obviously, you recognize the expansion, the upsell, the same store much faster. We also like this trend very much because it creates even stronger relationship that are more sticky with our customers. We talked about more programs even tonight and there are many more third parties that are joining our ecosystem.

Speaker 3

So there is a lot of nice runway with our existing customers to continue and grow and offer them more value that they can turn around and offer to their own clients and members. That offering is not lost on new logos, and we have a healthy dose of new logos that we are engaging. What we have today is resonating for sure. And I think both those opportunities are very much real for us at this time.

Speaker 8

Got it. And then maybe just nitpicking a little bit. The percentage of visits on converged slowed down a little bit this quarter from a quarter over quarter change, which makes sense after some sizable client migrations. But just thinking about the remaining migrations, should we expect that to be sort of a long tail and modest percentage gains in terms of visits on Converge each quarter from here? Or how do you expect the transition to progress as you kind of migrate those remaining or lagging customers on the converge?

Speaker 8

Thanks, guys.

Speaker 3

Yes, you're right. So essentially, we were very focused on making sure that converge becomes the real reliable asset in the market that is considered working well at scale and where we are right now check that box in a very real way. In previous calls, we talked also about the type of customers that are left on a legacy for various reasons like international customers or customers that have very unique integrations and workflow. I think we figured out a way to continue and manage them well for whatever reason that they cannot migrate right now in a way that we can contain the cost and really separate that activity from the main event, which is the converge. We expect that to linger surely during 2025, but we don't expect it to be a major barrier for growth and for efficiency as a company, which is governed today in all practical ways by the new converged platform.

Operator

Your next question comes from the line of Jenny Cho from Truist Securities. Your line is open.

Speaker 9

Hi. This is Jenny on for Jalendra, Inc. So just wanted to ask about weight management solutions. One of the major focuses for employers and payers these days has been cost around GLP-one medication and weight management solutions. I know this might not be your core focus, but just curious if you see any opportunities in that area given your provider and payer partnerships either in terms of working with PBMs or various third party weight management vendors?

Speaker 3

Absolutely. So weight management is part of health and GLP is very promising for a lot of people administered, of course, correctly. As a general rule, we would like to integrate the full gamut of a whole person services, the Prostate Care Continuum for our customers. We have our own areas like psychiatry, psychology, urgent care, virtual primary care and others that are operated mainly by AML today, but the long list of other cardiac metabolic, weight management, dermatology and many other programs that are offered by a third party. We believe the sponsor eventually, the payer, the employer are the ones to choose the right programs for them based on their different considerations.

Speaker 3

And our role is really to create the best member experience and the best orchestration and the best reporting and access to these line of services in a very reproducible efficient way. GLP-one and weight management are a good example of such services, but Amel does not intend to offer them independently as their own product.

Operator

Your next question comes from the line of Jessica Descent from Piper Sandler. Your line is open.

Speaker 10

Hi, guys. Congrats on the good quarter and the guidance. Thanks for taking the question. I'm curious if you can just give us an update on the level of Converge integration with Epic and any other EHRs that are kind of predominant throughout your installed base? And then just on the health plan side, what are the kind of key health plan software systems or platforms that you guys have integrations with?

Speaker 10

And I guess how would those integrations insulate you from competition from some of these non from some of these vertical agnostic telehealth players? Thanks.

Speaker 3

Sure. So, Jessica, you absolutely correct that integration is essential for what we do. When you talk about and you started with the providers, I'll start there. Obviously, each provider wants usually to operate from their EHR. So to give you an idea, if we have about circa 100,000 providers on our platform give and take, we don't report this number.

Speaker 3

But as a general rule, only 3000 to 4000 of them are AMG providers, which really means that the rest of them are operating on variety of EHRs in an integrated way. Epic is very prevalent, obviously, so we checked that box many times with many of our customers. But we also have Cerner and quite a few others. The opportunity in delivery networks is to add all the missing pieces that EHRs don't excel in or don't offer at all, like a very engaging schedule visit and on demand visits capability that are very consumer friendly, different type of specialty care, telestroke, telebehavioral health, automation and so on and so forth. I think I mentioned a few example earlier tonight.

Speaker 3

As it relates to payers, of course, you need to also integrate deeply into their digital doors because they typically open offer those services through those doors. So a good example is MyUSC in United or Sydney in the Netherlands. But of course, there are many other examples, BluePlans and other payer customers. When you operate under this environment, you need to make sure that you are able to collect the right copy from the patient, that you can route the patient to a service that is licensed to treat this patient. The payment is passed through to the vendor that is operating the service timeline is okay, that wait times are in check.

Speaker 3

There are many, many other elements to providing consistent great service that is cost effective and impactful for those payers and that requires deep integration with their financial, regulatory and operational systems. We don't see Amwell very much as a standalone. It's almost always integrated in our clients' infrastructure and the name on the door is their name and we are just enabling technology that allows them to do well what they're aiming to do and achieve the business goal and the pain point resolution through what we created.

Speaker 10

Got it. I'm curious if any kind of AI powered clinical decision support tools or prescribing aids or transcription tools have been integrated into CONVERGE? Thanks.

Speaker 3

So AI is enormously important throughout our industry and Amul is no exception. There are many, many areas where AI will influence our roadmap in the coming years. I'm not prepared to begin to share that right now on this call, but can assure you that the promise of AI has impact on pretty much every aspect of our activity, both as it relates to our products, but also as it relates to our operation. And we are thrilled about this opportunity and the way that we are implementing it.

Operator

Your next question comes from the line of David Larsen from BTIG. Your line is open.

Speaker 11

Hi, congratulations on the quarter. Can you talk a little bit about your gross margin expectations and your expectations for 2025 in terms of revenue and EBITDA? I think that you had been talking about like a high 30% gross margin range for fiscal 2024. It looks like you're actually almost you're there for 2Q and then you're talking about a higher gross margin for 2025. Just any color there would be helpful.

Speaker 11

Thank you.

Speaker 7

Yes, you got it, Dave.

Speaker 4

We're talking about a gross margin for the year, 24,000,000 in and around same level we had last year, which is high 30s. That changes dramatically in 2025. As we've talked about on prior calls, February notably, where we talked about expectations for gross margin in excess of 50%. And that's really the impact of primarily of the BHA contract expanding to enterprise at the end of this year. So it has a pretty meaningful impact because it's software revenue as opposed to software and visits, which is what we have with a lot of payer customers.

Speaker 4

And so the margin, the flow through there is a lot different because we're not paying away a lot of expenses to or profitability to our 10.99 doctors on the visit side. Okay.

Speaker 11

And then revenue expectations, 3.35 to 3.50 for 25 and EBITDA minus, I think it was $35,000,000 to $45,000,000

Speaker 7

Yes, we put

Speaker 4

that out in February and we put it out for a real specific reason, right? We really wanted to give longer term guidance so that folks would be able to conceptualize what the impact is of our of this contract and other growth that we have going live in that time period. We fully intend to update that as we go here in our normal cadence in February, but we're not going to take our beat here this quarter and our raise in our improved EBITDA guidance for the year and talk about what that might imply for next year. We're going to focus our updates on the period of time where we have really good visibility, which is 2024 and continue to give our perspective on that. And then in on our Q4 call, we'll give certainly very fulsome guidance on our expectations for 2025.

Speaker 4

But there's no change in any of that, Dave, or in in the timing or path of our profitability.

Speaker 11

Okay. So it sounds like breakeven in 'twenty six. And then for the military health system contract, I think you're talking about a full sort of enterprise deployment by the Q4, the behavioral health At

Speaker 4

the end of the 4th quarter.

Speaker 11

End of the Q4. Okay. So in 2025, at the start of 2025, there'll be a full deployment for the military health system. Is that correct?

Speaker 3

Correct.

Speaker 11

Okay. Thanks very much. Congrats on a good

Speaker 3

quarter. Thanks,

Operator

Your next question comes from the line of Charles Rhyee from TD Cowen. Your line is

Speaker 7

open. Yes. Thanks for taking the questions. Just following up on the Theta. I don't suppose is there any kind of color or look you can give us and how maybe utilization has looked for the behavioral health solution within the initial five sites so far and maybe how that might compare with utilization might compare with other clients using your solutions?

Speaker 7

Just trying to understand sort of the uptake there and how it's progressing.

Speaker 3

Hi, Charles. The short answer is progressing very, very well. I can share what I'm allowed to share by the client. But overall, we are very pleased with the progress and it's definitely going ahead or aligned with our expectations in some cases. A few comments.

Speaker 3

One, the environment there is almost ideal. It's unlike other government environment, this one is very homogenized, less moving parts, very centralized command and control. So it's a really ideal environment to work with. Our agreement is signed. There is no discussion about that.

Speaker 3

The budget is in place. And the client is extremely motivated, Obviously, providing access for care for the men and women in uniform, starting with behavioral health, which you asked about is something that has enormous exposure and interest in the DHA. So that's very relationship is really terrific and that's great. The behavioral health service is live since Q1 and we are very satisfied and we're told that the client is also very satisfied by the client and the partner as to the way that it goes. Also the converge progress and automated care progress, the 2 next milestones are going very well and are definitely on track as well as the very important go live for the enterprise rollout, as Bob mentioned, at the end of Q4.

Speaker 3

All that would not have happened if I guess if there were execution hiccups or lack of satisfaction and they do reflect the way that this project is moving. And we certainly are very pleased with it, the way it goes so far.

Speaker 7

Great. And then maybe Bob, one question for you. I think we saw kind of a big step down in sales and marketing expense sequentially. How should we think about that sales and marketing as we go through the year? And how are you thinking about sort of balancing sales and marketing spend and investing to drive growth reacceleration as we think about bookings growth in the future?

Speaker 7

Thanks. Yes, Charles,

Speaker 4

we kind of restructured the go to market for the sales organization in the Q4 and Q1. So the customer facing side of that is baked at this point and has been in place and is seeing really good success in terms of a lot of things that he has talked about in building pipeline, etcetera. A lot of what we're doing here from a cost perspective at this point is more around support. So sales support and really streamlining that along with looking at G and A in the same vein. So we are being very prudent in terms of and very focused on the cost side of things here.

Speaker 4

Our headcount is down across the enterprise mid teens from where it was at the end of the year. And that's really one of the big drivers for our improvement in guidance. But as far as the impact on the commercial side of things, that's something we're very careful about. And as I said, we kind of had that baked in the first on the 4th and the first quarter and not looking to do anything else on the customer facing side.

Speaker 7

Great. So would you say that this is a good sort of starting to kind of a baseline point as we think about sort of the rest of the year going into next year in terms of both for sales and marketing and G and A at these levels and kind of growing from here?

Speaker 4

I think there's always room to do better. But we are going to see better second half performance, I think, on the SG and A side that we had in the Q1, no doubt, especially when we're talking about GAAP, because we did a decent amount of transformation in the first half of the year, which is behind us now. So that's going to come out of the GAAP numbers in the second half.

Speaker 7

Okay, great. Thanks a lot. Appreciate the questions.

Operator

And there are no further questions at this time. Mr. Edith Schoenberg, I turn the call back over to you for some final closing remarks.

Speaker 3

Thank you, operator, and thank you, everyone. We really appreciate your time, and we look forward to talking with you soon. Take care. Good night.

Operator

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

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Earnings Conference Call
American Well Q2 2024
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