American Well Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 12, 2025

There are 13 speakers on the call.

Operator

Thank you for standing by and welcome to AmWell's Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. After the presentation, there will be a question and answer session. I would now like to hand the call over to Sue Dooley, Head of Investor Relations. Please go ahead.

Speaker 1

Hello, everyone. Welcome to Amwell's conference call to discuss our fourth fiscal quarter of twenty twenty four. This is Sue Dooley of Amwell Investor Relations. Joining me today are Amwell's Chairman and CEO, Doctor. Ido Schonberg and Mark Kirschhorn, our CFO and Chief Operating Officer.

Speaker 1

Earlier today, we distributed a press release detailing our announcement. Our earnings report is posted on our website at investors.amlil.com and is also available through normal news 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 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 the 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'd like to turn the call over to Ito.

Speaker 2

Thank you, Sue, and good evening, everyone. Q4 marked the close of transformative year for Ramwell. In 2024, we refreshed and refined our strategy. We increased our focus on our core mission and matured our company to deliver efficiently. We also prepare to realize the potential of our unified technology enabled care platform.

Speaker 2

I want to start by sharing some of our key accomplishments of the year. First, together with our latest partners, we are completing the stage launch of our full solution across the military health system, our most significant growth initiative in the company's history. Second, we made significant progress in our path to achieving cash flow positive results next year, while further strengthening our robust cash position. We drove efficiency with focused cost reduction measures. We also improved our quality of revenue and margins.

Speaker 2

These initiatives are showing up in a steady better than expected quarterly improvements in our adjusted EBITDA. Third, we established a leaner and more nimble leadership structure, which we believe will sharpen the focus and efficiency of our company as we advance our efforts to propel profitable growth. The highlight of these changes is the expansion of Marc Hirschhorn's role beyond CFO to include Chief Operating Officer. This year, we're establishing the groundwork for positive cash flow in 2026. The drivers underscoring these initiatives are increasing subscription software revenues and aligning our costs.

Speaker 2

We are targeting a meaningful margin expansion and this year we aim to improve our adjusted EBITDA by over 60%. I would now like to take a moment to briefly review a few other accomplishments from our Q4. As we continue to evaluate our portfolio of assets, we divested Amol psychiatric care, our legacy psychiatric staffing business. We determined that APC did not meet our threshold of being an integral part of the Amoil core offering and was not advancing our profitable growth. This transaction help us focus our resources on our core platform and bolsters our balance sheet significantly by adding up to $30,000,000 in cash.

Speaker 2

Also during Q4, we signed an agreement to add Vida Health to our growing portfolio of clinical programs, expanding patient access to obesity and diabetes care, including GLP1s. With this partnership, our clients can offer patients a broader set of valuable services through their AmWell platform. Our platform provides individuals with a delightful single entry point to a comprehensive array of clinical and behavioral programs, including obesity care and related illnesses. In Q4, we delivered considerable value for our clients led by our DHA deployment. Since our last update, we can share that many of our programs are now fully deployed across the military health systems and feedback is very positive.

Speaker 2

The remainder of our programs will be live across the MHS enterprise in the first half of the year with the final expansion of on demand visits and complete international deployment expected in early Q3. And we completed renewals across several Blue Cross Blue Shield plans, as well as with a large national health plan in Nevada, the clinic and Intermountain Healthcare. Importantly, the HSE in Ireland continues expanding its use of our digital behavioral health programs. Our Q4 performance demonstrate how existing client base is fertile ground for future growth. In addition to the strong software growth we are guiding for this year, our sales insights are resulting in improved visibility as we look to expand further across the commercial and government space.

Speaker 2

We are expanding our deal pipeline. RFP traction with payers and health systems is significantly larger and of higher quality today than it was at this point last year. And based on our effective execution in the government space, we have in our sights expanding our market opportunity there. On the heels of this progress, we enter 2025 with momentum and unprecedented focus with market dynamics working in our favor. Outside Amwell, we observe two trends that could help accelerate our growth: growing consumer readiness to start their healthcare journey online and expansion in innovators offering new and improved technology enabled clinical programs.

Speaker 2

With our success in strategic deployments like the military health system, we believe we have cemented our role as the technology enabled care partners that healthcare organizations are turning to as they seek to modernize and achieve operational and clinical goals. Here's how we're seeing this play out. As more patients go online to get care, our platform offers a single delightful patient experience to help orchestrate access to a large and growing number of clinical programs. Payers and health systems value being able to offer one comprehensive technology enabled care solution fully embedded in their own digital assets. They see the benefit of having a common patient care access pathway, making patient acquisition and retention more effective.

Speaker 2

Payers and health systems also like the flexibility of dynamically choosing their preferred set of clinical programs and offering different ones to varied patient cohorts. They desire the convenience and efficiency of having AmWell integrate relationships with multiple clinical program vendors. Finally, our investments in a common longitudinal patient centric data structure is resonating with them. Payers and Health Systems see it as a powerful instrument to improve navigation and patient experience with the promise of unified analytics and reporting. In addition, as more innovators leverage technologies like artificial intelligence and machine learning to offer more effective clinical programs, they too reach out to us.

Speaker 2

Integrating with the Amol platform allows them to reduce customer acquisition costs, demonstrate better engagement and drive results. We are encouraged by the clarity of our value proposition and the way it is resonating across the markets. With our healthy balance sheet and improved financial visibility, we have high conviction in our path to profitability supported by the following top priorities. First is growth. We will work to deliver excellence, showcase our value and accelerate growth by working with our strategic partners and by expanding our presence within existing clients.

Speaker 2

Our key growth initiatives for 2025 include full execution on our deliverable with the military health system, actively opening new government channels, pursuing new payer and health system contracts in competitive RFPs and adding several more third party clinical solution to our platform, bolstering our high margin revenue contribution over time. Second is realizing a higher mix of highly predictable recurring revenue. By aligning our existing and new product initiatives with our revenue quality goals, we will continue to improve our revenue mix of subscription based software. Finally, and critically important is efficiency. We will continue reducing our overall costs, while focusing on our core Amoil portfolio of services, centering the energies of our company behind monetizing our platform.

Speaker 2

In summary, during 2025, we'll pursue these key initiatives as we continue to enable the digital aspirations of healthcare organizations with long term profitable growth well within our sites. With that, I would like to turn the call over to Mark to review our financials, our strategic priorities for the coming year and our guidance. Mark?

Speaker 3

Thank you, Ito, and good evening to everyone on the call. I've completed my first one hundred days at AmWell and I'm very pleased with what I have learned. I recently shared with our Board many of the initiatives that are underway. I'm very optimistic that we have the right people to lead this company back to a position of market strength. Our Board and our employees are excited for 2025.

Speaker 3

We have the greatest visibility into our revenues today as compared to any other time in this company's history. Tonight, I will walk you through a few operating metrics and financial results from Q4 and then review our guidance for 2025. The financial highlights of our Q4 include progress toward our key strategic initiatives. Software revenue grew well over 30% over Q3's results on the strength of strategic client deployments. We accelerated our adjusted EBITDA improvements for the third quarter in a row as we continue to focus on growing software and aligning our cost structure with our revenue base.

Speaker 3

With the previously announced divestiture of AmWell Psychiatric Care, we took action to focus our portfolio of assets and strengthen our balance sheet. Most importantly, as Ito said, we have demonstrated continued progress with our two most strategic objectives, specifically the stage launch of our full solution across the military health system and the cost initiatives that reinforce our confidence in our path to generating positive cash flows from operations during 2026. We've committed ourselves to executing these initiatives that will ultimately drive value to our company. So now let me share some of our Q4 financial results. Total revenue was $71,000,000 for the quarter, which is flat to Q4 twenty twenty three.

Speaker 3

Revenue mix here is the more important metric as subscription revenue was $37,000,000 in Q4, up 36% from a year ago. We had a material uplift in the Q4 subscription software revenue related to the stage launch of our solution across the military health system, which is the most significant growth initiative in the company's history. Turning to visit metrics, we completed approximately 1,400,000 visits in the fourth quarter, which is approximately 18% lower than a year ago. We spoke on our Q3 call about some market wide and client execution related softness in visits and visits were in fact in line with our adjusted expectations for the quarter. Visits on converge remained steady at close to 70% of our total visits.

Speaker 3

Visits on Converge is a helpful indicator of migration activity. With the bulk of migrations now behind us, we no longer believe this metric is important to our key strategic initiatives and we will sunset this metric going forward. However, an important metric in our business is our average annual contract value or ACV, which is a great indicator of the success of our land and expand strategy. Health plan ACV grew to 963,000 from 902,000 in 2024 and ACV for health systems expanded to 488,000 from 415,000 in 2024. We expect ACV for both groups to continue to expand as we grow our footprint with an existing clients and add new clients over time.

Speaker 3

AMG's Q4 visit revenue trended 9% lower than last year at $29,200,000 Average revenue per visit was $77 which is 7% higher this quarter compared to last year. This increase was driven by a mix shift within AMG visits towards virtual primary care and specialty programs. Our AMG business continues to be strategically important to enabling client expansions and new client wins and for overall support of our efforts to grow recurring software revenues. Our servicing care points revenue was $4,900,000 for the quarter versus $7,300,000 last quarter. This decrease was driven primarily by timing of marketing revenue.

Speaker 3

The nature of our business drives variable revenues due to customer buying patterns for marketing programs and for care points, as well as the timing of professional service milestones that precede deployments. Turning now to gross profit, our fourth quarter gross profit margin was 48%, higher by 11 points compared to Q3. For the full year, our gross margin was 39%, which was slightly higher than the 37% we finished with in 2023. Onto operating expenses, we continue to make substantial progress towards normalizing R and D spending, while maintaining our focus on deploying our solution for the DHA, our R and D expenses in Q4 were $18,800,000 a decline of approximately 29% compared to the $26,300,000 we spent in Q4 of twenty twenty three. Sales and marketing expenses were $15,400,000 That's approximately 8% lower than last quarter and nearly 29% lower than last year's comparable quarter, driven by our cost initiatives.

Speaker 3

G and A expenses were $34,800,000 which was approximately 38% higher than last quarter, primarily due to a one time bad debt accrual related to losses caused by the change healthcare cyber event that occurred in the first quarter of twenty twenty four. G and A remains a meaningful focus of our ongoing cost initiatives. So we now have completed another consecutive quarter that highlights our key initiatives from 2024. We are delivering on the promise of growing our subscription software revenue, while being well on our way to reshaping our foundational cost basis. As a result, adjusted EBITDA for the quarter was negative 20 2 point 8 million dollars versus negative 30 6 point 9 million dollars in Q4 twenty twenty three.

Speaker 3

There is a great energetic team here at AmWell that is fully aligned with delivering the novel healthcare products, services and efficiencies that we successfully deliver to our clients every single day. Finally, with respect to cash and liquidity, we ended the fourth quarter with $228,000,000 in cash and marketable securities with zero debt. And now I would like to turn to our guidance for 2025. This year, the high margin revenue growth we are guiding for is underscored by our focus on expanding our mix of subscription software revenues, taking a conservative view on visit volumes, while further reducing costs. With this in mind, here are the details for our annual revenue and adjusted EBITDA guidance.

Speaker 3

We expect revenue for the full year 2025 to be in the range of $250,000,000 to $260,000,000 This revenue guidance excludes the more than $25,000,000 that we would have expected from APC in 2025. Importantly, with the most strategic elements of our revenue base intact, we anticipate subscription revenue to meaningfully grow to represent nearly 60% of total 2025 revenues. Our range for AMG visits is between one point three million and one point three five million visits. We expect our 2025 adjusted EBITDA to be in the range of negative $55,000,000 to negative $45,000,000 which demonstrates a 60% improvement year over year. Here are some additional context around our assumptions.

Speaker 3

We are on track to further reduce our R and D expense by more than 10% this year versus 2024, as we streamline and complete the bulk of our software configuration work for our existing commitments. Overall, we expect sales and marketing costs to decline around 25% year over year. We expect to reduce our G and A expense beyond 20% for the year as we continue to organize the company around a new lower cost structure. As we complete the bulk of our government work and continue to stage go lives of our solution across the military health system, there are some anticipated quarterly software revenue timing dynamics that we believe will be helpful to articulate here. And so at this time, we are providing some additional guidance, including for the first quarter of twenty twenty five.

Speaker 3

Here are the details. We expect revenue for the first quarter of twenty twenty five to be in the range of $59,000,000 to $61,000,000 As to adjusted EBITDA, we expect our first quarter adjusted EBITDA to be in the range of negative $18,000,000 to negative $20,000,000 Also important to consider is that as we continue the go live work in Q2, we anticipate a one time step up in DHA software related revenues, normalizing slightly below the Q2 level into the remainder of 2025 with total software revenue ending the year at nearly 60% of total consolidated revenue. Wrapping up, we are encouraged by the strides we have made in our business. And in Q4, we made some solid progress toward the goals which support our confidence in our path to generating positive cash flows from operations during 2026. We anticipate that AmWell will end 2025 with approximately $190,000,000 in cash and in excess of $150,000,000 in cash at year end 2026.

Speaker 3

Thank you for participating this afternoon. And with that, I'd like to turn the call back to Ito for some closing remarks. Ito?

Speaker 2

Thank you, Mark. As we turn the page to 2025, we begin the year with an unprecedented focus on our key operational initiatives for the year, which center on unlocking the value in our company and pursuing our mission. We will now open the call to questions. Operator, please go ahead. Thank you.

Operator

Our first question comes from the line of Craig Hettenbach of Morgan Stanley. Your question please Craig.

Speaker 4

Thank you. I had a question on DHA. Can you just talk about how it's progressing relative to your initial expectations? Any key milestones for the rest of this year? And then outside of DHA for the software subscription, can you touch on just how that the growth expectations in the broader business are for 2025?

Speaker 5

I'm so sorry. Can you hear me now? Yes. Hi, Craig. Thank you for this important question.

Speaker 5

The DHA deployment is going as well, maybe better than we hoped and expected. It's fair to say that the lion's share, if not all the different components and programs are customized and implemented for the partner and the client and you know the list of those components. We actually started enterprise deployment for most of those components and expect the full deployment enterprise deployment to be completed this year. We have we are seeing very good traction, very good results and getting very good feedback from both our partner Leidos, who is exceptionally helpful and of course our client there. I would add to that, that what we are doing there is really implementing our the AMOL platform, our infrastructure, our software infrastructure to connect all the MHS providers with the large community of 9,600,000 men and women in uniform and their families, which is not unlike what we do for many other payers and in the health systems.

Speaker 5

We're seeing a very clear change in the demand for technology enabled care platform, both in payers and providers as evidenced by significant growth of our overall pipeline and much more importantly by the quality of our pipeline that favors significantly higher margin software components with a good traction for renewals, expansions and new logo bookings.

Speaker 4

Thank you.

Operator

Thank you. Our next question comes from the line of Stan Berenstain of Wells Fargo Securities. Please go ahead, Stan.

Speaker 5

Hi, thanks for taking my questions. Maybe a quick follow-up on the DHA contract. So it's running the original contract is to run through July. Do you have any visibility on the timing of when the sustainment contract is going to be signed? So here's what we know, Stan.

Speaker 5

We know that in Q4, the DHA announced providing Leidos with a sole source brand for this project. And this project is talking about an extension of three more years, not only to our component that was named specifically in this grant, but to a much larger deployment that includes the Oracle EHR and other components. We also know, as I mentioned earlier, that the deployment is going very well. It's vast. It's going enterprise globally as we speak with very good results.

Speaker 5

So while we don't have certainty for this to close, we believe that closing this extension is a very low risk to not happen at this point and we fully expect to be notified it when our partner and clients are ready to to share the news with the public. Got it. And maybe just a quick one for Mark on the divested business. Is the revenue impact from the divestiture entirely in visit revenue or did it have a subscription component as well? And what was the mix if that was the case?

Speaker 5

Thanks.

Speaker 3

Yes, that would be an annualized number of in excess of $25,000,000 spend and that would be also all visits.

Speaker 5

Thanks so much.

Operator

Thank you. Our next question comes from the line of Jalendra Singh of Chorus Securities. Please go ahead Jalendra.

Speaker 6

Thank you and thanks for taking my questions. I want to ask about ACV for health plans and health systems improved nicely in 2024. Based on trends you're seeing your conversations, anything you can share in terms of what are your expectations are this year? And just kind of related to that at a high level, I mean, clearly, very, very good job in terms of how you are progressing on EBITDA improvement and profitability, path to profitability. But top line, I mean, clearly not much growth for last few years.

Speaker 6

I mean, DHA contract is definitely helping in 2025 to offset this sale. But any thoughts that you can share about the kind of underlying top line growth in the business longer term? How do you feel about it? Have your excitement about the industry and moving parts changed anyways? Just trying to understand that how should people feel comfortable about the top line growth in longer term for this business?

Speaker 5

Thank you, Jalendra. So as Mark mentioned, we do show if you take out the APC, we do guide for some significant growth already this year and we are very, very optimistic this year and beyond it. Our optimism is based on our much larger pipeline and much better quality of pipeline that favors subscription in a very material way. The successful deployment of the DHA is definitely a good indicator for the future, not only the government market, but its large deployment at scale overall. The dialogue with health and health system shows clearly that they are very much aware of the importance of their own digital assets and want to enable technology enabled care from those assets for reasons that I think are apparent to most of the audience on this call.

Speaker 5

They keep understanding and reiterating the value that you provide and they see the value of a singular customer acquisition and retention pathway for enabling care, one layer of care orchestration and a dynamic set of clinical programs that is covering the full care continuum and generating unified reporting for further personalization, further attraction and further monetizing or monitoring the ROI. This is witnessed in good traction in retention, in good traction in expansion. It's important to note that our business model now does not only include our own software and an all in clinical programs, but the way to monetize all those third party clinical program as well as the secular trend continue. So as the churn is normalizing, as demand is growing significantly, and as I mentioned earlier, as more people go online to those digital assets to seek care and receive it through us, we see very significant opportunity for high margin growth over the next few years. But we would like to be very cautious in how we guide and that's the guidance that we put in front of you today, which we believe is realistic and the lion's share of it is already contracted and we see it as a very low risk.

Operator

Thank you. Our next question comes from the line of Eric Percher of Nephron. Eric, your line is open.

Speaker 7

Thank you. I have two questions for Mark. I guess the first one will be a CFO hat question, which is, if we look at the comment around visibility relative to the past, can you walk us through the dependency outside of DHA this year and any key variables as you look at the guidance? And then with the new role, I'll ask you with the COO hat. As you look at the changes to sales strategy as you launch EHA for other government business, are there significant changes that you expect over the course of the year and or any changes for the rest of the market?

Speaker 3

Sure. Thanks, Eric. As far as visibility is concerned, I feel extremely confident for two primary reasons. One is that visibility here at AmWell really consists of two components that which is contractual, that's all of our subscription revenue, which will likely exceed $150,000,000 of the total 200 and let's call it mid range $255,000,000 guide. So that comes up right around 60%.

Speaker 3

And the remainder, the vast remainder is our transactional visit volume. And we've got years of expertise in delivering that. We've got a tremendous amount of data and analytics around determining exactly how we should fall within the range. And as Lido noted, we took a very conservative range in order for us to really have achievable and conservative baseline numbers this year. So that those two components give us an excess of 90% visibility into this 2025 guide.

Speaker 3

And that's something we're extremely comfortable with because the go get and the history of what we know that's in process off of the pipeline, leads us to be again very comfortable with that and something that we have a good history of determining quarter over quarter. The other thing I'd add is just that we will be reporting quarterly now with guidance. So you'll have a very good idea as to how this trajectory is building up and how successful we are in our return to growth this year. On the expanded role on the COO and sales side, I've had now just a little over six weeks in this role, but also I remain very optimistic and energized by the complement of professionals that I work with. We've spent a lot of time now in building out the pipeline and understanding the depth of the opportunities both inside the government line of business, as well as of course on the payer and provider side.

Speaker 3

I think the changes that you'll see throughout the year is that we're extremely focused this year. We are not looking at exceptional work to be performed for innovators, those that we've defined in the past, requiring a different flavor of the technology that we've created. We're going to continue to sell what we have today, what we can implement today and what we could activate today. On the government side, we're aware of at least six very material opportunities that we will be pursuing throughout the year. Obviously, some of these may impact our ability to launch in 2026, but the activity in the pipeline, both in the payer side, on the provider side, and then of course, our new pipeline on the government side leaves us with an opportunity set that's multiples of the size that we had at this time in any prior year.

Speaker 7

And sorry, you're saying that the success there could impact the ability to launch in 2026 launch net new business or launch any of what you have planned for the year?

Speaker 3

Oh, no, net new business. These are opportunities that we believe will materialize for impact in 2026.

Speaker 7

Makes sense. Thanks for the detail.

Speaker 3

You're welcome.

Operator

Thank you. Our next question comes from the line of Charles Rhyee of TD Cowen. Your question please Charles.

Speaker 8

Yes. Thanks. Thanks for taking the questions. Just wanted to follow-up a little bit on DHA because it seems like if we look at the revenue guide and back out APC $25,000,000 from last year And then obviously, we look at the step up in 4Q subscription revenue and looking at your guide for 60% subscription revenues in $25,000,000 seems to imply around $40,000,000 contribution from DHA this year. And I guess I'm just trying to understand a little because my understanding last year when you guys were talking about the deployment of sort of this enterprise wide deployment by the end of the year, I was wondering if something that was like 100% of DHA, but it does sound like now you're saying it's not going to be fully deployed until later as we get into 3Q of this year.

Speaker 8

Just trying to understand first the difference sort of what is left to get rolled out? Second is our is that $40,000,000 correct because if then you back into the $25,000,000 guidance seems like $15,000,000 roughly less of revenues elsewhere. I'm just wondering if that should we assume lower care points and or visit revenues this year? Thanks.

Speaker 5

Charles, before Mark gives you more detail on the revenue recognition related to your question, I want to point out that the DHA deployment is going as expected, actually better than expected, a full total ahead. We're talking about an enterprise deployment. You should not confuse our part of getting ready to enterprise. And once the product and the different components are ready, the stage deployment around the world that is done by a partner and our customer. The payment does not mirror every place that is deployed.

Speaker 5

The payment mirrors more the readiness of the component to go enterprise wide. And the other details that Mark may go into. So overall, everything we expect that the DHA to contribute is going to happen from where we sit this year without any type of delay.

Speaker 3

Charles, let me just jump in. I think your initial assumptions are off a little bit, perhaps because of the suggestion that we have not fully implemented. But when we talk about fully implemented, we're going towards achieving 100%, but your estimate of that $40,000,000 is likely close to half of what we'll see in 2025. So you should feel very confident that the vast majority of that potential through that one particular contract is going to be realized in 2025. And of course, within the next probably sixty to ninety days, we'll know the we'll have certainty as to the likelihood of that being renewed for the next three point five years.

Speaker 3

When you compare 2025 to 2024, you see an absolute increase in about 10% to revenue, again reflecting the first time in several years that this company has returned to growth.

Speaker 8

And then if the rest is then coming from DHA, if that's half the value that you're expecting, so let's say it's $80,000,000 but then we netted against what you already recognized, let's say, at the end of last year, one quarter's worth. There seems to be a delta then, even if we back out APC, just trying to understand where some of the other revenue is declining then from? And is that like key points are, but obviously there's a less focus on it. Just trying to understand where the offsets are to get to the guide?

Speaker 3

Yes, certainly. There was a significant miss on the visit volume, which was consistent throughout the year. That's something that occurred as a result of two or three of our major clients who changed direction. I think we messaged that principally in Q3, but obviously we reiterated that in Q4. And net of any other churn that took place throughout the year, we have now come into this year again with very, very strong visibility and knowing that the likelihood of churn as a result of either the transition away from the old platform to the existing platform, as well as any other net losses as a result of other normal and recurring churn has already been processed.

Speaker 8

Got it. That's really helpful. So is it fair to say you're saying that going forward, do you expect less churn that we've seen in the last couple of years?

Speaker 3

Absolutely.

Speaker 8

Got it. Okay. Appreciate it. Thank you.

Speaker 9

Certainly.

Operator

Thank you. Our next question comes from the line of Ryan MacDonald of Needham. Your question please, Ryan.

Speaker 10

Hey, thank you. This is Matt Shea on for Ryan. Thanks for taking the questions. Wanted to pressure test the 2026 free cash flow reiteration again. You guys commented in the past about needing somewhere like double digit growth in 2025 and 2026 to reach those goals.

Speaker 10

So curious with that reiterated goal, are you pushing on cost savings harder than previously expected or expecting more growth in 2026 to make up for 2025? Ultimately just trying to understand any changes to the calculus to get you to that 2026 cash flow profitability?

Speaker 3

Sure, Matt. The two components, of course, stay constant. We've got an expectation that double digit growth, which should sit between eleven percent and twenty percent, can materialize for the 2026 year. Clearly, if that level of growth doesn't come to fruition and benefit us in line with a margin profile that we believe will be exiting the 2025 year with, then cost containment strategies will have to once again be accelerated in order for us to achieve that cash flow breakeven from operations.

Speaker 10

Okay. Thank you.

Speaker 3

You're welcome.

Operator

Thank you. Our next question comes from the line of Kevin Caliendo of UBS. Please go ahead, Kevin.

Speaker 9

Thank you. Thanks for taking my question. I guess just one thing quickly with all the headlines around what's going on in the administration with Doge and everything else. I just want to understand and how to think about this because we've gotten some questions around the funding vehicle for Digital First has to be approved again at some point during the calendar year. Can you take us through the process there?

Speaker 9

How it works? What the timing of that would be first and then I'll ask a follow-up.

Speaker 5

So as you know hi, Kevin. As you know, the DHA already shared their intent to offer a sole source to Leidos already in Q4 and contract discussions are taking place as we speak since the renewal time is this summer. We're talking about a vehicle that finances very basic fundamental things for the military health system, including the Oracle EHR. We didn't hear any of it. We have no reason to believe that that funding will be missing.

Speaker 5

The current administration is a big supporter of our military. And what we do is proven to increase efficiency in a very significant way to make care much more accessible, much more affordable and efficient for those very important participants. So overall, the likelihood of the military not finance this basic infrastructure or the DHA not to finance this, in our opinion is very, very low formal receipt.

Speaker 9

Got it. Okay, that's helpful and good to know. And maybe outside of MHS deployment, can you maybe share with us or talk broadly about what specific government RFPs are out there that you might be targeting? Like how should we think about these opportunities and any timing around them?

Speaker 5

So, of course, I'm unable to share specific names and processes that are always under NDA and confidential. The sales cycle in the government is long. However, our relationship with a major supplier of the U. S. Government, namely Leidos, which is terrific, is extremely helpful.

Speaker 5

Our track record and the long list of compliance item that we checked by implementing what we have is really hard to replace. So we believe that we are proven, we are compliant and we are very well positioned to modernize systems that are very similar across the government sector to the one that we just successfully implemented and also we have a good distribution channel. What we do is saving money and democratizing healthcare and improving access to people. There are many similar organization that could easily benefit through it. I'm hard pressed to try to pinpoint the timeline for these things.

Speaker 5

They usually take time and that's reflected in our very conservative guidance for the year that does not include any positive surprise in this area despite the fact that we are very bullish about our multi year expansion there.

Speaker 3

Fantastic. Thank you so much.

Operator

Thank you. Our next question comes from the line of David Larson of BTIG. Your question please David.

Speaker 11

Hi, I joined the call a little bit late, so I'm sorry if this has already been covered, but it was my understanding that Converge was going to be deployed system wide, and that would lead to a large increase in revenue, just as well as EBITDA margin. Is that happening? And is the converge revenue for the government systems in line with expectations? Thank you.

Speaker 5

Right, David. Short answer, yes. Everything you said is true.

Speaker 9

Okay.

Speaker 11

Is there an incremental lift in the converged revenue from 4Q of twenty twenty four to like 1Q of twenty twenty five or not? Is it full platform 71? So I guess you went up $10,000,000 sequentially. So it's another I mean that's the converged deployment system wide the $10,000,000 So I mean, should we be so we'll see that incremental $10,000,000 per quarter through $25,000,000

Speaker 3

No, you shouldn't think of that full incremental revenue from that quarter solely as a recurring number. I had suggested to Charles earlier in the call that there's a number he had provided an estimate of what he thought was $40,000,000 to be realized in 2025. And I had suggested that that amount is likely half of or close to half of what we'll be seeing in 2025 from that contract. We don't particularly identify exact the contributing factors to the subscription revenue, but there are some one time implementation fees that we recognize, but the vast majority of the DHA revenue is recurring.

Speaker 11

And then how much of the improvement in EBITDA is from cost reduction efforts?

Speaker 3

I'm going to suggest that the vast majority of the increase in that EBITDA is coming from the shift from transactional visit revenue to subscription revenue. And then of course, it's probably a one third, two third relationship with one third of that savings coming from cost reductions.

Speaker 11

Okay, great. Thanks very much.

Speaker 3

You're welcome.

Operator

Thank you. Our final question comes from the line of Jessica Tassan of Piper Sandler. Your question please, Jessica.

Speaker 12

Thanks so much for taking the question. So I was just hoping to come back to kind of the bridge between '24 reported revenue and the '25 guide. I guess based on the kind of comments or framework you all have given us around the DHA rollout or the incremental contribution in 2025 and then the APC headwinds. I guess, like we're coming up with something like at least $35,000,000 of year over year dollar growth, irrespective of the visit issues in 2024. And so I guess, should we be thinking about that $35,000,000 as being the attrition in the core in 2024?

Speaker 12

And would you expect a similar level of kind of core attrition in 2025 that could then undermine 2026 growth despite the strong pipeline? Thanks.

Speaker 3

Hi, Jessica. The, that attrition in 2024 was significant. It was material and it was something the company had not previously experienced. But, it was also some of that was managed attrition as well for clients that quite frankly weren't appropriate for the strategy going forward. I had addressed a little bit earlier in the call that I think all of that has been naturally processed through the end of twenty twenty four.

Speaker 3

And as we return to growth in 2025, we'd expect a far less significant impact from churn. So that's why we are extremely confident in those very achievable and conservative revenue range of revenue that we provided today.

Speaker 12

Got it. And then just quickly on the APC divestiture, Is that kind of capability, the site capability non core to being able to provide behavioral health programs that can be titrated up as patient acuity requires? Or does the AML behavioral health automated programs still have access to some level of psychiatric care just supported by a third party? Can you just help us understand how you guys are enabling the entire behavioral health kind of care delivery paradigm now that you've divested that asset? Thanks.

Speaker 5

Hi, Jeff. The answer is that A and G is providing today quite successfully a whole spectrum of behavioral health services that are further amplified by automated programs with our automated program platform and with the legacy Silver Cloud platform as well. We actually concluded that the legacy APC business had a very big component of physical staffing of psychiatrists in hospital that had low margin and sometimes even negative margin contribution and was not truly helpful in staffing some of those services online for many of our customers. Therefore, we think Beable Health is enormously important. We are confident that AMG is able to supply the services required in the programs together with some other partners that we have.

Speaker 5

And continuing to hold ATC was really not helpful, not financially, but much more importantly was not effort strategically to provide the technology enabled care as it specifically relates to psychiatric care going forward.

Speaker 12

Got it. Thank you.

Operator

Thank you. I would now like to turn the conference back to Ito for closing remarks. Sir?

Speaker 5

Thank you, everyone. Really appreciate you joining and we look forward to talking with you soon. Take care and have a great evening.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
American Well Q4 2024
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