American Well Corporation Class A

Hello, everyone, and welcome to Amwell's conference call to discuss their third fiscal quarter of 2025. Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg, and Mark Hirshhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through normal news sources. This conference call is being webcast live on the IR page of the website where a replay will be archived. Before they begin 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 the filings of the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido.

Thank you, operator, and good afternoon, everyone. For the third quarter, our results compared favorably to the guidance we provided. We showed steady progress in executing our plan, which is designed to achieve cash flow break-even by the end of 2026 and to ultimately resume profitable growth. Our plan is based on two main work streams. First, focusing on our enterprise-grade mature and well-differentiated new platform to generate considerable value in our select market segments. Second, ensuring that all our operations are extremely efficient and effective. Both efforts rely heavily on the integration and adoption of rapidly evolving technologies, primarily enterprise-grade AI infrastructure. In recent years, we have invested significantly in recruiting exceptional talent and establishing strong governance, compliance, and operational frameworks. We have also committed substantial resources and continue to do so towards building ecosystem interoperability that enables seamless data exchange and deep integration with existing EHRs and clinical systems. These investments help position AMWEL as a highly dependable, secure, and scalable technology-enabled care platform for our customers. We enable our customers to align our technology with measurable economic value while helping them address critical challenges such as clinician burnout, staffing shortages, and operational inefficiencies. Additionally, we position them to capitalize on emerging opportunities, including the integration of algorithm-based healthcare services, comprehensive care coordination, and new digital therapeutic solutions. These integrations may help our customers leverage predictive AI to reduce costly interventions and hospitalizations. Our efforts are beginning to pay off as reflected in our results, and we believe the impact will only accelerate going forward. For our first work stream, in Q3, we began socializing our product focus areas through 2026 with our clients and prospects. We are committed to making the new Armwell platform the most effective and valuable hybrid care backbone we have ever offered them. Our mission is to help our customers reduce care costs, improve clinical outcomes, and offer the highest member engagement and satisfaction through exceptional user experience. We strive to achieve this through the following focus areas. First, we are moving AI into the core workflow layer. We are responsibly implementing enterprise-grade AI and other technologies to transform patient intake, personalized dialogue and navigation, as well as clinical program matching and onboarding. Our efforts benefit from almost two decades of telehealth experience and access to an incredible data and knowledge repository driven by many millions of digital first care encounters. Second, we are enhancing and simplifying the way we work with our own and third party partner clinical programs. This enhanced program integration is expected to help offer our customers even more options across the care continuum while adding more value to our clinical program partners. Also, clients will be able to seamlessly integrate clinical programs they've already committed to into their Armour platform with unprecedented ease. As noted on our earlier calls, these third-party partners represent an important high-margin flywheel growth opportunity for Armwell. Our own clinical programs are likely to be the first to benefit from these changes and further improve our offering across urgent care, virtual primary care, comprehensive behavioral health, nutrition, lactation, and more. Third, we are investing in and will remain heavily committed to our data and analytics infrastructure. We plan to offer our customers even better ways to measure and improve financial and clinical outcomes across all programs while offering patients an even more personalized, simple, and relevant journey. As payers, employers, and health systems look to consolidate their technology-enabled care strategy, we offer a unique and reliable solution. It allows them to realize their financial, clinical, and member engagement goals while maintaining full flexibility to dynamically choose and replace the clinical programs that work best for them in the simplest, most scalable, and reproducible way. Our second work stream is centered around relentless focus and commitment to efficiency and quality. We are further improving our platform to make it even easier to deploy, maintain, and support. Self-management and automation tools for our customers are a good example of this commitment. These tools empower clients to do more faster while simultaneously reducing our own cost of deployment. As we carefully define what we focus on, we are decisively divesting non-core assets. Earlier this year, we announced the sale of Arnold Psychiatric Care, or APC, and are currently pursuing other actions to divert access resources away from non-core assets. It is important to note that we plan to continue to fully support and maintain legacy assets they still provide value to our customers. These customers have expressed comfort from the stability and reliability of our trusted legacy solutions. We hope to see them gradually migrate to our core offering over time when they are ready. In parallel, we systematically analyzed our own efficiency across all our operations. we were able to find opportunities to improve efficiency, including with widespread AI adoption while right-sizing headcount across the board. These reductions in force were made possible through various interventions, including careful reallocation of talent across the company. Now, I'll take a step back to look broadly at the macro environment. In 2025, we continue to see clear signs that the market is shifting in our favor. Consumer demand for digital health is accelerating. Mental health telehealth utilization reached 27.8% in July, according to the EPIC Research Data Tracker. And 79% of Gen Z now use health technology monthly, according to PwC 2025 Healthcare Consumer Insight Survey. At the same time, digital clinical programs are demonstrating real results. Research shows digital disease management can reduce 30-day readmission rates by 50%. This effectiveness is driving significant investment. AI startups, many of which could be considered clinical programs themselves, capture 60% of all digital health funding in Q1, according to the AHA Center for Health Innovation. However, payers, employers, and health systems are struggling with fragmentation. Employers now manage an average of four to nine point solutions, yet only 22% trust these vendors to act in their best interest, according to Evernote Insights. This fragmentation carries real costs. For example, inefficient data exchange costs healthcare organizations up to $20 million annually. As a result, integration has become a strategic imperative. 62% of health plan leaders identify integrated solutions as a top 2025 priority according to HealthEdge's annual survey. Organizations need help. managing technology, engagement, reporting, and the commercial burden of multiple vendors, and that's exactly the gap we are positioned to fill. In that setting, the AMWEL platform promises much needed relief by maintaining future-ready flexibility with the efficiency, effectiveness, and peace of mind of offering one relationship, one user experience, and one data and reporting infrastructure across a dynamic and open-ended array of clinical programs and vendors. Our unique business model never forces our clients to only use Armwell clinical programs. This aligns our interests and positions us well as their long-term partner. When many of our competitors feature their brand to members, we enable our customers to use their own white-labeled experience. Their AMR platform inside allows them to offer a unified, customer-branded gateway to all their covered programs. Finally, and importantly, our ability to supplement automated programs we trusted in network-certified providers at scale enables and accelerates the safe and effective adoption of these new AI-driven solutions. Our special architecture is helpful in making customer acquisition costs more effective and in improving the customer's overall brand value and stickiness by associating it with a wide array of helpful services and exceptional platform experience. Our ability to help customers obtain a clear view of all person and cohort outcomes and offer them tools to continuously improve results by switching programs and matching them with the right cohorts is highly desirable and appreciated. In our conversations in the market, our strategy resonates. As we look forward, we fully expect our competitive advantages to become increasingly visible and compelling as we continue to roll out our new Armwell platform. We believe that our long journey is in many ways only beginning, and we are excited about what the future brings to our loyal and sophisticated supporters, our customers, and our company. With that, I would like to turn the call over to Mark for a review of our financials and our guidance. Mark?

Thanks, Ido, and good afternoon to everyone on the call. On today's call, I will walk through a few key operating metrics and financial results from the third quarter and then provide an update to our guidance for the remainder of this year. In the third quarter, we delivered results ahead of expectations for both revenue and adjusted EBITDA, reflecting stronger subscription retention, increased visit volume in specialty care and virtual primary care, and meaningful cost efficiencies driven by the successful execution of our restructuring. Our progress this quarter reinforces that the actions we began earlier this year are translating into durable financial improvement and accelerating operating leverage. Today, I will walk you through our quarterly performance, highlight the financial impact of these strategic actions, and provide an updated view on our guidance for the balance of 2025. Total revenue is $56.3 million, which represents an 8% decrease year over year and includes the step-down in contribution from Leidos and the divestiture of APC. Normalizing to the sale of APC, Q3 revenue would have increased 1.3%. Subscription revenue of $30.9 million increased 18% year over year, and represented 55% of total revenue compared to 43% of total revenue a year ago. Total visit volume of approximately 1.1 million visits in the third quarter was down 21% from a year ago, although in line with our expectations. Amwell Medical Group, or AMG, visit revenue was 23% lower than last year at $21.2 million. Normalizing for the sale of APC, however, visits were down 3.5 percent from a year ago. Average revenue per visit was $71, which is 14 percent lower this quarter compared to last year's Q3. But when normalizing for the sale of APC, average revenue per visit was 3.5 percent higher, driven by a continued mixed shift to higher-priced virtual primary care and specialty care visits. GAAP gross margin expanded to 52 percent compared to 37 percent a year ago as a result of greater software and services revenue generating stronger margin contribution than last year's comparable quarter revenue mix and divestiture of APC. Our operating expenses totaled $58.9 million in the quarter, a decrease of 16 percent compared to last year, comprised of a 6 percent reduction in R&D, a 46 percent decrease in sales and marketing, and a 14 percent decrease in G&A expenses. We remain focused on optimizing our resources, and we are clearly moving in the right direction and getting closer to our foundational cost basis. Adjusted EBITDA was a loss of $12.7 million for the quarter, which compared favorably to a loss of $31 million a year ago, evidence of our acute focus and execution of our cost containment initiatives. In terms of cash and liquidity, we reported a cash burn of approximately $18 million in Q3 and ended the quarter with approximately $201 million in cash and marketable securities with zero debt. Finally, to wrap up my comments today, I'll share our revised guidance outlook. With just two months remaining in the year, we now expect our full year revenue to be between $245 million and $248 million versus the prior range of $245 to $250 million. Adjusted EBITDA in the range of a negative 45 to negative 42 million dollars versus the prior range of negative $50 million to negative $45 million. Our range for AMG visits remained steady between 1.3 million and 1.35 million visits. Our full year guidance assumes the reduction of R&D expenses by more than 10% this year versus 2024, as we streamlined and completed the bulk of our software configuration to our existing build and integration commitments. At the same time, we continue to expect sales and marketing costs to decline more than 25% year-over-year and G&A expense to decline at least 20% for the year as we continue to organize the company around a new, lower-cost structure. We now project Q4 revenue in the range of $51 to $54 million and adjusted EBITDA between negative 15 to negative $12 million. We have made meaningful progress right-sizing the cost structure while diligently working to position AMWEL for longer-term success. We have quite a bit of work left to do, but we remain committed to our goal of generating positive cash flow from operations during 2026. I want to thank our entire team for their commitment and passion to our overarching mission of increasing access to affordable, high-quality healthcare. Thank you all for your time and attention. I'd now like to turn the call back to Ido for his closing remarks. Ido?