Thank you for standing by and welcome to Amwell's Fourth Quarter 2024 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. [Operator Instructions] I would now like to hand the call over to Sue Dooley, Head of Investor Relations. Please go ahead.

Hello, everyone. Welcome to Amwell's conference call to discuss our fourth fiscal quarter of 2024. This is Sue Dooley of Amwell Investor Relations. Joining me today are: Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, our CFO and Chief Operating Officer. Earlier today, we distributed a press release detailing our announcement. Our earnings report is posted on our 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 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. 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 Ido.

Thank you, Sue and good evening, everyone. Q4 marked the close of a transformative year for Amwell. 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 prepared to realize the potential of our unified technology-enabled care platform. 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. 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 Mark 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. 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 Amwell Psychiatric Care, our legacy psychiatric staffing business. We determined that APC did not meet our threshold of being an integral part of…

Thank you, Ido and good evening to everyone on the call. I've completed my first 100 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. 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. 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 Ido said, we have demonstrated continued progress with our 2 most strategic objectives: specifically, the staged 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 have 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 million for the quarter which is flat to Q4 2023. Revenue mix here is the more important metric as subscription revenue was $37 million in Q4, up…

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 Instructions] Our first question comes from the line of Craig Hettenbach of Morgan Stanley.

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?

I'm so sorry. Can you hear me now? Yes. Hi Craig, thank you for this important question. 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 Amwell platform, our infrastructure, our software infrastructure to connect all the NHS providers with the large community of 9.6 million men and women in uniform and their families which is not unlike what we do for many other payers and health systems. We are 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.

Our next question comes from the line of Stan Berenshteyn of Wells Fargo Securities.

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. We know that in Q4, the DHA announced providing Leidos with a sole source grant for this project. And this project is talking about an extension of 3 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. So where 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 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?

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

Our next question comes from the line of Jailendra Singh of Truist Securities.

I want to ask about ACV for health plans and health systems improved like nicely in 2024. Based on trends you're seeing in your conversations, anything you can share in terms of what your expectations are this year? And just kind of related to that, at a high level, I mean, clearly, a very, very good job in terms of how you are progressing on EBITDA improvement and profitability or path to profitability. But the top line, I mean, clearly, not much growth for the last few years. I mean, DHA contract is definitely helping in '25 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 anyway? Just trying to understand that how should people feel comfortable about the top line growth longer term for this business?

Thank you, Jailendra. So as Mark mentioned, we do show if you take out 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 in the government market but its large deployment at scale overall. The dialogue with health plan 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 apparent to most of the audience on this call. They keep understanding and reiterating the value that we 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 and good traction in expansion. It's important to note that our business model now does not only include our own software and our own clinical programs but a way to monetize all those third-party clinical program as well as the secular trends 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 a very significant opportunity for higher-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.

Our next question comes from the line of Eric Percher of Nephron.

I have 2 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 DHA for government -- 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?

Sure. Thanks, Eric. As far as visibility is concerned, I feel extremely confident for 2 primary reasons. One is that visibility here at Amwell really consists of 2 components. That which is contractual, that's all of our subscription revenue which will likely exceed $150 million of the total 200 -- let's call it, midrange $255 million guide. So that comes up right around 60%. 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 Ido noted, we took a very conservative range in order for us to really have achievable and conservative baseline numbers this year. So that -- those 2 components give us in excess of 90% visibility into this 2025 guide. 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 6 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. 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 have 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 6 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.

And sorry, you're saying that the success there could impact the ability to launch in '26 launch net new business or launch any of what you have planned for the year?

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

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

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 million 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, it seems to imply around $40 million contribution from DHA this year. And I guess I'm just trying to understand a little bit 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 under an assumption 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. Just trying to understand, first, the difference sort of what is left to get rolled out? Second is our -- is that $40 million correct? Because if then you back into the '25 guide, it seems like $15 million roughly less of revenues elsewhere. Just wondering if that -- should we assume lower care points and/or visit revenues this year?

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, it's actually better than expected, a full throttle 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 our partner and our customer. The payment does not mirror every place that is deployed; the payment mirrors more the readiness of the component to go enterprise-wide. And there are other details that Mark may go into. So overall, everything we expected the DHA to contribute is going to happen from where we sit this year without any type of delay.

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 million 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 60 to 90 days, we'll know -- we'll have certainty as to the likelihood of that being renewed for the next 3.5 years. 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.

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 million but then we net it against what you already recognized, let's say, at the end of last year, 1 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 [ph] but obviously there's a less focus on it. Just trying to understand where the offsets are to get to the guide.

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 2 or 3 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.

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

Absolutely.

Our next question comes from the line of Ryan MacDonald of Needham.

This is Matt Shea on for Ryan. I 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. 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.

Sure, Matt. The 2 components, of course, stay constant. We've got an expectation that double-digit growth which should sit between 11% and 20% 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 we'll 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.

[Operator Instructions] Our next question comes from the line of Kevin Caliendo of UBS.

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

So as you know -- 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 this summer. We are talking about a vehicle that finances very basic fundamental things for the Military Health System, including the Oracle EHR. We didn't hear any -- we have no reason to believe that, that funding will be missing. 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 from where we sit.

Got it. Okay, that's helpful and good to know. And maybe outside of AMHS 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?

So of course, I'm unable to share specific names and processes. They 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. Our track record and the long list of compliance items that we checked by implementing what we had 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 health care and improving access to people. There are many similar organizations that could easily benefit through it. I'm hard-pressed to try to pinpoint the timeline for these things. 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 multiyear expansion there.

Our next question comes from the line of David Larsen of BTIG.

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?

David, short answer, yes. Everything you said is true.

Okay. Is there an incremental lift in the Converge revenue from 4Q of '24 to like 1Q of '25 or not? Is it full platform 71? So I guess you went up $10 million sequentially. So it's another -- I mean, that's the Converge deployment system-wide, the $10 million. So I mean, should we be -- so we'll see that incremental $10 million per quarter through '25?

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 million 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.

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

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 1/3, 2/3 relationship with 1/3 of that savings coming from cost reductions.

Our final question comes from the line of Jessica Tassan of Piper Sandler.

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 '25 and then the APC headwind. I guess, like we're coming up with something like at least $35 million of year-over-year dollar growth irrespective of the visit issues in 2024. And so I guess should we be thinking about that $35 million as being the attrition in the core in 2024? And would you expect a similar level of kind of core attrition in '25 that could then underline '26 growth despite the strong pipeline?

Jessica, 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 2024. 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.

Got it. And then just quickly on the APC divestiture. Is that kind of capability, the psych capability noncore to being able to provide behavioral health programs that can be titrated up as patient acuity requires? Or does the Amwell 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?

Jess, the answer is that AMG 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 SilverCloud 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 behavioral health is enormously important. We are confident that AMG is able to supply the services required and the programs together with some other partners that we have and continuing to hold APC was really not helpful, not financially but much more importantly, was not helpful strategically to provide technology-enabled care as it specifically relates to psychiatric care going forward.

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

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

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