Good day, and thank you for standing by. Welcome to Amwell's First Quarter 2025 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 your speaker today, Sue Dooley, Head of Investor Relations for Amwell. Please go ahead.

Hello, everyone. Welcome to Amwell's conference call to discuss our first 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. I'm pleased to report that Q1 was an impactful quarter for our company, one that provided a strong start to an important year for us. As a reminder, on our last call, we shared our guidance for a big mix shift in software revenue in 2025 that will help us to achieve our positive cash flow from operations goal in 2026. We exit Q1 with a strong sense of purpose. In a dynamic time for our industry, our goals remain steady and our mission to transform healthcare remains as relevant as ever. Our solution is built to deliver on goals that are universal and timeless, enabling our clients to leverage technology enabled care for efficiency and to improve outcomes, with better access to more affordable, convenient and effective care. To begin tonight's call, I'd like to provide you with some more detail on our performance in Q1, before discussing what we're seeing in the markets. Then, Mark will review our financial results and our outlook for the second quarter of the year. First, together with our latest partners, we advance our progress in the stage launch of our full solution across the Military Health System. We are inspired by the alignment of our mission with that of the LPDH, as we collaborate to achieve important and enduring goals for members of the military and their families. With efficiency defining the urgent agenda of the present day, we see a natural fit for our value proposition. We are hopeful this partnership position us to be a major contributor in the federal market landscape for many years. Second, we made significant progress in our path to achieving positive cash flow from operations in 2026. These initiatives are showing up in a steady, better-than-expected quarterly improvements…

Thank you, Ido, and good afternoon to everyone on the call. Tonight, I will walk you through a few operating metrics and financial results from the first quarter and then review our guidance. The financial highlights of our first quarter include progress toward our key strategic initiatives. Software revenue grew over 30% from Q1 of last year, as we drove strategic client deployments including the enterprise go live of scheduled virtual visits across the global Military Health System, the most significant growth initiative in our company's history. Also, we accelerated our adjusted EBITDA improvements for the fourth quarter in a row, as we continue to focus on increasing our software mix, and aligning our cost structure with our revenue base. Most importantly, as Ito highlighted, we have demonstrated continued progress with our 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 Q1 financial results. Total revenue was $66.8 million for the quarter, which is 12% higher than Q1 of 2024. Normalizing to the sale of Amwell Psychiatric Care, first quarter revenue was 25% higher than Q1 2024. Revenue mix here is more important metric as subscription software revenue was 48% of total revenue at $32.2 million in Q1, up 30% from a year ago and compared to $37 million in Q4. You will remember that, in Q4, our software revenue benefited from a material uplift in subscription software revenue related to deploying our solution across the Military Health System. Turning to visit metrics. We completed approximately 1.3 million visits…

Thank you, Mark. Before we take your questions, I'd like to briefly wrap up. We entered Q2 with a strong sense of purpose and unprecedented focus on our key operational initiatives for the year, which center on unlocking value in our company and pursuing our mission. To summarize, we are delivering with our Leidos partners, the promise of the Military Health System digital first initiative, a model for modernizing healthcare and the value of technology-enabled care. We have focused our strategy to fuel higher quality revenue mix and to achieve the promise of our vision. As we bring our unique, differentiated solution into a very large, yet underpenetrated market opportunity, we are set to achieve our goal of positive cash flow from operations during 2026, as well as for long-term profitable growth for many years to come. With that, I would like to open the call to questions. Operator, please go ahead. Thank you.

Thank you. [Operator Instructions] Our first question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Great. Thank you. Just outside of the DHA, can you talk about just bookings trends for Converge more broadly? And then, also just with the hire of Dan from Amazon, perhaps some things, he can leverage from his experience or key strategic priorities as he gets on board there?

Absolutely, Craig. It's good to hear your voice and thank you for the question. In general, we see very good receptivity to the Amwell platform in its new format in the market well beyond the DHA. Overall, there is growing understanding and agreement that, more and more people are going to go online and they would need a singular experience to match them growing number of clinical programs and the data infrastructure to report to those programs. Of course, we deployed it in very large scale, in some of the largest organizations, including the DHA, AMHS and others, but we also deployed it in smaller scale opportunities generating very similar value all to mid size and even smaller customers. All that results with a product that is much more focused, proven and scalable is not lost on people, as they think about creating a technology level of care infrastructure for years to come. A lot of the activity is happening, as we speak, and it will be more apparent to more people as we move forward. As to the, Dan joining, Dan was a very well known leader in Amazon. He founded Health AI in AWS and then led the platforms for Amazon. He brings a very broad network of expertise and capabilities, including high proficiency in AI. With him and other talent in the company and some new relationship inside and outside the company, we are transforming offering with some new technologies. The key focus areas for Dan in world of product includes streamlining the consumer experience, improving the way we match people, with growing number of clinical programs and the data, the bi-directional data we exchange in order to further optimize their results. And finally, the data infrastructure to create a sophisticated analytics that help our sponsors understand the value that is generated by those programs. With Dan, Mark and other new leaders in the company, I know we have what we need in order to very efficiently realize the mission of the Amwell platform and grow successfully going forward in the market.

Our next question comes from the line of Charles Rhyee with TD Cowen. Your line is now open.

Yes. Thanks for taking the questions. Just a couple of quick questions around sort of the results here and really as we think about the guidance, obviously, great performance in the quarter, particularly in terms of margins and managing the EBITDA loss here. Is this sort of the right gross margin rate? Because, I think you had guided sort of north of 50%, obviously, you did more like 53% here in the quarter. Mark, is this sort of the right run rate we should think about for the rest of the year? Could we expect that to get a little bit better here? And because it looks like a lot of the revenue was from care points in the quarter, which I would imagine is lower margin. So if we kind of back that out, does it seem like our software gross margins are running closer to 90% or so? Is that the right way to think of it?

Yes. You're on the right track, Charles. It's going to be an improving number, as the software revenues represent a greater percentage of total revenues. And you're exactly right. Timing of care point would bring that overall number down. We should see, that impact from the, let's call it, 75% to 90% software revenue margins that we would profile going out over the next several quarters. As long as the timing hits appropriately, we should continue to see quarter-over-quarter increases in margin.

And if we would expect then loss to be improving then, any reason not to adjust maybe the EBITDA guide, given where we're starting off here and what you've guided for the second quarter? Thanks.

Yes. We're not changing the EBITDA guide principally, because we still have that considerable amount of revenue that we need to generate over the remaining quarters of this year coming in with regard to the expansion work. We're very confident that, the contract extension is now within a month or two of being finalized. We're far along in that contract negotiation, and again, high degree of confidence with respect to that. It's the expansion that Ido noted and I also noted in the prepared remarks that, from a conservative view of 2Q to Q3, we wouldn't go ahead and change any of those EBITDA ranges today.

Thank you. Our next question comes from the line of Jailendra Singh with Truist. Your line is open.

So on the macro noise, tariffs, economic uncertainty, I was curious, have you seen any impact on your sales time line as health systems continue to evaluate their IT budgets? Just curious how have been your conversations at least in the last couple of months? And related to that, can you guys talk about your direct tariff exposure?

Absolutely. I'll take it first and then I'll turn to Mark for his point of view. Essentially, there is a palpable pain in the market. People are uncertain and people are worried in way of when you think about their financial viability going forward that that includes many of our customers. The encouraging part is that, they see us as part of the solution to this issue. The Amwell platform is all about efficiency, it's all about saving, it's all about growing revenue. And there are long list of examples also on our website to show you for it. So the ROI for implementing Amwell platform is very significant in where the efficiency, savings, growth, things of that nature. Therefore, we actually see the trend becoming accelerating rather than decelerating despite the overall market sentiment and headwinds.

Thank you. Our next question comes from the line of Stan Berenshteyn with Wells Fargo Securities LLC. Your line is now open.

Yes. Hi. Thanks for taking my questions. Maybe just a couple on the government side. In terms of the DHA contract, assuming it's signed, is there any chance of the economics change at all, or is the expectation that they're going to be somewhat similar to the current contract? And then, tangentially, you previously have spoken about six possible government-related opportunities that you're pursuing. Just curious any updates there, anything moving along in that direction? Thank you.

Sure. Hi, Stan. It's Mark. With respect to the contract extension, we don't really anticipate any material changes in the economics that we provided to Leidos over the past year. You need to recall that, that contract is relatively recent. Essentially, it's in its first year of workings, especially at the enterprise level, which is certainly in months one or two -- quarters one or two. So, no indication there that there'd be anything significant. And then, I think for the opportunities, perhaps I'll hand it over to Ido.

Thank you, Mark. Stan, I think that some people underestimate the enormity of what took place in the last couple of years implementing the DHA. It was a giant undertaking for us, and we went through it. We are now live, as I mentioned earlier, across the globe enterprise for the Military Health System that required us to migrate our platform to the GovCloud and check infinite number of boxes and requirements, which we checked and complied with. It works now well and it works at scale. The impact that we had on the Military Health System should not be different than other similar government entity, and our partner is very proficient in that environment. Leidos serves so many other organizations. So, we believe that, with this good execution in the sense that, as far as we are concerned, we were always on time and on budget, and we generated the efficiency for our customers here. So that track record that we're very proud of is going to be very helpful, as we compete for other opportunities in the sector.

Thank you. Our next question comes from the line of Eric Percher with Nephron. Your line is now open.

Thank you. I thought I heard this asked, but I'm not sure I heard an answer on the tariff question. Can you just speak to any exposure across the business and maybe specifically on the endpoints?

Sure, Eric. Overall, our direct exposure to tariffs is minimal or to non-existent. As you may know, we no longer manufacture, most of our hardware comes from third parties and the hardware business is generally a very small part of our business today. Our business is software that manufacture mostly in The United States and very proudly. And therefore, we don't see a cost issue for us directly. Having said that, tariffs obviously impact the sentiment in the market overall and do create some problems to our customers, as it relates to their relationship with other suppliers. However, as I mentioned earlier, we are really conceived as part of the solution, adding efficiency, growing revenue for our customers. So in that environment, there is a good ROI for investing in Amwell. Maybe very briefly, just to give you some very quick examples. In way of reducing costs and driving revenues, in WELLSTAR, we just had a study show 35% increase in net revenue for virtual consult, the cohort that I mentioned in the prepared remarks, and 1 million cost reduction just with one ED program that created 30 fewer nurses call per day for the Northwell reduced colonoscopy notional by 48%. Another area is that, we are still attached to very significant improvement in outcomes. Again, very quick example. In the NHS, we helped to change wait times from 16 weeks with psychiatric care to one week. That's very dramatic, and the value is very well-recognized there. Even in The U.S. with Horizon, they reported 40% reduction in patient waiting time for a psychiatric care, and we have very high sentiment with providers and burnout of clinical staff productivity over network is a giant topic for our customers. The fact that you are fully-embedded in the EHR, the fact that we help prepare and match patients with the right doctors and much better prepared in an automated fashion and providing additional access to different specialties. These are just examples of why we believe that, our platform still continues to be very relevant and in demand and resonating, even in those times of great uncertainty and rising towers is a good example of that.

Thank you. Our next question comes from the line of Kevin Caliendo with UBS. Your line is now open.

Hey, guys. This is Jack [indiscernible] on for Kevin Caliendo. Thanks for taking the questions. I know you're talking more about the contract extension through like more of a conservative lens, but maybe if that renewal does not come to fruition. Are you confident that you will still breakeven on a free cash flow basis next year without it, or is that contract kind of needed for it? And then maybe just as a quick follow-up, it might be a little too early, but given the updates on how the selling season kind of has progressed thus far? Thanks.

Jack, we are quite certain that the contract will be extended. We have no reason to believe, based on where we stand and the many reasons I gave earlier in the call that it will not extend. So it's a bit of a theoretical situation. There is always a theoretical chance, but we believe, it's very, very small. Overall, in our work in the market, we have a product that is extremely well defined. We divested APC, as you know. We did some other measures. So our core offering today is high value, high margin, high quality with very strong right to win in the different market segments that we serve. That's not lost in the market. We see it in how people react to our fees. We see it in sales meeting and we see it in some of the results that you saw today, and hopefully we'll continue to see over the foreseeable future. So that's how we feel about that market. I don't know, if you have anything to add.

Jack, both of you actually, I would add that we clearly are in a position today to rely on that contract extension. Again, we have every reason to believe that we are going to see that extended based on where we stand today with our partners. And, of course, if that did not come to fruition, we would have to pivot in order to reach a cash flow from breakeven operations number in 2026. Again, that would be a worst case scenario and not something that we actively plan for, but it could be viewed as an existential threat.

Thank you. [Operator Instructions] Our next question comes from the line of David Larsen with BTIG. Your line is now open.

Hi, congratulations on the good quarter. Can you just remind us how much revenue in the quarter came from the Defense Health Agency contract? And then what will that figure be like on an annualized basis by say 4Q of 2025? Thank you.

Hi. Thanks for those nice remarks. We don't break out the exact contribution. As we've guided in the past that, that contract is expected to represent our largest revenue component on an annualized basis when it's full enterprise. So, we're not yet at full enterprise for all three products. As we noted, we're there for scheduled visits and we're waiting for the extension of the automated care and behavioral health. But we did have a quarter and a full quarter of the portion of revenue that comes about from our enterprise-wide revenue for scheduled visits.

Great. And then, can you maybe just talk a little bit more about, like the usage from the Defense Health Agency, like how many lives actually use the platform in 1Q across how many countries or regions? What was the nature of the services? Is it all behavior or health or is there other things in there as well? Is it does it include military families as well, their dependents? And what I'm kind of getting at is, like, it seems to me like, if they can't cancel the contract, I mean, if the military is dependent on this for large amounts of their care, if they were to cancel that, that would be optically and medically a very difficult thing to do. Just any color around the usage of the platform would be great. Thank you.

Hi, David. Obviously, we cannot speak on behalf of the Military Health System and not even on behalf of Leidos. And what we can say is very restricted. But you are right to suggest and I think it was public information that the audience for our project is huge. It's 9.6 million people in the military including the men and women in uniform and their families. So the visits, the telehealth visit, the scheduled visits that are now live enterprise is serving all of them, and we are connecting all of them with the providers at large of the military providers. The different use cases are very diversified and include different things. As it relates to chronic care programs and behavioral health, which is such a big area of focus of the military. We are live in the five regions. So we already followed what we did with scheduled visits before. That's the initial launching pad, if you will, of the military. And then following that, we fully expect to go enterprise, especially as the new head of the DHA takes place. And I mentioned earlier that, we see very high satisfaction scores. We see efficiency. We have reason to believe that the client and our partner are very pleased, with what they see. We obviously don't speak on their behalf. And that's why I said earlier that, we believe that the likelihood of renewal is very, very high. It's not 100%, in theory, but we believe that, there was a giant risk to get here. It's performing as planned. It's generating very important results. Just to give an example, the new administration talked about their goals for the Military Health System and they mentioned four pillars, and we believe we check all those four boxes. So the first pillar was Readiness First, ensuring that service members have access to world-class health care. Obviously, we check that box. The second initiative is medical modernization, advancing digital health, which of course, we do. The third one is force optimization, and strengthening the medical workflow force. And now we are embedded inside their EHR, the Oracle EHR, connecting them to all their patients, improving their lifestyle, improving their efficiency, and so overall we're very relevant there. And the last one is really encouraging the military to forge more meaningful strategic partnerships as enhancing collaboration across the DHA and of course MHS with the private sector and we're also relevant in that box. So with this track record, with the fact that, we are very well-positioned to really focus on efficiency, which is such a key element in the new administration, we believe that, we have a long future ahead of us together serving this client, which we cannot be more proud of.

Thank you. And our last question comes from the line of Ryan MacDonald with Needham. Your line is now open.

Hi, guys. This is Matt Shea on for Ryan. Thanks for taking the questions and congrats on the strong quarter here. Curious, if there's anything on the churn side to call out in the quarter, and as we think about the remainder of the year, how are you thinking about intentional churn from here? Do you feel good about the core client base at this point or still some less profitable contracts to clean up? And then, just circling back to the selling season question, any color on the selling season would be great and then any differences you're seeing in terms of demand from, say, health systems versus payers? Thanks, guys.

Sure. Hi, Matt. It's Mark. With regard to your first question on churn, we had budgeted for a very conservative churn number, and clearly, we were very pleased with the fact that churn came in much lower than we anticipated. That actually helped to contribute to the increase in the bottom-line. We had some challenging years prior to this year. And fortunately, I think most of those heavy churn periods are behind us. We continue to budget conservatively, but there's been nothing that we've seen and now that we're five months in, nothing that we've seen to indicate that, there's going to be any change in that assumption. On the pipeline growth, on the attractiveness of what we're bringing to the market, we have also seen significant activity far greater than last year, on both the payer side and on the health system side. We're currently involved in a number of RFPs, RFIs, the amount of interest in the product in these different sectors has fortunately been intensified over the last few months. So contrary to I think what a lot of people are talking about with respect to constraint, as the tariffs and other indicators have put some apprehension in people's minds, we seem to be in a good place with prospects that are interested in pursuing our products.

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Ido Schoenberg for closing remarks.

I want to thank everyone for their time. Thank you very much for your continued interest in Amwell and look forward to talking with you offline. Take care.

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