American Well Corporation Q1 2023 Earnings Call
Speaker 1: Good afternoon. My name is Emma and I will be your conference operator today. At this time I would like to welcome everyone to the AMWALQ-120-23 earnings call.
Speaker 1: All lines have been placed on mute to prevent any background noise. After the speakers are marked, there will be a question and answer session.
Speaker 1: If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one.
Speaker 1: We ask that you limit yourself to one question. Thank you.
Speaker 1: I would now like to hand the call over to Sue Dooley, head of Investor Relations with M.O. Please go ahead.
Speaker 2: Hello everyone, welcome to Amwell's conference call to discuss our first quarter of 2023. This is Sue Dooley of Amwell Investor Relations and joining me today are Amwell's Chairman and CEO , Dr. Edo Schoenberg and Bob Shepperton, RCFO.
Speaker 2: Earlier today we distributed a press release detailing our announcement.
Speaker 2: The release is posted on our website at investors.amwell.com and is also available from the federal staffs stare review finger Marcus????tonaro.com
Speaker 2: This conference calls being webcast live on the IR page of our website where a replay will be archived.
Speaker 2: Before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the course of this call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in our filings with the SEC and actual results or events made different materially.
Speaker 2: Except as required by law, we undertake no obligation to update or revise these full-reducing statements.
Speaker 2: On this call, we'll refer to both GAP and non- GAAP financial measures. A reconciliation of GAP to non- GAAP financial measures is provided in our posted earnings release. With that, I would like to turn the call over to Edo. Edo?
Speaker 3: Thank you soo, and hello everyone. I'm pleased to report that Q1 was a very busy Q4 for a company, one that provided a strong start to the year.
Speaker 3: We had three key accomplishments from the quarter that I want to highlight.
Speaker 3: First, we made great progress with health system migrations and pair deployments are under way.
Speaker 3: Second, strategic clients went live this quarter, providing valuable in-market validation of the power and scale of Converge, our unique whole-person, one-stop-shop platform that supports the delivery of hybrid healthcare. Third, we put in place the building blocks that we believe will enhance re-acceleration of our bookings.
Speaker 3: and I'll speak for a moment about the market for our solution. After that, Bob will review some key metrics, our financial results, and our guidance. Then we'll be pleased to take your questions. We began the year energize with the knowledge that much of the transition to converge is behind us. We are also empowered by the validation of strategic clients who are selecting us as their partner.
Speaker 3: A few examples of these successful migrations and implementations included Carillion Health, Olof Medical, Oldman Health and Intermountain Health. I am proud of our teams who drive these migrations. Our expertise in hybrid care best practices and deployments remains a differentiator in helping our clients achieve their care delivery initiatives of today and as they make plans for the future.
Speaker 3: As we progress with migrations, converged continues to deliver exceptional scale, efficiency and experience. For example, in February , we completed a full system launch with health partners out of Minnesota.
Speaker 3: This enterprise wide goal is integrated with Epic and used by clinical teams across many specialties.
Speaker 3: Now, I'd like to speak for a moment about our bookings related activity as we pursue the tremendous opportunity in front of us. Q1 was busy with engagements with new and prospective clients across the parent provider universe, as well as effort to expand our footprint within our existing client base. Here are a couple of examples. We began the year on a strong footing.
Speaker 3: As one example, I'm proud to share a significant new customer win with leading West Coast health system.
Speaker 3: And Prisma spoke to addressing the worsening shortage of nurses with automated chat features. They achieve high-chat resolution rate which drove an associated 57% reduction in nurse calls with episodic chats. And with our EDD charge program, Prisma described an estimated $4 million per year savings with reduced readmits to the EDD. We have a growing stable of testimonials supporting our innovative, purpose-built, and AI-powered automated asynchronous care programs.
Speaker 3: For example, it hints.
Speaker 3: Our clients from UCSF, the more children and University of Pittsburgh Medical Center health plan.
Speaker 3: presented their business case for numerous automated problems.
Speaker 3: The common threat from these presentations validates our hybrid care approach that delivers higher rate of patients engagement, reduced costs.
Speaker 3: plus improved patient and clinician satisfaction.
Speaker 3: Our booth at HIMSS was well attended and was organized around the compelling visualization of the patient journey and our unique role as the enabling partner for digital first approach to healthcare. This was high and we held a record number of client meetings at this important event.
Speaker 3: It's clear from the feedback that, at Amwell, we are on the right path, delivering a solution that enables and empowers our clients in a world where a digital first approach to hybrid care is a certainty. It is also clear in my discussions with our clients that in the healthcare market, spending always requires rigorous prioritization.
Speaker 3: Hospital budgets are constrained, and the challenges facing providers and taxpayers include widespread technological fragmentation.
Speaker 3: Staffing shortages in an urgent need to improve patient experience and outcomes.
Speaker 3: These all drive a demand to evolve to a digital-first model and leveraging technology to achieve operational goals.
Speaker 3: Despite the inherent challenges our clients and prospects are facing today,
Speaker 3: We think these investment priorities play right into our strengths.
Speaker 3: As we take our solution to the market, we are listening carefully, adapting with agility and driving with urgency. Here are a few examples of this.
Speaker 3: First, we are learning that our unified fully integrated.
Speaker 3: hybrid care enablement platform which glues together pairs providers innovators and patients.
Speaker 3: represents a large on-met need in the market.
Speaker 3: It presents a large need in the market. We are also finding...
Speaker 3: that in addition to our buy for today's Spanwen-ready strategy, clients are responding well to converge component bundles, which already include a selection of our automated and asynchronous programs.
Speaker 3: In addition to our buy for today expand when ready strategy, clients are responding well to converge component bundles, which already include a selection of our automated and asynchronous programs. And of course.
Speaker 3: We also understand that ROI and outcomes that materialize quickly are a must in today's environment, and as I mentioned a moment ago, our library of examples is expanding.
Speaker 3: that ROI and outcomes that materialize quickly are a must in today's environment and as I mentioned a moment ago our library of examples is expanding. In response to this
Speaker 3: We are going to market with an evidence based.
Speaker 3: Solutions oriented selling approach. This approach describes best practices.
Speaker 3: Becht by compelling references and examples, bethalined with each client's goals. Our teams thrive in every conversation.
Speaker 3: to convey that our solutions are the must-have engine to resolve their pain points today.
Speaker 3: connect all stakeholders and deliver on their strategic aspirations for the long run.
Speaker 3: This involves deploying enterprise-grade team of leaders from sales, services and engineering to address some of our clients' most strategic needs.
Speaker 3: We believe this structure extends our footprint within the client organization.
Speaker 3: and increases the value we can deliver from day one.
Speaker 3: As we look to accelerate our momentum in the market, during Q1 we launched initiatives.
Speaker 3: aim at driving rapid adoption of our automated care programs. Our teams are packaging these programs to focus on significant unmet medical needs that also alleviate the financial pressures on healthcare today.
Speaker 3: driving rapid adoption over automated care programs. Our teams are packaging these programs to focus on significant unmet medical needs that also alleviate the financial pressures on healthcare today. Maternity EBDs Charge.
Speaker 3: chronic disease and pre-colonoscopy.
Speaker 3: are just four of the many automated solutions with powerful outcomes included in these efforts.
Speaker 3: We also launched doing well.
Speaker 3: a series of client best practices webinars, the first of which went live just a couple of weeks ago. The first of these features the CIO of Horizon Health Services.
Speaker 3: On converge, Horizon Health is improving access to care and now conducts over 50% of patient care virtually.
Speaker 3: In the webinar, a client attest that Horizon Health reduced the average wait time for members initial appointments.
Speaker 3: webinar, a client attest that horizon health reduced the average wait time for members initial appointments from five days to one.
Speaker 3: They also Lord by 40 days, the wait for psychiatric services by their members. A growing list of these webinars can be found on our website.
Speaker 3: We plan to add content every month.
Speaker 3: starting with compelling El Camino hospital testimonial on May 17th.
Speaker 3: Feel free to ask Sue for a registration link if you would like to listen. These webinars are valuable endorsements of our solution, which we believe will add to our growing momentum in the market.
Speaker 3: These examples are particularly important.
Speaker 3: because we are finding that no two clients have the same hybrid care goals.
Speaker 3: There is no cookie cutter solution for evolving to the new paradigm. Clients are looking to solve for the most pressing priorities and the success of their peers provides powerful motivation to act.
Speaker 3: And increasingly, we believe they will choose to partner rather than build a home grown solution on which to deploy the right hybrid combination of virtual, automated and in-person care.
Speaker 4: More broadly.
Speaker 3: More broadly, across our industry,
Speaker 3: It is increasingly clear to me that the market is taking note of our single, open and connected infrastructure platform.
Speaker 3: An example of this is the partnership we announced in Q1 with DarioHealth.
Speaker 3: We are pleased to add the Dario Cardio Metabolic Health Program to our comprehensive portfolio of care solutions.
Speaker 3: The Dario solution addresses diabetes.
Speaker 3: high blood pressure and weight management needs with a holistic, highly individualized hybrid care experience.
Speaker 3: We have spoken before about the key benefit of converged architecture.
Speaker 3: It can embed third-party solutions much like an up store. The value of this benefit is compounded because we already connect to so many pairs, providers, and patients.
Speaker 4: For example.
Speaker 3: Innovators like Dario can look to us to accelerate the progress in the market
Speaker 3: tapping into the potential that exists with our install base of 2,000 or so hospitals.
Speaker 3: in pairs that reach more than 90 million lives. Members and patients receiving care via commissions on our platform.
Speaker 3: reach more than 90 million lives. Members and patients receiving care via clinicians on our platform can be referred seamlessly.
Speaker 3: to a Dario program, minimizing roadblocks to accessible, simple and efficient care, strengthening care continuity.
Speaker 3: And, from our client's point of view, accessing Dariel through Amwell assists with vendor consolidation goals.
Speaker 3: And, from a client's point of view, accessing Dario through Amwell assists with vendor consolidation goals, streamlines reporting,
Speaker 3: and accelerates adoption and utilization of new innovative tools.
Speaker 4: To summarize
Speaker 3: Hybrid care delivery is rapidly becoming the main highway for a variety of care modalities offered by all types of providers and services.
Speaker 3: but the path forward is complex.
Speaker 3: With our unique combination of technology, services and client experience
Speaker 3: We believe AMRUL is ideally suited.
Speaker 3: to be the one stop shop where our clients can access the benefits of the digital care transformation.
Speaker 3: No matter the time frame or pain point our clients are looking to so far, our platform is purpose-built and future-ready, funded on years of investing and understanding the needs of our clients.
Speaker 3: In Q1, we made progress towards all of our strategic initiatives.
Speaker 3: As we migrate our customers,
Speaker 3: The liberal converge and the market responds. We are solidifying our role as a digital transformation partner.
Speaker 3: and we believe we are just getting started.
Speaker 3: With that, I would like to turn the call over to Bob to review our Q1 financials.
Speaker 3: With that, I would like to turn the call over to Bob to review our Q1 financials, some key metrics.
Speaker 3: like to turn the call over to Bob to review our Q1 financials, some key metrics and our guidance.
Speaker 5: Bob? Thank you, Ido, and hello everyone. I'll start with a review of our operating metrics and then turn to financial results for the quarter. Active providers continues to be an important indicator of the sustained value our clients see in our platform.
Speaker 5: We ended the first quarter with 108,000 active providers, representing growth of 8% compared to a year ago. Driving this growth was active providers employed by our clients, which also grew 8% in the same period.
Speaker 5: We anticipate that our number of active providers will continue to increase as we migrate existing and implement new clients onto our Converge platform.
Speaker 5: Total visits were approximately 1.7 million in the first quarter, a decrease of 4% compared to last year's COVID-driven first quarter.
Speaker 5: so they were approximately flat to 4Q22. Scheduled visits increased 9% versus last quarter and represented 68% of total visits in line with our experience over the last few years during the pandemic of 70-75%.
Speaker 5: This represents a healthy sustained increase from approximately 30% pre-COVID. We continue to make steady progress migrating our clients to the new platform.
Speaker 5: and we are proceeding according to our plan.
Speaker 5: In Q1, successful migrations drove visits on CONVERGE from 28% last quarter to 36% at quarter end.
Speaker 5: As we look toward the remainder of this year, we intend to complete migrations for the majority of our health system customers.
Speaker 5: As Ido said, payer migrations have begun and we expect to see a large portion of those visits transition to converge early next year. And now onto our financial results.
Speaker 5: Total revenue was $64 million for the quarter, approximately flat to Q1 of last year and $15 million lower than last quarter.
Speaker 5: The bulk of this decline was accounted for by lower professional services revenue compared to Q4, which was very busy as we implemented strategic clients onto Converge.
Speaker 5: Subscription revenue was $28.7 million in Q1, relatively flat compared to the year ago quarter and down $2 million from last quarter.
Speaker 5: The customer churn we experienced in Q4 accounted for most of this decline and was already incorporated into our revenue guidance for the year. As we have discussed, we expect subscription revenue growth in the first half of 2023 to be impacted by the softness and bookings we experienced last year.
Speaker 5: while we focused on our strategic initiatives related to our CONVERGE transition.
Speaker 5: Moving to visits in Q1, AMG visit revenue trended 6% higher than last year and was $32.5 million.
Speaker 5: AMG visits grew 9% versus 1Q22. Average revenue per visit was $3 lower at $75 due to a higher mix of urgent care visits, which is typical for this time of year. The continuation of an unusually heavy flu season.
Speaker 5: that began in 4Q22 drove urgent care volumes higher and hence revenue provisioned was lower for the quarter. Our services and care points revenue was $2.8 million for the quarter. This represents a decline of $2 million from the same quarter last year. These revenues are lumpy from quarter to quarter due to customer buying patterns for care points.
Speaker 5: as well as the timing of professional services revenues that precede deployments. We expect implementations for strategic clients to drive a substantial increase next quarter in services and CarePoints revenue.
Speaker 5: As we have discussed on prior calls, revenue of this type highlight the strategic long-term nature of our client relationships and the ROI they see in deploying our platform. They are also a leading indicator of the long-term increase in activity we expect to see on CONVERGE over time.
Speaker 5: Turning to profitability, our first quarter gross profit margin decreased to 39.5% from 42.8% last year. Margins were negatively impacted this quarter by higher clinician onboarding costs in advance of new clients reaching run rate volumes.
Speaker 5: We also had higher professional services costs associated with customer migrations.
Speaker 5: Gross margins will vary from quarter to quarter on revenue mix.
Speaker 5: And we will drive toward higher gross margins as we move beyond this transition time and begin to increase subscription software as a percent of our revenue mix.
Speaker 5: Turning to operating expenses, Q1 R&D expense was $25.9 million and was $32.7 million after adjusting for capitalized software costs.
Speaker 5: This represents a 14% decline in capitalization adjusted R&D compared to $37.8 million last quarter. As we have discussed, we believe that 4Q22 represented our peak R&D spend. Given our progress in delivering CONVERGE, we expect that R&D will remain at this level through Q1.
Speaker 5: primarily due to the elimination of the non-cash compensation associated with the terms of a previous acquisition.
Speaker 5: Adjusted EBITDA for the quarter was negative $44.6 million, which was in line with our plans.
Speaker 5: Also in the first quarter, we recorded a $330 million non-cash goodwill impairment charge.
Speaker 5: Transitioning to the balance sheet, we ended the quarter with $507 million of cash in marketable securities.
Speaker 5: We are fortunate to have a substantial cash position as it provides the resources to fund this temporary period of investing and the flexibility to pursue strategic opportunities that are aligned with our goals.
Speaker 5: Turning now to our 2023 outlook, I would like to take this opportunity to reiterate our guidance range of $275 to $285 million in revenue for the year established on our February earnings call. We are also on track to achieve our adjusted EBITDA guidance.
Speaker 5: for the full year 2023. As such, we expect our adjusted EVA DAW to be in the previously highlighted range of negative $150 to negative $160 million. We assumed AMG visits of between $1.45 and $1.65 million in formulating this guidance.
Speaker 5: Wrapping up, we are encouraged by our progress to date. Our key metrics are trending favorably, and we have put much of the risk of our transition behind us. Our teams are executing in sales, product, and client migrations.
Speaker 5: We have earned the validation of important anchor clients who have selected to partner with us and evolved their care delivery strategies on CONVERGE. The clients we have implemented onto CONVERGE report a very high level of patient and provider satisfaction and technical success and they gave us valuable referenceability with our prospects.
Speaker 5: And we are busy in the market with important customer-facing events aimed at re-accelerating our market momentum. Thank you for listening. With that, I'd like to turn the call back to Ido for some closing remarks. Ido? Thank you, Bob.
Speaker 3: In closing, I'm proud of the work our team completed in T1.
Speaker 3: We are driven every day to enable our clients to achieve our company goals and pursue our mission.
Speaker 3: While there remain broader environmental uncertainty in our world today,
Speaker 3: The market for solution is large. Our role is unique and differentiated.
Speaker 3: And the opportunity before us has never been brighter. With that, we are ready to conclude our formal remarks.
Speaker 3: before us has never been brighter. With that we are ready to conclude our formal remarks. Thank you for listening today.
Speaker 1: Operator, we are ready to open the line for questions. Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad.
Speaker 1: As a reminder, we ask that you limit yourself to one question. We'll pause for just a moment to compile the Q&A roster.
Speaker 1: Your first question comes from the line of Craig Hettinbach with Morgan Stanley . Your line is open.
Yes, thank you. You had some encouraging comments on converged bookings. I was hoping you could maybe frame just how you're thinking about the timing elements of booking you'll see this year and then what that means for any type of inflection for 2024 revenue growth on converged.
Hi, Craig. Good to hear you. The new platform is indeed showing very encouraging signs of strong acceptance in the marketplace with experiences, robustness, scale, performance, and most importantly, ROI example, some of which I talked about in my prepared remarks.
that are all fueling our reaccelerated bookings.
It's important to note also that the new platform, Converge, is much bigger and has much broader opportunities for clients to leverage as they realize their business goals. We fully expect for this acceleration of bookings by both existing and new clients to accelerate gradually and the momentum will grow.
over time, more and more, is more proof points of being delivered. However, the trajectory in the direction is very apparent. And as I mentioned earlier, we are very optimistic about our ability to continue to play dominant role in this market.
Our implementation timeline from bookings to go live really depends on the complexity of the implementation, the client, but I guess assumptions around six to seven months.
are on average probably reasonable. And so as you think about when revenue starts to show up.
from a new customer contract. It's that kind of time frame.
Okay, and then maybe just switching gears, when I think about the increasing need to address mental health, was looking for an update on kind of what you're seeing in the Silver Cloud business.
very urgent need in the marketplace. And indeed our ability to offer comprehensive elements that relate to behavioral health to the whole person, independently and together with other programs and care intervention is really key to the value that we generate.
Your question really relates to a time where we had maybe 30 or 35 different products that were running in parallel and we tracked them separately. It is so refreshing and exciting to see that we really have one product and that's the converged platform today and the different components are intertwined.
into this one platform where behavioral health is still a very dominant element, but we don't look at it separately and we don't report it separately. It's really one set of total person improvement that we offer to our customers.
Thanks for taking the questions. Ido, one for you. You mentioned a lot of nice wins during the quarter. I just want to get an update on the macro here. You kind of think about where the macro environment was three to six months ago, where it is now, and then kind of where it's going to go for the rest of the year. What's embedded in the guide? Is there an expectation that the
macro environment improves it all over the course of the year in order to hit that or stays the same, just trying to understand what is embedded in the guidance. Thanks. Thanks, Joe.
So, Ellen, we see what you probably and many other people on the court see. There is great uncertainty in the marketplace and that, of course, touches everyone. There is a slight improvement in the sentiment of health systems in the past few months and maybe a little bit more cautious in health plans, but overall, the sentiment is very much what it was before.
What we see, however, that there is great receptivity to our offering today for two reasons. A, the compliance understands hybrid care enablement is really necessary for them as an infrastructure. A, both short term and long term.
And they are also very encouraged by our ability to show ROI very, very quickly. And I gave quite a few examples in my prepared remark. Overall, we believe that our guidance that we are reiterating today is realistic and reflect well both the short-term and mid-term headwinds and tailwinds.
and then it sounded like there might be another, some type of step down in 3Q. Just want to verify that that is correct. And then, is it fair to assume the CAPS software that you guys reported in 1Q at the right run rate for the rest of the year? Thanks.
Thanks, Alan. You got it right that we expect Q2 to be a lot like this quarter in terms of the R&D spend and then another step down in the back half of the year. The ca... the ca... the ca exp software...
probably is about the same next quarter. I would say a little bit less visibility on the back half of the year. So I would expect that we definitely see around the same level next quarter.
Third quarter could be a good bit less and it kind of just trail off. So I wouldn't assume that it's just kind of at this level for the rest of the year. It would definitely be lower in the second half. It's hard to forecast exactly how much lower. As you can see the
Got it. Thank you. Your next question comes from the line of Charles right with Katie Cowan. Your line is open.
Hi, this is Lucas on for Charles. Last quarter, you guys noted that the revenue guidance was primarily consisting of bookings and implementations that you had a high degree of confidence that you would seek in BERT to revenue. Given that you reiterated your revenue guide, has anything changed with those underlying assumptions that you laid out with?
are influencing how we're looking at the year. And so I would say no change regarding that.
Your next question comes from the line of Jack Wallace with Guggenheim. Your line is open. Thanks for taking my questions. I have a couple of regards to the billings and you'll want to make sure that I've...
I've got this understood correctly. It sounds like there's a six to seven month lag from booking a client to then booking revenue. When you book a client, when do you bill them in that timeframe? Is it right before revenue record or is it a little bit beforehand? Usually, it's at the...
to verge, higher utilization, triggers and contracts, and then new customers. It sounds like there's a couple of those in the quarter as well.
Well, tough to, I would have to go through the customer by customer there, Jack, and come up with the bucketing, because I don't have that at my fingertips. But there is a mix of, you know, new customers.
in our billings for the quarter. And also upsells, the migration doesn't really result in any new revenue. So they would be on the same billing cycle that they were on before.
So it's really, it would be to the degree there's changes positively, it's new customers and upsells. Thank you. That's really helpful. And then lastly, identified and understood a gap between them and their Ever
are doing enormous lot on our platform that requires a lot of heavy integration and customization because they do so much, others are simpler. So I think we see the full spectrum. It's important to note that those customizations are paid for and are definitely a creative to the company. So we expect to see more of them as the level of sophistication in general in the market is expanding. In a nutshell, telehealth three years ago cannot be compared to hybrid care enablement that we see in the market place today. It's just a very, very different offering with very, very different level of commitment.
to these health plans that incumbents maybe weren't bringing prior? So, Matt, while I cannot talk about specific clients in general, almost most of our existing payers and all the new ones are very interested in implementing a digital first infrastructure for hybrid care, which means that they expect their own digital door and some other digital doors to enable their members to go online first and then use the platform to get matched with an array of physical interventions, doctor visits, labs, imaging.
virtual services of different kinds and growingly automated program all working in harmony. The client that we mentioned is no exception to that.
The biggest value proposition of CONVERGE is not the fact that it checks all the boxes, although it can check quite a lot of the boxes independently, but rather its integrated modularity. So whether it's the user interface, the UX, or the different components, digital and otherwise services and data,
that we basically connect to create coherent reproducible experience. So in many cases, we don't ask our clients to shut down or terminate different relationships they have or different programs, but rather create a joint vehicle to create consistency, reproducibility, and coherence and simplicity in the experience that all those interventions can...
for vendors that they have, and to guarantee a very streamlined experience. Got it. Appreciate that. And then following up on the macro, in the past you've called out churn occurring at the lower end of the market with some of your SMB clients. Do you still see churn contained to that part of the market? And then you've also noted that some of the
from takes time to get ready. Insurance is really part of life. We did take that into account in our guidance. We fully expected it.
Virtually all our strategic large clients remained with us through this transition, something we are very, very proud of. Also because we believe that what we're able to offer is fairly unique and quite complex. Not surprisingly, as you mentioned, we did lose some of the simpler clients that just couldn't care to wait, and there was the world.
plenty of very good solutions in the market, our competitive advantage there is the minimal and it's mostly relevant if you have plans for the future to further expand. However, if you have little for the TBMs and membership and many other elements and you want to bring all this complexity together.
into a cohesive infrastructure, we are really very good at that. And of course, the market is in the middle. We believe that as we are now looking at the mid-2023 timeframe, where we pretty much have virtually all the components that we need.
there's always potential for more, but all the relevant components that most of the people need most of the time, we will see much less churn really across the board and definitely plan to...
strengths and an expand our midsize and large customers who are enabling their own initial which to talk to the aligns with ours. Your next question comes from the line of Gelendras saying with Trist. Your line is open.
Can you talk more specifically about the customer renewal trends you have been seeing from both the health systems and health plan side as these contracts are coming up for renewal? How are these conversations evolving? Are you seeing some of your customers willing to restructure the contract in some ways or is it still more or less status quo approach?
So again, we have different customers with different patterns of behavior. Essentially, the partial converge sale and packaging is different from a legacy product. We really buy one platform, but it's very normal for customers to start with what they do today.
They really want a smooth transition to in parity to check the boxes they're already checking. But it's not uncommon as I mentioned on the call to see them adding some components with good emphasis on automation. So our longitudinal automated programs are usually quite popular as they come to renew and...
that made that and we announced that I think on our last call and made that decision solely related to converge. There are quite other large clients that really are doing the same thing. However, it's already quite clear that once people migrate, the first thing we see
to the many other options of the converge. Your next question comes from the line of Glenn Centangelo with Jeffries.
Your line is open. Oh, yeah. Thanks. Yeah. Thanks for taking my question. I just had two quick ones Yeah, I wanted to talk about you know the progression of revenue growth here over the cadence of the year If you look at last year and your services and care points revenue you obviously saw a big ramp as as the year progressed and
You know, we see the big sequential step down in revenues this quarter from last quarter, which is obviously largely services and care points revenue. And I'm kind of curious, do you expect to see the same type of ramp on that line item this year versus last year? And I just had a follow up question on the margins.
Hey, Glenn, it's Bob. In my prepared remarks, I tried to signal that we expected to see a pretty meaningful increase in our services and CarePoints revenue next quarter. And it's really, you know, I don't think it's like a gradual build throughout the year kind of thing that is driving this. It really is.
strategic client driven, they want us to work with them on a custom product or implementation, we do that and we get paid for it based on, or we recognize the revenue based on when those hours are spent.
happened to be last year, it increased over the course of the year, probably will this year too, but it's really again a function of, of, you know, when those clients come in with those kinds of requests. It was, it was unusually low this quarter. And I think it'll be kind of back on a, you know, like kind of in a, if you look historically more of a normalized level, you know, next quarter.
That's helpful Bob. They've got you just has you one more quick one on the gross margins. We obviously show the gross margins tick down this quarter and in your prepared remarks you said maybe higher clinician on boarding maybe before these physicians are reaching full capacity but you know, assuming you've been migrating customers to converge for a number of quarters now and you know we saw for example in 4Q the gross margin was up nicely versus 3Q last year and
you know, was somewhat more consistent last year. So it just seems a little bit odd that the gross margin picks down this quarter. And the reason I ask is because I'm trying to think about, you know, in your EBITDA guidance, you're assuming some leverage throughout the year. And I'm trying to understand where that leverage is going to come from because, you know, and I think you highlighted R&D is going to step down.
revenues, Glenn, are generally higher margin than the overall margin of the company right now. If you think about our visit business is mid- a little bit better than mid-20 gross margin, and then our services, I'm sorry, our subscription business.
high 60, 70% right now. The service's revenue, that's kind of the strategic implementation work, is accretive to that gross margin. And so when you have a big quarter like we did in the fourth quarter,
And then a big step down in the first quarter, that's certainly going to influence gross margins. And then to get to the other component to your question, it was really specific ramp up with a specific cut.
revenue per visit type business. So we have to get those in place for our SLAs before our customers are gonna be in a position to ramp up those visits. So that's the other thing. And then on the migration, the other thing that influenced the quarter from a gross margin perspective was a lot more migration work than the year ago quarter. And that's obviously good news.
as we get more and more of our visit traffic on to converge. The leverage on the EBITDA side is going to be associated with probably a lot of those different line items, certainly subscription revenue with very high margin flow through there. And then again, on the services side,
that'll also be accretive to gross margin. But that's kind of over the course of the year, and you did mention already the step down in R&D, which from an exit, you know,
not a gross margin impact, but more of an EBITDA leverage impact. But, you know, we're down 14, 15% now, quarter over quarter, you know, we could see another 10 points of decline, you know, in the difference between fourth quarter last year and fourth quarter.
Thanks for taking my questions. Ito, I think a few quarters ago you had commented that your sales reps are all hands on deck to help drive migrations. So it was nice to see you're announcing some marquee wins here. My question is, in light of these new wins, has there been any change in your go-to-market strategy? Are you perhaps more focused on driving new wins than you were a few quarters ago? Thanks. I think absolutely yes.
just a significant. I mentioned earlier and I prepared remarked that we are moving to solution-based sales. The calls converged can offer so much business impact to our customers. Our entire client-facing organization from sales, account management, customer success, and a newly-found solution group, almost entirely based on engineers.
are working together to really create a consultative model of sales with our existing and new customers. We present a very long list of business solutions that they can choose from and prioritize. We really understand their own priorities.
go back and we are able, because of the modularity of Converge, to really custom create something that fits very well to what they need today with giving them a piece of mind that we can be there for them as they expand in the future. And that's proving to be quite effective with a tool.
to help people migrate, to help the migrated client expand, and to lend some new customers. So we are very pleased with the change. We think we can add more value, and we think that our value is much more sticky and long term with our existing new customers.
Thanks. Your next question comes from the line of Jonathan Young with Credit Suisse. Your line is open.
Hi, thanks for the second question. Just going back to the macro again, I guess when you think about some of the consolidation either in the health system or the health plan space, how do you see this impacting your business and are you seeing any impact right now given some of the announcements that have come over the last few months?
And if you go back historically, could you speak to any historical trends you may have experienced in prior periods of consolidation? Thanks. So, in essence, you see consolidation in many, many places, of course. You see delivery network consolidate. You see payers and providers consolidate. And really, there are many, many more things.
When you consolidate, you really want to work through some complex challenges in way of experience integration for providers and patients, data integration, workflow integration to create common efficiencies and things of that nature. And that's exactly where we shine.
When you think about value-based care, is an example of either formal consolation or tighter collaboration between sponsors, pairs and providers, our ability to have one tech stack, one technology.
that can really create a very powerful bridge between them is proving to be fairly effective for them to realize those goals. So, give you some examples. If there is a consolidation between a few hospitals that have different EMRs and different workflows, our ability to really implement converge in all those EHRs.
and to create a consistent patient-facing infrastructure and then embed fairly sophisticated workflow is a very efficient way to really accelerate the value of this consolidation. The ability to take a very big brand like Cleveland Clinic.
monsofie of more and more integration of experiences and that's really our business in a nutshell.
Your final question today comes from the line of Eric Pertur with Neffron. Your line is open.
A little bit different tactics. Curious to hear a little bit more of where relationships with Dario could go. Specifically, are there other categories that you'd like to see similar relationships? And then looking at the balance sheet, are there acquisitions that you would undertake in thosealds?
recognizing that it seems the market is starting to reflect a more realistic view of valuation and we're seeing a few deals get done. What's your perspective there?
Hi Eric, well we are very pleased with converge. We have all the components that we think we need and we don't see any unmet need that would drive a necessity to do any type of
As a reminder, we look at ourselves as a connecting platform and not basically bringing all the solutions ourselves, but doing it in partnerships very much like an operating system. And an app in the Dario, as you mentioned, is a great example. We even believe that there is room for more than one player in the same field. I would like to...
do a theoretical M&A it will be in an asset that is likely to be technological that will make our the core mission of our platform better and as I mentioned there's no really a short term or midterm plan for that. In addition to that I'd like to
say that we really appreciate the fact that we have a very strong cash position. The world is a dangerous place and we want to make sure that we buffer that risk with a strong balance sheet and the fact that we have no debt on our books. That allows us great conviction in our ability to realize our business plan.
In addition to that, we are very sensitive to diluting our shareholders and are cognizant of our stock price today and we will be very careful before we suggest any move that could increase the dilution. Of course, if some of those things change, if the market stabilizes, our stock hopefully recovers.
and we continue, we will maybe leverage some of the proactive effort that we made to monitor the market, which we do all the time regardless of what I just said, and act on some of those opportunities, but that would be down the road and not in the foreseeable future. This concludes our Q&A.