Q4 2024 American Well Corp Earnings Call
Horn
Hey everyone. It's been filthy here for 15 minutes. That's what I had to do. I'm about to show you how to add a filter on an ATM that runs shop. Be sure to do that... ...before you go on. Especially if you want to. That's why it's really, really, BEST when you're producing an accessible media procedure.
Speaker Change: 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.
Speaker Change: To ask a question during the session, you will need to press star 1 1 on your telephone. To remove yourself from the queue, you may press star 1 1 again. I would now like to hand the call over to Sue Dooley, head of investor relations. Please go ahead.
Speaker Change: Hello everyone. Welcome to AMWEL's conference call to discuss our fourth fiscal quarter of 2024. This is Sue Dooley of AMWEL Investor Relations. Joining me today are AMWEL'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.
Speaker Change: Our earnings report is posted on our website at investors.anml.com and is also available through normal news sources.
Speaker Change: This conference call is being webcast live on the IR page of our website where a replay will be archived.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Thank you, Sue, and good evening, everyone.
Speaker Change: Q4 marked the close of transformative year for Amwell. In 2024 we refreshed and refined our strategy.
Speaker Change: We increased our focus on our core mission and matured our company to deliver efficiently.
Speaker Change: We also prepare to realize the potential of our unified, technology-enabled care platform.
Speaker Change: I want to start by sharing some of our key accomplishments of the year.
Speaker Change: 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.
Speaker Change: 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 focus cost reduction measures.
We also improved our quality of revenue and margins.
Speaker Change: These initiatives are showing up in a steady, better than expected quarterly improvements in our adjusted EBITDA.
Speaker Change: Third, we establish 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.
Speaker Change: The highlight of these changes is the expansion of Mark Hirschhorn's role beyond CFO to include Chief Operating Officer.
Speaker Change: This year, we're establishing the groundwork for positive cash flow in 2026.
Speaker Change: The drivers underscoring these initiatives are increasing subscription software revenues and aligning our costs.
Speaker Change: We are targeting a meaningful margin expansion, and this year we aim to improve our adjusted EBITDA by over 60%.
Speaker Change: As we continue to evaluate our portfolio of assets, we divested Amul Psychiatric Care, a legacy psychiatric staffing business.
Speaker Change: We determined that APC did not meet our threshold of being an integral part of the AMWL-Core offering and was not advancing our profitable growth.
Speaker Change: This transaction helped us focus our resources on our core platform and bolsters our balance sheet significantly by adding up to $30 million in cash.
Speaker Change: Also during Q4, we signed an agreement to add VidaHealth to our growing portfolio of clinical programs, expanding patient access to obesity and diabetes care, including GLP-1s.
Speaker Change: With this partnership, our clients can offer patients a broader set of valuable services through their AMWEL platform.
Speaker Change: Our platform provides individuals with a delightful single entry point to a comprehensive array of clinical and behavioral programs including obesity care and related illnesses.
Speaker Change: In Q4, we delivered considerable value for our clients, led by our DHA deployment.
Speaker Change: Since our last update, we can share that many of our programs are now fully deployed across the military health systems, and feedback is very positive.
Speaker Change: The remainder of our programs will be live across the MHS Enterprise in the first half of the year, with a final expansion of on-demand visits and complete international deployment expected in early Q3.
Speaker Change: And we completed renewals across several Blue Cross Blue Shield plans, as well as with a large national health plan in Nevada, the clinic, and Intermountain Healthcare. Importantly, the HSC in Ireland continues expanding its use of our digital behavioral health programs.
Speaker Change: Our Q4 performance demonstrates how existing client base is fertile ground for future growth.
Speaker Change: In addition to the strong software growth we are guiding for this year, our sales insights are resulting in improved visibility as we look to expand further across the commercial and government space.
Speaker Change: We are expanding our deal pipeline. RFP traction with payers and health systems is significantly larger and of higher quality today than it was at this point last year.
Speaker Change: And based on our effective execution in the government space, we have in our sights expanding our market opportunity there.
Speaker Change: On the heels of this progress, we enter 2025 with momentum and unprecedented focus, with market dynamics working in our favor.
Speaker Change: Outside Amwell, we observed two trends that could help accelerate our growth.
Speaker Change: growing consumer readiness to start their healthcare journey online and expansion in innovators offering new and improved technology-enabled clinical programs.
Speaker Change: As more patients go online to get care, our platform offers a single, delightful patient experience to help orchestrate access to a large and growing number of clinical programs.
Speaker Change: Payers and health systems value being able to offer one comprehensive technology-enabled care solution fully embedded in their own digital assets.
Speaker Change: They see the benefit of having a common patient care access pathway, making patient acquisition and retention more effective.
Speaker Change: Payers and health systems also like the flexibility of dynamically choosing their preferred set of clinical programs and offering different ones to varied patient cohorts.
Speaker Change: They desire the convenience and efficiency of having AMWEL integrate relationships with multiple clinical program vendors.
Speaker Change: Finally, our investments in a common longitudinal patient-centric data structure is resonating with them.
Speaker Change: AERS and health systems see it as a powerful instrument to improve navigation and patient experience with the promise of unified analytics and reporting.
Speaker Change: In addition, as more innovators leverage technologies like artificial intelligence and machine learning to offer more effective clinical programs, they too reach out to us.
Speaker Change: We are encouraged by the clarity of a value proposition and the way it is resonating across the market.
Speaker Change: With our healthy balance sheet and improved financial visibility, we have high conviction in our path to profitability, supported by the following top priorities.
First is growth.
Speaker Change: We will work to deliver excellence, showcase our value, and accelerate growth by working with our strategic partners and by expanding our presence within existing clients.
Full execution on our deliverable with a military health system.
actively opening new government channels.
Speaker Change: pursuing new payer and health system contracts in competitive RFPs and adding several more third-party clinical solutions to our platform, bolstering our high margin revenue contribution over time.
Speaker Change: Second is realizing a higher mix of highly predictable recurring revenue.
Speaker Change: By aligning our existing and new product initiatives with our revenue quality goals, we will continue to improve our revenue mix of subscription-based software.
Finally, and critically important, is efficiency.
Speaker Change: We will continue reducing our overall costs while focusing on our core AMWEL portfolio of services, centering the energies of our company behind monetizing our platform.
Speaker Change: In summary, during 2025, we will pursue these key initiatives as we continue to enable the digital aspirations of healthcare organizations with long-term, profitable growth well within our sight.
Speaker Change: With that, I would like to turn the call over to Mark to review our financials, our strategic priorities for the coming year, and our guidance. Mark?
Mark Hirschhorn: Thank you, Ido, and good evening to everyone on the call. I've completed my first hundred days at AMWEL, and I'm very pleased with what I have learned.
Speaker Change: I recently shared with our board many of the initiatives that are underway.
Speaker Change: I am very optimistic that we have the right people to lead this company back to a position of market strength. Our board and our employees are excited for 2025.
Speaker Change: 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.
Speaker Change: The financial highlights of our Q4 include progress toward our key strategic initiatives.
Speaker Change: Software revenue grew well over 30% over Q3's results on the strength of strategic client deployments.
Speaker Change: 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 two most strategic objectives.
Ido Schoenberg: 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.
Speaker Change: We've committed ourselves to executing these initiatives that will ultimately drive value to our company. So now let me share some of our Q4 financial results.
Speaker Change: 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 36% from a year ago.
Speaker Change: We had a material uplift in the Q4 subscription software revenue related to the stage launch of our solution across the military health system, which is the most significant growth initiative in the company's history.
Speaker Change: Turning to visit metrics, we completed approximately 1.4 million visits in the fourth quarter, which is approximately 18% lower than a year ago.
Speaker Change: We spoke on our Q3 call about some market-wide and client-execution-related softness in visits, and visits were, in fact, in line with our adjusted expectations for the quarter.
Speaker Change: Visits on Converge remain steady at close to 70% of our total visits.
Speaker Change: Visits on CONVERGE is a helpful indicator of migration activity. With the bulk of migrations now behind us, we no longer believe this metric is important to our key strategic initiatives and we will sunset this metric going forward.
Speaker Change: However, an important metric in our business is our Average Annual Contract Value, or ACD, which is a great indicator of the success of our land and expand strategy.
Speaker Change: Health plan ACV grew to 963,000 from 902,000 in 2024 and ACV for health systems expanded to 488,000 from 415,000 in 2024.
Speaker Change: We expect ACV for both groups to continue to expand as we grow our footprint within existing clients and add new clients over time.
Speaker Change: AMG's Q4 visit revenue trended 9% lower than last year at $29.2 million. Average revenue per visit was $77, which is 7% higher this quarter compared to last year.
Speaker Change: This increase was driven by a mix shift within AMG visits.
Speaker Change: towards virtual primary care and specialty programs. Our AMG business continues to be strategically important to enabling client expansions and new client wins and for overall support of our efforts to grow recurring software revenues.
Speaker Change: Our service and care points revenue was $4.9 million for the quarter versus $7.3 million last quarter.
Speaker Change: This decrease was driven primarily by timing of marketing revenue. The nature of our business drives variable revenues due to customer buying patterns for marketing programs and for care points, as well as the timing of professional service milestones that precede deployments.
Speaker Change: Turning now to gross profit, our fourth quarter gross profit margin was 48%, higher by 11 points compared to Q3. For the full year, our gross margin was 39%, which was slightly higher than the 37% we finished with in 2023.
On to operating expenses.
Speaker Change: We continue to make substantial progress towards normalizing R&D spending. While maintaining our focus on deploying our solution for the DHA, our R&D expenses in Q4 were $18.8 million, a decline of approximately 29% compared to the $26.3 million we spent in Q4 of 2023.
Speaker Change: Sales and marketing expenses were $15.4 million. That's approximately 8% lower than last quarter and nearly 29% lower than last year's comparable quarter, driven by our cost initiatives.
Speaker Change: G&A expenses were $34.8 million dollars which was approximately 38 percent higher than last quarter primarily due to a one-time bad debt.
Speaker Change: accrual related to losses caused by the Change Healthcare Cyber event that occurred in the first quarter of 2024. G&A remains a meaningful focus of our ongoing cost initiatives.
Speaker Change: So we now have completed another consecutive quarter that highlights our key initiatives from 2024. We are delivering on the promise of growing our subscription software revenue while being well on our way to reshaping our foundational cost basis.
Speaker Change: As a result, adjusted EBITDA for the quarter was negative $22.8 million versus negative $36.9 million in Q4 2023.
Speaker Change: There is a great energetic team here at Amwell that is fully aligned with delivering the novel healthcare products, services, and efficiencies that we successfully deliver to our clients every single day.
Speaker Change: Finally, with respect to cash and liquidity, we ended the fourth quarter with $228 million in cash and marketable securities with zero debt.
Speaker Change: And now I would like to turn to our guidance for 2025. This year, the high margin revenue growth we are guiding for is underscored by our focus on expanding our mix of subscription software revenues, taking a conservative view on visit volumes, while further reducing costs.
Speaker Change: With this in mind, here are the details for our Annual Revenue and Adjusted EBITDA Guidance.
Speaker Change: We expect revenue for the full year 2025 to be in the range of $250 to $260 million. This revenue guidance excludes the more than $25 million that we would have expected from APC in 2025.
Speaker Change: Importantly, with the most strategic elements of our revenue base intact, we anticipate subscription revenue to meaningfully grow to represent nearly 60% of total 2025 revenues.
Speaker Change: Our range for AMG visits is between 1.3 million and 1.35 million visits.
Speaker Change: We expect our 2025 adjusted EBITDA to be in the range of negative 55 to negative 45 million dollars, which demonstrates a 60% improvement year over year.
Here is some additional context around our assumptions.
Speaker Change: We are on track to further reduce our R&D expense by more than 10% this year versus 2024 as we streamline and complete the bulk of our software configuration work for our existing commitments.
Speaker Change: Overall, we expect sales and marketing costs to decline around 25% year-over-year. We expect to reduce our G&A expense beyond 20% for the year as we continue to organize the company around a new, lower-cost structure.
Speaker Change: As we complete the bulk of our government work and continue the staged go-lives of our solution across the military health system, there are some anticipated quarterly software revenue timing dynamics that we believe will be helpful to articulate here.
Speaker Change: and so at this time we are providing some additional guidance including for the first quarter of 2025. Here are the details.
Speaker Change: We expect revenue for the first quarter of 2025 to be in the range of 59 to 61 million dollars. As to adjusted EBITDA, we expect our first quarter adjusted EBITDA to be in the range of negative 18 to negative 20 million dollars.
Speaker Change: Also important to consider is that as we continue to go live work in Q2, we anticipate a one-time step up in DHA software-related revenues.
Speaker Change: normalizing slightly below the Q2 level into the remainder of 2025 with total software revenue ending the year at nearly 60% of total consolidated revenue. Wrapping up, we are encouraged by the strides we have made in our business.
Speaker Change: And in Q4, we made some solid progress toward the goals which support our confidence and our path to generating positive cash flows from operations during 2026.
Speaker Change: We anticipate that AMWEL will end 2025 with approximately $190 million in cash and in excess of $150 million in cash at year-end 2026.
Ido Schoenberg: Thank you for participating this afternoon, and with that, I'd like to turn the call back to Ido for some closing remarks. Ido?
Thank you, Mark.
Ido Schoenberg: 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.
Speaker Change: We will now open the call to questions. Operator, please go ahead. Thank you.
Speaker Change: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. We ask that you limit yourself to one question to allow everyone the opportunity to participate.
Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Craig Hettenbeck of Morgan Stanley. Your question please Craig.
Craig Hettenbeck: Thank you. I had a question on DHA. Can you just talk about how it's progressing relative to your initial expectations?
Craig Hettenbeck: 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.
Speaker Change: Hi Craig, thank you for this important question. The DHA deployment is going as well and maybe better than we hoped and expected.
Craig Hettenbeck: It's fair to say that the LionShare, 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 the enterprise deployment.
Craig Hettenbeck: for most of those components and expect the full deployment, enterprise deployment to be completed this year.
Craig Hettenbeck: We have, we are seeing very good traction, very good results.
Craig Hettenbeck: 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 the Amoy platform.
Craig Hettenbeck: our infrastructure, our software infrastructure to connect all the MHS providers with the...
Craig Hettenbeck: 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 in the health systems.
We're seeing a very clear change.
in the demand.
Craig Hettenbeck: for Technology-Enabled Care platform, both in payers and providers, as evidence.
Craig Hettenbeck: 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 good traction for renewals, expansions, and new logo bookings.
Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Stan Berenstain of Wells Fargo Securities. Please go ahead, Stan.
Stan Berenstain: Hi, thanks for taking my questions. Maybe a quick follow-up on the DHA contract. So, it's running, the original contract is to run through July. Do you have any visibility on the timing of when the sustainment contract is going to be signed?
Stan Berenstain: So here's what we know, Stan. We know that in Q4, the DHA announced a providing lidus with a sole source.
Stan Berenstain: grant for this project, and this project is talking about an extension of three more years.
Stan Berenstain: and 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.
Stan Berenstain: We also know, as I mentioned earlier, that the deployment is going very well, it's vast.
Stan Berenstain: It's going enterprise globally, as we speak, with very good results.
Stan Berenstain: So while we don't have certainty for this to close, we believe that closing this extension is a very low risk to not happen at this point, and we fully expect to be notified when our partner and clients are ready to share the news with the public.
Speaker Change: 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? Thanks.
Speaker Change: yeah that would be an annualized number of in excess of 25 million dollars spent and that would be also all visits
Thanks so much.
Thank you. Our next question.
Speaker Change: comes from the line of Jalindra Singh, Offshore with Securities. Please go ahead, Jalindra.
Jalindra Singh: Thank you and thanks for taking my questions. I want to ask about ACV for health plans and health systems.
Speaker Change: improved like nicely in 2024. Based on trends, you're seeing your conversations. Anything you can share in terms of what your expectations are.
This year...
Speaker Change: 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 Path to Profitability.
Speaker Change: But top line, I mean clearly not much growth for last few years. I mean DHA contract is
Speaker Change: definitely helping in 25 to offset this sale. But, you know, any thoughts you can share about, you know, the kind of underlying top-line growth in the business longer term? How do you feel about it?
Speaker Change: Have your excitement about the industry and moving parts changed in any way? Just trying to understand how should people feel comfortable about the top-line growth in the longer term for this business.
Thank you very much.
Speaker Change: the dialogue with health and health system shows clearly that they are very much aware of the importance of their own digital assets and want to enable technology-enabled care from those assets for reasons that I think apparent to most of the audience on this call.
Speaker Change: for Enabling Care, one layer of care orchestration and a dynamic set of clinical programs.
Speaker Change: that is covering the full care continuum and generating unified reporting.
Speaker Change: for further personalization, further attraction, and further monetizing or monitoring the ROI.
Speaker Change: This is witnessed in good traction in retention, in good traction in expansion. It's important to know that our business model now does not only include our own software and our own clinical programs.
Speaker Change: but a way to monetize all those third-party clinical programs as well as the secular trend continues.
So as Sharon...
Speaker Change: normalizing as demand is growing significantly and as I mentioned earlier as more people go online to those digital assets to seek care and receive it through us
We see very significant opportunity for high-margin growth.
Speaker Change: over the next few years, but we would like to be very cautious in how we guide and that's the guidance 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.
Great. Thank you, though.
Speaker Change: Thank you. Our next question comes from the line of Eric Percher of Nefron.
Eric, your line is open.
Thank you.
Speaker Change: I have two questions for Mark. I guess the first one will be a CFO hat question, which is
Speaker Change: 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?
Speaker Change: 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.
Speaker Change: As far as visibility is concerned, I feel extremely confident for two primary reasons.
Speaker Change: One is that visibility here at AMWEL really consists of two components.
Speaker Change: That, which is contractual, that's all of our subscription revenue, which will likely exceed $150 million of the total, let's call it mid-range $255 guide. So that comes up, you know, right around 60%.
Speaker Change: 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.
Ido Schoenberg: 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.
Ido Schoenberg: So, those two components give us an excess of 90% visibility into this 2025.
Ido Schoenberg: 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
Ido Schoenberg: 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.
Speaker Change: On the expanded role on the COO and sales side, I've had now, you know, just a little over six weeks in this role, but also I remain very optimistic and energized by the
Speaker Change: complement of professionals that I work with. We've spent a lot of time now in building out the pipeline and understanding the depth of the opportunities both inside the government line of business as well as, of course, on the payer and provider side.
Speaker Change: I think the changes that you'll see throughout the year is that we're extremely focused this year. We are not looking at...
Speaker Change: exceptional work to be performed for innovators, those that we've defined in the past.
Speaker Change: requiring a different flavor of the technology that we've created. We're going to continue to sell what we have today.
Speaker Change: what we can implement today and what we can activate today. On the government side, we're aware of at least six
Speaker Change: very material opportunities that we will be pursuing throughout the year. Obviously, some of these may impact our ability to launch in 2026.
Speaker Change: But the activity in the pipeline, both in the payer side, on the provider side, and then, of course, our new pipeline on the government side, leaves us with an opportunity set that's multiples of the size that we had at this time in any prior year.
Speaker Change: You're saying that the success there could impact the ability to launch in 2026, launch net new business or launch any of what you have planned for the year? Oh no, net new business. These are opportunities that we believe will materialize for impact in 2026.
Makes sense. Thanks for the detail.
You're welcome.
Speaker Change: Thank you. Our next question comes from the line of Charles Rhee of TD Cohen. Your question please, Charles.
Thanks for taking the questions.
Speaker Change: I 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.
$40 million contribution from DHA this year.
Speaker Change: And I guess I'm just trying to understand a little bit because, you know, my understanding last year when you guys were talking about the deployment of sort of this enterprise-wide deployment by the end of the year, I was wondering if something that was like 100% of THA, but it does sound like now you're saying
Speaker Change: It's not going to be fully deployed until later as we get into 3Q this year. Just trying to understand, first, the difference, sort of, you know, what is left to get rolled out. You know, second is our, is that $40 million correct? Because then you're back into the 25 guide, it seems like.
Speaker Change: You know, $15 million roughly less of revenues elsewhere. I'm just wondering if that should we assume lower care points and or visit revenues this year. Thanks.
It tells me 40 and Mark gives you a...
more detail on the revenue recognition related to your question.
Speaker Change: I want to point out that the DHA deployment is going, as expected, actually better than expected, a full throttle ahead. We're talking about an enterprise deployment.
Speaker Change: You should not confuse our part of getting ready to enterprise.
Speaker Change: And once the product and the different components are ready, the stage deployment around the world that is done by a partner and our customer.
Speaker Change: The payment does not mirror Everspace that is deployed. The payment mirrors more the readiness of the component to go enterprise-wide.
Speaker Change: and there are other details that Mark may go into. So overall, everything we expect that the DHA to contribute is going to happen from where we sit this year without any type of a delay.
Speaker Change: Charles, let me just jump in. I think your initial assumptions are off a little bit, perhaps because of the suggestion that we
Speaker Change: have not fully implemented, but when we talk about fully implemented, we're going towards
Speaker Change: achieving 100%, but your estimate of that $40 million is likely close to half of what we'll see in 2025.
Speaker Change: So you should feel very confident that the vast majority of that potential through that one particular contract is going to be realized.
Speaker Change: in 2025. And of course, within the next probably 60 to 90 days, we'll know the, we'll know the, we'll have certainty as to the likelihood of that being renewed for the next three and a half years.
Speaker Change: 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...
Speaker Change: DHA, if that's half the value that you're expecting, so let's say it's $80 million.
Speaker Change: but then we netted against what you already recognized, let's say at the end of last year, one quarter's worth. There seems to be a delta then, even if we back out APC, you're just trying to understand where.
Speaker Change: you know, some of the other revenue is declining then from, and is that, like, you know, key points, obviously there's less focus on it, just trying to understand where the offsets are to get to the guide.
Speaker Change: Yeah, certainly there was a significant miss on the visit volume which was consistent throughout the year.
Speaker Change: That's something that occurred as a result of two or three of our major clients who changed direction. I think we messaged that principally in Q3, but obviously we reiterated that in Q4.
Speaker Change: and, you know, 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.
Speaker Change: either the transition away from the old platform to the existing platform, as well as any other net losses as a result of.
other normal and recurring churn has already been processed.
Speaker Change: Got it. That's really helpful. So is it fair to say you're saying that going forward you expect less churn than we've seen in the last couple years? Absolutely.
Got it. Okay. Appreciate it. Thank you.
Certainly.
Speaker Change: Thank you. Our next question comes from the line of Ryan McDonald of Needham. Your question please, Ryan.
Speaker Change: Hey, thank you. This is Matt Shea on Verizon. Thanks for taking the questions. Wanted to pressure test the
Speaker Change: 2026 free cash flow reiteration again. You know, you guys commented in the past about needing somewhere like double-digit growth in 2025 and 2026 to reach those goals. So
Speaker Change: 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, you know, the two components, of course,
stay constant. We've got an expectation that
Speaker Change: 11 and 20 percent can materialize for the 2026 year. Clearly, if that level of growth doesn't
come to fruition and benefit us.
Speaker Change: in line with a margin profile that we believe will be exiting the 2025 year with, then cost containment strategies will have to once again be accelerated in order for us to achieve that cash flow break-even from operations.
Okay, thank you.
You're welcome.
Speaker Change: Thank you. As a reminder, to ask a question, please press star one one on your telephone. Again, that's star one one on your telephone to ask a question.
Speaker Change: Our next question comes from the line of Kevin Caliendo of UBS.
Please go ahead, Kevin.
Thank you. Thanks for taking my question.
Speaker Change: One thing quickly with all the headlines around what's going on in the administration with DOJ and everything else, I just want to understand
Speaker Change: and how to think about this because we've gotten some questions around the funding vehicle for Digital First has to be approved again at some point during the calendar year. Can you take us through the process there?
Speaker Change: how it works, what the timing of that would be first, and then I'll ask a follow-up.
Speaker Change: So, as you know, hi Kevin, as you know, the DHA already shared their intent to offer a sole source to Leidos already in Q4 and contract discussions are taking place as we speak since the renewal time is this summer.
Speaker Change: We're talking about the vehicle that finances very basic fundamental things for the military health system including the Oracle EHR.
Speaker Change: 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.
Speaker Change: 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 for Morissette.
Speaker Change: Got it. Okay, that's helpful and good to know. And maybe outside of MHS deployment, can you maybe share with us or talk broadly about what specific government RFPs are out there that you might be targeting? How should we think about these opportunities and any timing around them?
Speaker Change: So, of course, I'm unable to share specific names and processes. They're always under NDA and confidential.
Speaker Change: 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
Speaker Change: By implementing what we have, it is really hard to replace.
Speaker Change: So, we believe that we are proven, we are compliant, and we are very well positioned to modernize systems that are very similar.
Speaker Change: across the government sector to the one that we just successfully implemented, and also we have a good distribution channel.
Speaker Change: What we do is saving money and democratizing healthcare and improving access to people. There are many similar organizations that could easily benefit.
Freud
Speaker Change: 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 multi-year extension.
Fantastic, thank you so much.
Thank you.
Operator: Our next question comes from the line of David Larson of BTIG. Your question please, David.
Operator: Thank you for joining us today. We will see you next week. We will see you next week. We'll see you next week. We'll see you next week. We'll see you next week.
David Larson: Hi, I joined the call a little bit late, so I'm sorry if this has already been covered, but it was my understanding that Converge was going to be deployed system-wide and that would lead to a large increase in revenue.
Speaker Change: as well as EBITDA margin. Is that happening and is the converged revenue for the government systems in line with expectations? Thank you.
The short answer is yes, everything you said is true.
Speaker Change: Okay, is there an incremental lift in the converged revenue from 4Q of 24 to like 1Q of 25 or or not?
Speaker Change: Is it full platform, 71? So I guess you went up 10 million sequentially, so it's another, I mean, that's the converged deployment system-wide 10 million, so
Speaker Change: I mean should we be so we'll see that incremental 10 million per quarter in through 25
Speaker Change: No, you shouldn't think of that full incremental revenue from that quarter solely
Speaker Change: as a recurring number. I had suggested to Charles earlier in the call.
Speaker Change: that there's a number, he had provided an estimate of what he thought was $40 million to be realized in 2025, and I suggested that
Speaker Change: That amount is likely half or close to half of what we'll be seeing in 2025 from that contract. We don't particularly identify exact...
Speaker Change: the contributing factors to the subscription revenue, but there are some one-time implementation fees that we recognize, but the vast majority of the DHA revenue is recurring.
Speaker Change: And then how much of the improvement in EBITDA is from cost reduction efforts?
Speaker Change: I'm going to suggest that the vast majority of the of the increase in
Speaker Change: in that EBITDA is coming from the shift from transactional visit revenue to subscription revenue. And then, of course, it's probably a one-third, two-third relationship with one-third of that savings coming from cost reductions.
Okay, great. Thanks very much.
You're welcome.
Thank you.
Our final question.
Speaker Change: comes from the line of Jessica Sasan of Piper Sandler. Your question please, Jessica.
Speaker Change: Thanks so much for taking the question. So I was just hoping to come back to kind of the bridge between 24 reported revenue and the 25 guide, I guess.
the APC headwind.
I guess, like,
Speaker Change: were coming up with something like at least $35 million of year-over-year dollar growth.
Speaker Change: irrespective of the visit issues in 2024. And so I guess, should we be thinking about that $35 million as being, you know, the attrition in the core in 2024? And would you expect a similar level of kind of core attrition in 2025 that could then undermine 2026 growth despite the strong pipeline? Thanks.
Speaker Change: Hi, Jessica. That attrition in 2024 was significant. It was material and it was something the company had not previously experienced, but...
Speaker Change: It was also, some of that was managed attrition as well for clients that, quite frankly, weren't appropriate for the strategy going forward.
Speaker Change: 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.
Speaker Change: So, that's why we are extremely confident in those very achievable and conservative range of revenue that we provided today.
Speaker Change: Got it. And then just quickly on the APC divestiture, is that kind of capability, the site capability, non-core to being able to provide behavioral health programs that can be titrated up as patient acuity requires?
Speaker Change: Or does the AMWEL Behavioral Health Automated Program 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?
Speaker Change: enabling the entire behavioral health kind of care delivery paradigm now that you've divested that off it. Thanks.
Speaker Change: Hi Jeff, the answer is that ANG is providing today quite successfully a whole spectrum of behavioral health services
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Therefore, we think behavioral health is enormously important. We are confident that AMG is able to...
Speaker Change: supply the services required in 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 effort strategically to provide the technology enabled care as it
specifically relates to psychiatric care going forward.
Got it. Thank you.
Ido Schoenberg: Thank you. I would now like to turn the conference back to Ido for closing remarks, sir.
Ido Schoenberg: Thank you everyone, really appreciate you joining and we look forward to talking with you soon. Take care and have a great evening.
Ido Schoenberg: This concludes today's conference call. Thank you for participating. You may now disconnect.
[music]
Wolfgang Amadeus Mozart Thank you
and Adele Winfield.