Good afternoon, everyone, and welcome to this next session on day three of the 21st Annual Needham Technology, Media, and Consumer Conference. I'm Ryan McDonald, and I lead the firm's digital health research efforts. In this next session, I'm pleased to be joined by AML CFO Mark Hirschhorn. Mark, thanks for joining me today.
Thank you for having me, Ryan.
Absolutely. For those listening in, we've got a bit of a hybrid presentation and Q&A format. So Mark's going to go through the slides to start and just give everyone a level set and an overview of Amwell's business and how it's evolved. And then we'll go through and have a few topics of discussion. But if you do have questions for Mark, please feel free to get them asked in the chat box, and I'll make sure to get them answered before we finish up today. But Mark, to start, how about a brief overview of Amwell and how the business has evolved over the last 18 months since you've joined the company?
Yep, it's been quite a fast period. It's been somewhat tumultuous at the beginning, but quite frankly, this has been an extremely productive 18 months of my life, and I also think in the life of Amwell. In fact, next month, Amwell will be celebrating its 20th anniversary. That's quite an accomplishment in this day and age, and the company has really transformed over the past several years into something that I think has now found its way and is focusing in areas that I believe are going to create some great value for a lot of the constituents. I put together a very concise deck that we could go through to help review where the company is today, and if you don't mind, I'll just kick it off now. So, as I said, Amwell, celebrating nearly 20 years. We are focused principally today on providing health plans as well as government entities, a technology-enabled care platform, essentially doing exactly what the company had set out to do long ago, but now having the technology, the interoperability, the clinical capabilities to bring a tremendous range of care to the members of these health plans and, of course, to benefit the health plans in ways where they can see meaningful ROI from their partnering with Amwell. Elevance, as you know, is the company's largest client, has been a client for over a decade, and today has been growing its revenues, growing the extent to which it relies on a white-labeled Live Health Online program, which is really powered by Amwell. A number of other Blue Cross Blue Shield entities around the country rely on the Amwell platform as well. And then, of course, last year we launched throughout the world for the platform for the DHA. On the DHA, that's a renewal that's coming up in the next couple of months. We're really excited about that because we also believe there's an opportunity to expand into clinical cases that we had piloted with the DHA in the prior year. And now we have an opportunity to come back in and bring some behavioral health and hopefully some other clinical programs in as well. We are across the country and across programs. Our national scale enables the largest health plans in the nation to leverage AMWELL for critical urgent care, for virtual primary care, for a number of musculoskeletal, as well as other clinical use programs. and that's where we use our own clinicians in cases such as the DHA and certain other government programs that we're currently involved in prospecting and potentially contracting with this year. In those cases, we end up providing the platform on a subscription basis and those entities use their own employed clinicians. We also can act as a backstop when And the clinician supply isn't sufficient to meet demand at any period in time or any particular geographic area. And that's where Amwell's medical group comes into play and helps facilitate and fostering the continuity of care without any interruption, without disruption. And again, that's really a backstop to existing clinical teams of our clients. The medical group also works well, fully integrated with certain partners. Today, S.W.O.R.D., Vita, Dario, Hello Heart, the Cleveland Clinic, several others. The value of having Amwell and its platform is that today you can essentially dictate to Amwell which platforms you've had success with, which platforms you're interested in launching, and from a very, very early time in the implementation of the platform. You can add those programs. You can swap out those programs. And again, it's not dependent on the name, the brand. We can often come under, again, a white label, or we can come in branded and multi-brands. A health plan client often would launch primarily with the Amwell-branded clinical programs. That would be urgent care, therapy, psychiatry, virtual primary care. After an initial launch, we often open up the platform offering to provide what we would suggest is a promoted Amwell partner, a clinical partner, such as SORD, such as Dario, a few And then, of course, as that payer gets comfortable with the ROI and clinical use cases, we will add that to the platform and engage members either on a full membership cohort basis or on a particular ASO or fully insured basis. Often we end up getting a vast amount of additional utilization from those health plans that begin to then foster utilization of those programs through joint marketing efforts and a bi-directional effort from Amwell as well as the health plan. ROI-based selling in our case is that we can always deliver empirical evidence validating the savings, offsetting the cost of offering these services to the members and ensuring that the health plan has sufficient empirical data to support why they are actually spending money and offering these additional virtual clinical services. In every one of our use cases, there is significant material cost savings, including outcomes, but from the economic side, material cost savings in lieu of these individuals either delaying care or receiving care in a different setting. As I noted, the cost efficiencies, again, reductions by either staff, increased productivity on the patient side, utilizing our third-party services. But quite frankly, with each and every one of our clinical programs, there is a verifiable empirical ROI analysis that we, of course, validate, but we also are willing to put our fees at risk. And in certain cases, that's exactly what we do with particular plans in terms of the extent of use of those programs. So we get paid based on the successful completion of programs from our payers' members. If somebody engages with a platform offering but doesn't see it through to their successful culmination of the program, the economics are very different. So we have skin in the game, the member has often skin in the game, and the payer has skin in the game. All three entities fully aligned. Wrapping up perhaps the transformation of where Amwell has been over the past several years, the company has gone through quite a transformation as an entity that was focused on hospitals, health systems, payers, employers, a whole host of different objectives over the past 20 years. Fortunately, over the past two years, the company took very significant strides in focusing almost exclusively on the payer and government markets. As a result of that, we have reallocated resources, we've determined where best ROI for our shareholders and for our payer clients sits, and we have begun the last phase of the transformation of this company into a cash flow break even and return to growth entity, both I'd say in the fourth quarter of this year, and then, of course, returning back to profitable growth in 2027. As we talk about what those drivers are to additional growth, I've spoken about opportunities with government prospects in our recently concluded Q1 call. That call focused almost exclusively on pipeline build coming about as opportunities in government and some other payers materialize. The fact that we are upselling, we're seeking additional revenues from those clients that we've been servicing successfully for many years by adding the additional clinical programs, we're seeing benefit from that now. We saw increase in subscription revenue above our expectations in the first quarter. We saw increases in visit volumes and visit revenues in that first quarter as well. I think the continued growth and expansion of the government opportunity is really going to be the key driver for growth in 2027. I spoke about outcomes, and that's wrapping it up, Ryan. Perfect. No, I think that's a great level set and
appreciate the last few slides about sort of putting into context the evolution of the business over the last several years. And it really culminated, I felt like, the efforts that you've been putting in place in a number of areas on the first quarter call and the first quarter numbers that you were able to put up. And it was a really solid quarter for the company. You know, revenues, as you mentioned, started off the year strong, coming in ahead of expectations. You know, can you just talk about the factors that drove that upside? You know, you talked about better subscription, better than expected visits, you know, just maybe provide a little bit more color on that and how sustainable you view some of those trends to be across the two
revenue segments there. Absolutely. We did benefit from some very positive trends that I'm not sure were seen throughout the entire industry. Number one is we ended up seeing an improvement in our subscription revenue. We saw that, quite frankly, because we end up seeing a contribution from some of our payers that we believed that as a result of adding some additional clinical programs. That ended up keeping our payers with us, that ended up ensuring that those payers saw some positive ROI. And in fact, as we de-emphasized certain aspects of the company, we thought that we were going to have stronger churn. And we ended up, in fact, not seeing any material churn whatsoever. That was promising. I think the more impactful element and the one that provides sort of greater visibility and is in fact sustainable going forward is our revisit volumes both increased and the variable revenue per visit. The incremental revenue per visit increased significantly, almost exclusively as a result of adding in those higher value clinical programs, both for virtual primary care and also for musculoskeletal.
Yeah, absolutely. And then I guess, you know, obviously on the visit side, it can obviously be a bit seasonal as we progress throughout the different times of the year. But particularly in the pricing trends and the average revenue per visit, like, you know, the increases you saw there, like how sustainable, like, is that trend, do you think, in your view on sort of price,
average price per visit? Well, we see the emerging clinical programs as really in their first few years of breaking through into the payers. Those clinical programs and their per visit, or I could call them a episodic revenue, are significantly higher than your traditional urgent care. So net revenue per visit is from an absolute perspective, much higher. And we believe those are the baseline revenues that are going to be growing significantly. They started off at such a small volume, and now many payers are entertaining them. I think the uplift is coming from members' comfort levels in accessing this type of care, and the fact that our outreach efforts and the communications are becoming clearer and clearer, we think this is quite sustainable. And probably for the first time in many years, we've been able to see some price improvement on virtual urgent care. Wow. That's excellent. That's excellent.
Yeah. And Q1 wasn't obviously just a great top line quarter, but also good on the bottom line. Your adjusted EBITDA was better. It came in better than expected as well. What drove or were the factors that drove that improvements there as well? Like, was it revenue mix shift, incremental efficiency from AI adoption internally, cost cutting, a mix of the three?
Yeah, quite frankly, it's really a mix of the three. We put a program into place within a few months of my joining, so it's nearly a year and a half now, and we've been executing on that program. Serious cost-cutting has been very painful. All of my colleagues have been working much more efficiently. They've been forced to. They have been working productively with less resources. Uh, often there have been introductions of, uh, of AI where in certain cases it has been dramatic on a small dollar scale, but it's been dramatic from a resource perspective. So it's validating some of our business use cases. Some teams that we had that numbered 18, 24, uh, colleagues have now been brought down to two. You can replicate that throughout the organization in multiple areas. The other thing I believe is really the discipline to say no and to retract some of the innovation initiatives that had started even years before I arrived. These were, I think, ideally viewed as improvements to the platform that were taking quite some time and would have benefited a number of different constituents. But we provided ROI analyses on a number of different investments, and we made the hard choice to eliminate them. And most of the costs behind those investments were personnel related. So we've gone from a company with about 1,200 employees in 2024 to now just around 500 employees. And we're managing nearly the same
top line. Yeah, amazing. Yeah, your Q2 guidance on adjusted EBITDA still shows a small loss, but you're well on your way to your path to break even by the end of the year. Can you talk about what needs to happen incrementally from here? You've already made tons of progress, but to achieve those targets? Is it more dependent on sort of incremental revenue ram to achieve the target, or is it more incremental cost optimization measures? So Ryan, fortunately, the elements that
we need to fall into place are entirely under our control. We were very conservative on the revenue guidance. We today believe we have nearly, we have over 95% visibility into the revenue guides. That, of course, incorporates a successful DHA renewal. We're well on our way there, and we're very confident that's going to take place in the next couple of months. You may recall that that needs to be done sort of by the end of July, so we're nearly there. We just need to continue to execute. Fortunately, my colleagues have been doing that over the past several quarters. That's reflecting well on the likelihood of our financial forecasts and our predictions for the subsequent quarters coming in as expected or even better. We saw how close we were to breaking even in Q1. We'll come a little bit closer, I believe, in Q2. We know of the actions we're taking to close down some of the last remaining initiatives. And in fact, the exciting part is I think we get to a good cost basis and the proper allocation of costs at the end of Q3 with the known changes that we'll execute on. So that gives me a lot of confidence in the company's ability to achieve that EBITDA.
Yeah, excellent. Now, I don't want to get too far ahead of ourselves, but you are, you know, showing, obviously, talking about how much confidence you have in the breakeven targets. But now that we're getting to that sort of milestone, like, how should investors start to think about, like, the structural margin profile of the business over time, sort of like, you know, the next leg, you know, past the, you know, now that you're getting to breakeven?
Well, we felt that we were obligated to deliver on a number of objectives over the past year. Number one is we had been burning cash at a rate that was unsustainable, and we had really become a bespoke development company. We had a number of very, very high-profile clients and opportunities that we felt were worthy of the investment, and this goes right back to the disciplined spending and the prioritization. The focus of the company today is really in that payer and government market, and we have significant degrees of confidence around our ability to turn some of these prospects into signed contracts this year. And if we look at our margin profile today between 50-55%, we know that the vast majority of our sales pipeline and those opportunities that we're confident will become revenue-generating clients in 2027 are all heavily weighted to licensed software. And that margin profile, of course, is 2,000 basis points higher. So we're looking at a profile increment and step up of our margin profile to really reflect more of a platform, a technology platform provider, as opposed to pure clinical services. Makes sense, yeah.
And maybe shifting, so you alluded to it before on the DHA renewal, and that's a big topic. that's obviously in the top of minds of investors right now, but how would you characterize the renewal process? You know, where do things stand today? What are some of the formal steps between sort of now and execution of the renewal? And I think you mentioned, you know, sort of
by the end of July is kind of the target here. Yeah. So when I think about the fact that I've been here, you know, for a little over a year and a half, and when I walked in, the teams had done a wonderful effort in establishing the relationship with Leidos and the DHA. And remember, Leidos is the systems integrator and the other contracting party. I'm very confident that this year, while our relationship with Leidos is strong, we will likely contract directly with the DHA. We can continue to work alongside Leidos. Maybe we'll step in each other's shoes. We can use some of their services as a vendor, vice versa. We can also continue to use, they could use us. But we are very, very close to finalizing our extension. And as I may have noted at the top of the hour, I'm really excited about the fact that we will get to reintroduce a pilot of either some of our behavioral or other services, whereas the DHA in direct conversations with our colleagues, with my colleagues, are very interested in pursuing and opening up some of the use cases of our very successful 2025 pilot.
Excellent. So it sounds like not only moving to more of a direct relationship, but also potentially expanding the scope is at least on the table in the discussions right now.
It certainly is.
Yeah, that's excellent to hear. I mean, is there any viable competition for the contract at this stage? I mean, obviously, you've done great work for DHA over the last year, gotten through for a pretty heavy implementation, but anything that investors need to be aware of from a competitive perspective?
I don't believe in this particular situation that we have any meaningful challenge for many competitor. We're so close to executing our new contract with them that I don't have any fear that they are not talking to us and us only with respect to this aspect of their contract.
Excellent. That's great. Maybe I was touching on the government opportunity. On the call, you mentioned that the pipeline in other government opportunities is multiples larger than it was last year, and that the potential revenue opportunity is quite sizable relative to DHA. Can you just talk a bit more about that? What's the potential revenue opportunity look like? What's the average government opportunity look like relative to what you're doing with the DHA? Is it larger or smaller? How should we think about them in aggregate, but also on an
individualized basis. Yeah. In aggregate, I can tell you that the opportunity in the pipeline today as a result of those multiple government opportunities is a multiple of the DHA revenue that we generate today, which most people know is an excess of 30 million. That one contract alone is extremely meaningful to us, but we are in consideration of and close, meaning likely third quarter of this year, to contract, again, with significant likelihood that this gets done, a contract that is going to be significantly larger than that DHA opportunity. We've also spoken about other government opportunities, and they range in size from much smaller to aggregating in total, perhaps the size of that DHA opportunity. Excellent.
And I think one of the ones you mentioned was you're responding to RFPs for the Rural Health Transformation Initiative. That's exactly right. How material could that be if you're successful to 2027?
Well, we think that certainly that could be meaningful in 2027 because the states have the obligation to spend the money and begin their initiatives with respect to this multi-year funding vehicle. So we believe that there is a strong likelihood that a number of states will partner with us, again, either direct or through multiple other contracting entities, and we deserve to win our fair share of that activity.
Absolutely. So if you have success with these government opportunities where it seems like things are trending really well, you kind of alluded to it before in that it really shifts the mix of the revenue stream more towards subscription versus visit-based revenue stream. And that, historically speaking, comes with a higher gross margin profile. So how do you sort of foresee that gross margin profile of the business evolving?
Yeah, we are looking at ending this year in that 50 to 55, right, probably smack in the middle of that range. And then seeing several hundred basis point increase, not quarter over quarter next year, but year over year over year, because we believe these contracts, these government contracts that will be awarded will enable us to generate a year over year increase based on implementing new sites, new services. This will not be a one-time enterprise activation, similar to what we may have seen with the DHA over a one- or one-and-a-half-year period. The span of time and implementation for these other opportunities can be years, and most likely will be years because of the partners involved.
Yeah, absolutely. Sure. Maybe shifting to the health plan side of the business, you mentioned at the beginning, Elevance is, you know, one of your longest and largest customers, you know, that you've had at Anwell. And it was great to see, you know, the renewal for an additional three years through January of 2029. You know, how do the unit, are the unit economics of that, you know, renewal similar to that of the prior agreement? Any expansions of scope in the relationship at all?
The unit economics are fortunately providing Amwell with greater opportunity based on our ability to increase engagement as well as introducing new clinical programs. So we saw a very high single-digit year-over-year improvement in our revenue and volume activity with the Elevance population from 2026 compared to 2025, and first quarter, 2026 to 2025. We believe we'll continue to see that. We think that that is actually indicative of a very successful template for a template for success with other payers. And that's what we're, in fact, using. We think that those use cases and those successful implementations and broader clinical service lines can benefit our other payers equally.
Yeah, I was going to say, obviously, I would imagine a partnership like the one you have with Elevance is extremely leverageable to the other payers. I mean, what's the sort of pipeline of opportunities look like, generally speaking, in the payer side of the markets and any big opportunities on the horizon here?
Well, I wouldn't name any particular plan as a big opportunity, but we are, in fact, speaking with and reintroducing Amwell to many of these plans. Earlier, I spoke about our mandate, and part of our mandate was to come back into the market because I think the relevance of Amwell was lost on many people for the years that we may have been, I think, diversifying ourselves into several of the markets, like the hospitals and health systems and in other areas. Now that we have very successfully implemented our technology-enabled care platform into the DHA and our successful growth and clinical expansion with the Elevance memberships, we've got much more credibility in the market today. So I think we come back out and speak about Amwell as a very different partner.
Yeah, makes sense. You know, it's 2026, so we have to at least touch on AI in a fireside chat conversation. So talk about, you know, and give us a bit of an overview of your AI strategy at Amwell. How are you deploying the technology internally versus sort of building it into your platform for more customer-facing applications? And, you know, when should investors expect to see this strategy translate either into incremental revenue and or, you know, some margin benefits because of your use of the technology?
Yeah, I certainly think we can address margin benefits even at the end of this year. As I noted, we are, with some trepidation, introducing AI into the operations element, into the back office administrative efforts. We are not introducing AI at this point into any clinical attributes. No care delivery is being facilitated through AI. So there is a long ways to go, but a tremendous amount of opportunity to achieve as well. There are a number of initiatives internally, but every single department has a goal, and every single department is at a different stage of implementation, but across the board seeing benefit. And you're right, we do have to address in probably two separate components, opportunities for revenue generation, but I think initially we'll be the beneficiary of improved margin and improved efficiencies through the deployment of some of these tools from today forward.
And obviously, anytime we're talking about clinical care, you know, we have to be careful and measured in the approach of how we sort of build and utilize AI within that sort of what's called patient experience or patient interaction. But, I mean, what level of, I guess, interest are your partners, whether it's in the government or in the health plan side of the house, like in sort of the, you know, innovation and use of AI, you know, within your platform, you know, for their members?
Well, I would suggest that everybody, bar none, are extremely interested in talking to us about AI, but it is a conversation that begins with risk mitigation. And because all of our customers, clients, constituents, members, patients are associated with a health plan, we really take direction from that health plan to ensure that we're either meeting or exceeding their objectives with AI. We tend to bring a lot to the table, but we're very sensitive as to the rate of adoption that they would like to pursue.
I heard one customer in the healthcare space tell me recently that they want to make sure the core platform with most of the solutions that they're using works today, but they want to know that their vendors have a plan for AI that they can bring back to their team. So I think it shows that the strategy is definitely in the development phase and maybe not so much on the implementation fully yet.
I couldn't agree with you more.
And maybe just, you know, finally, as we think about, you know, again, you know, being on the precipice of breakeven here, sort of looking at sort of the next sort of phase for Amwell, how are you thinking about sort of, you know, capital allocation, balance of growth versus continued margin expansion? You know, you obviously have a clean balance sheet with, you know, no debt on it. But just curious how you're thinking about that as we kind of embark on this next phase.
Well, we're in a very, very exciting, I'd say, second half of the year. Because prior to the end of this year, we should have validation as to where we're going to stand with these contract negotiations with these government entities, and that is going to give us an opportunity to determine how much capital we need to invest over the next several years. With that level of visibility, that opens up the optionality for either some, you could think about everything from investment in the platform to share repurchases to M&A. These are all things that we did not contemplate over the last several years because we just did not have the extent of visibility. And quite frankly, the tumultuous market and some of what was occurring both within our client base and in the macro environment at whole didn't give us that opportunity. So our planned transformation is no longer a two-year or three-year cycle. It's now come down to less than six months, and that will help us, I think, rebalance where we are and give people a good indication as to what our opportunity is to scale, return to profitable growth, and where we expect to be as a public company in 2027 and beyond.
Awesome. Well, Mark, I'm not seeing any more questions in the queue, but I'm looking very much forward to sort of staying tuned across the throughout the summer for what will probably be a very exciting summer for AMWELL and how some of these opportunities come to fruition. But I do appreciate you taking the time with us today to kind of walk us through the evolution of the story and where AMWELL is going next.
Brian, thanks again for the opportunity. Looking forward to catching up with you this summer.
And thanks, everyone, for joining us today. Have a good day.