American Well Corporation (AMWL) is a leading enterprise software and platform company that is digitally enabling the future of hybrid healthcare. The company's Converge platform provides a comprehensive, scalable solution that seamlessly integrates in-person, virtual, and automated care modalities, empowering healthcare providers, payers, and innovators to achieve their digital ambitions.

Founded in 2006, American Well pioneered virtual healthcare and has since evolved its offerings to address the growing demand for a unified, adaptable healthcare experience. The company's Converge platform represents a strategic re-platforming effort, designed to future-proof its solutions and drive innovation across the healthcare landscape.

Business Overview

American Well's Converge platform serves as the backbone for its enterprise software and platform-as-a-service solutions. The platform enables healthcare providers, payers, and innovators to develop and distribute digital care programs that meet their strategic, operational, financial, and clinical objectives under their own brands. By offering a modular, scalable architecture, Converge allows clients to introduce innovative digital care use cases over time, expanding the company's subscription revenue opportunity.

The company's business model encompasses three primary revenue streams: subscription fees for the enterprise platform and software-as-a-service solutions, professional services, and fee-for-service clinical services through its affiliated medical group, Amwell Medical Group (AMG). This combination of the enterprise platform, professional services, and Carepoint devices empowers clients to deploy digital care solutions across their full enterprise, deepening relationships with existing and new patients and members.

American Well's client base includes more than 50 health plans, representing over 100 million covered lives, and approximately 115 of the nation's largest health systems. The company has powered approximately 28.9 million virtual care visits since its inception, including 1.7 million in the first quarter of 2024.

Financials

For the full year 2023, American Well reported annual revenue of $259,047,000, a decrease from the prior year's $275,321,000. This decline was primarily driven by a $16,274,000 decrease in subscription revenue, which was partially offset by a $3,000,000 increase in services and Carepoint revenue. The company's annual net loss for 2023 was $675,164,000, compared to a net loss of $398,509,000 in the prior year.

American Well's annual operating cash flow for 2023 was -$148,343,000, while its annual free cash flow was -$163,591,000. These negative cash flow figures reflect the company's ongoing investments in its Converge platform and strategic initiatives.

In the first quarter of 2024, American Well reported revenue of $59,522,000, a decrease of 7% compared to the same period in the prior year. This decline was primarily driven by a $3,800,000 decrease in subscription revenue and a $1,300,000 decrease in visit revenue, partially offset by an $800,000 increase in other revenue. The company's net loss for the first quarter of 2024 was $73,449,000, compared to a net loss of $73,449,000 in the same period of the prior year.

Guidance and Outlook

American Well is reiterating its 2024 guidance, expecting revenue to be in the range of $259 million to $269 million for the year. The company expects subscription revenue to be roughly similar to 2023 levels, with growth expected to be more evident in the fourth quarter as contracted go-lives are realized.

For 2025, the company expects revenue to be in the range of $335 million to $350 million, representing growth of approximately 30% compared to 2024. This growth is primarily driven by go-lives of contracted software backlog, including the planned enterprise-wide deployment with the Defense Health Agency (DHA). American Well further expects an approximately 70% improvement in its adjusted EBITDA to a range of negative $45 million to negative $35 million in 2025.

The company expects the change in its revenue mix towards subscription software to lift gross margins from the high-30% area in 2024 to over 50% in 2025. American Well currently expects to achieve adjusted EBITDA breakeven in 2026 with a cash investment balance of approximately $150 million.

Converge Platform and Government Initiatives

The development of the Converge platform has been a strategic priority for American Well, as it represents a re-platforming effort to provide its customer base with an improved and more robust solution. This re-platforming initiative has resulted in increased research and development costs during the peak development period in 2022 and the first half of 2023, with the company expecting a return to normal levels of research and development spend in the coming quarters.

A key focus for American Well in 2024 is the delivery of its offerings to the government sector, including the modernization of the military health system. The company's work with the Defense Health Agency (DHA) is a significant opportunity, with a $180 million budget as part of a $4 billion task order vehicle. The initial deployment of American Well's solutions, including digital behavioral health and automated care programs, is progressing well, with the enterprise-wide rollout expected in the fourth quarter of 2024.

The company believes that implementing its platform in the demanding government environment will demonstrate important proof points that are also relevant in its existing commercial markets, such as scale, versatility, and cybersecurity capabilities.

Operational Efficiency and Cost Optimization

American Well has taken steps to adapt and transform its organization, which is expected to result in a greatly reduced cost structure. The company has made strategic investments in its sales and marketing department, focused on internal process improvement and external go-to-market strategy, with the goal of accelerating growth and emphasizing a high-value ROI selling approach.

The company has also optimized its research and development spending, with expectations of a 25% to 30% annual decline in Converge-related R&D spend. However, the company's government-related customization efforts will moderate the overall decline in R&D to a mid-teens percent reduction for 2024.

American Well's headcount actions are expected to result in over $15 million in compensation-related savings, allowing the company to return to normal levels of incentive compensation in 2024 compared to the previous year.

Liquidity

As of March 31, 2024, American Well had $308,599,000 in cash and cash equivalents, providing the company with ample liquidity to fund its growth initiatives and investments. The company has no debt as of March 31, 2024, and December 31, 2023.

American Well believes that its existing cash and cash equivalents will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months. The company's future capital requirements will depend on various factors, including its growth rate, contract renewal activity, number of consultations on its enterprise software, and the timing and extent of spending to support product development efforts and sales and marketing activities.

Risks and Challenges

American Well operates in the heavily regulated healthcare industry, which presents various risks and challenges. The company must comply with federal and state privacy regulations, and a cybersecurity breach or failure to comply with these regulations could result in significant liability. The company also faces competition from existing and potential new participants in the healthcare industry, and its ability to adapt to rapid technological changes is crucial.

Additionally, American Well's business is subject to seasonal fluctuations, with visit volumes typically following the annual flu season. The company's reliance on a limited number of significant clients also presents a risk, as the loss of their business could have a material adverse effect on the company's financial performance.

Conclusion

American Well is at a pivotal moment in its evolution, as it transitions from its legacy offerings to the more robust and scalable Converge platform. The company's strategic initiatives, including its work with the DHA and its focus on operational efficiency, position it well to capitalize on the growing demand for hybrid healthcare solutions.

While the company has faced some near-term headwinds, its long-term outlook remains promising. American Well's strong balance sheet, diversified client base, and innovative technology platform provide a solid foundation for future growth and profitability. As the healthcare industry continues to evolve, American Well is poised to play a leading role in shaping the future of digital care delivery.