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" Wells Fargo Securities, LLC, Research Division

" TD Cowen, Research Division

" Truist Securities, Inc., Research Division

" UBS Investment Bank, Research Division

" Morgan Stanley, Research Division

Hello, everyone, and welcome to Amwell's conference call to discuss their third fiscal quarter of 2025. Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through normal news sources. This conference call is being webcast live on the IR page of the website, where a replay will be archived. Before they begin prepared remarks, I'd like to take this opportunity to remind you that during the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in the filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido.

Thank you, Operator, and good afternoon, everyone. For the third quarter, our results compared favorably to the guidance we provided. We showed steady progress in executing our plan, which is designed to achieve cash flow breakeven by the end of 2026 and to ultimately resume profitable growth. Our plan is based on 2 main work streams. First, focusing on our enterprise-grade, mature, and well-differentiated new platform to generate considerable value in our select market segments. Second, ensuring that all our operations are extremely efficient and effective. Both efforts rely heavily on the integration and adoption of rapidly evolving technologies, primarily enterprise-grade AI infrastructure. In recent years, we have invested significantly in recruiting exceptional talent and establishing strong governance, compliance, and operational frameworks. We have also committed substantial resources and continue to do so towards building ecosystem interoperability that enables seamless data exchange and deep integration with existing EHRs and clinical systems. These investments help position Amwell as a highly dependable, secure, and scalable technology-enabled care platform for our customers. We enable our customers to align our technology with measurable economic value while helping them address critical challenges such as clinician burnout, staffing shortages, and operational inefficiencies. Additionally, we position them to capitalize on emerging opportunities, including the integration of algorithm-based health care services, comprehensive care coordination, and new digital therapeutic solutions. These integrations may help our customers leverage predictive AI to reduce costly interventions and hospitalizations. Our efforts are beginning to pay off as reflected in our results, and we believe the impact will only accelerate going forward. For our first work stream in Q3, we began socializing our product focus areas through 2026 with our clients and prospects. We are committed to making the new Amwell platform the most effective and valuable hybrid care backbone we have ever offered…

Thanks, Ido, and good afternoon to everyone on the call. On today's call, I will walk through a few key operating metrics and financial results from the third quarter and then provide an update to our guidance for the remainder of this year. In the third quarter, we delivered results ahead of expectations for both revenue and adjusted EBITDA, reflecting stronger subscription retention, increased visit volume in specialty care and virtual primary care, and meaningful cost efficiencies driven by the successful execution of our restructuring. Our progress this quarter reinforces that the actions we began earlier this year are translating into durable financial improvement and accelerating operating leverage. Today, I will walk you through our quarterly performance, highlight the financial impact of these strategic actions and provide an updated view on our guidance for the balance of 2025. Total revenue was $56.3 million, which represents an 8% decrease year-over-year and includes the step-down in contribution from Leidos and the divestiture of APC. Normalizing for the sale of APC, Q3 revenue would have increased 1.3%. Subscription revenue of $30.9 million increased 18% year-over-year and represented 55% of total revenue compared to 43% of total revenue a year ago. Total visit volume of approximately 1.1 million visits in the third quarter was down 21% from a year ago, although in line with our expectations. Amwell Medical Group, or AMG visit revenue was 23% lower than last year at $21.2 million. Normalizing for the sale of APC, however, visits were down 3.5% from a year ago. Average revenue per visit was $71, which is 14% lower this quarter compared to last year's Q3. But when normalizing for the sale of APC, average revenue per visit was 3.5% higher, driven by a continued mix shift to higher-priced virtual primary care and specialty care visits.…

Thank you, Mark. We're seeing a remarkable transformation in our market. As AI health care solutions proliferate both within and beyond Amwell, they're delivering significantly better patient outcomes with greater accessibility and affordability. In this evolving landscape, Amwell's role as an integrated backbone has never been more vital. Our unique ability to seamlessly blend intelligent automation with certified trusted clinicians provide a safe, effective pathway to superior care outcomes today and tomorrow. Our clients value our proven track record of delivering measurable economic value while ensuring compliance and providing essential support to overburdened health care providers. Through enterprise-grade workflow automation, we're enhancing both access and operational efficiency. We are proud of our mission and firmly believe it's more relevant now than ever before. With that, I'll open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Stan Berenshteyn of Wells Fargo Securities.

A couple for me. First, I actually wanted to go back to the prior quarter where you had announced a Florida Blues plan win. I was curious if you can give us some color regarding how you won that? Was that a competitive takeaway? And are you seeing any similar opportunities for you going forward?

Stan, yes, we are very pleased with this important win. It was a competitive situation, and we are deinstalling a major competitor in this setting. The drivers for this really demonstrate everything I spoke about in the prepared remarks. I believe that Florida Blue, like many other payers understood that there is enormous fragmentation, enormous opportunity in AI programs, but they need to create one infrastructure under their brand that will allow for one efficient consumer engagement solution that will be able to drive care with their own choices of clinical program, including maybe different choices for different ASOs or different cohorts and one report and one infrastructure. They, like many other people, existing customers and people that we talk with during our dialogue with the pipeline, really talk about vendor fatigue and complexity. There is a tami of amazing programs, some are better than the others. Many of them have enormous opportunity, but many of them are risky, and there is real need for one technology-enabled care infrastructure, which is an integrator and a distributor, if you will, for members. So all those important value points based on our dialogue with this very important customer, in my opinion, we're leading to this win and are indicative of a future demand that is likely to grow as more AI-driven program proliferate.

And then a follow-up for me here. Regarding the comments you made in the prepared remarks around potential further divestiture of noncore assets. Can you give us any insight as to what those assets might be? And are you in any active discussions here? Or is this more of a theoretical process?

So this is very practical. Let's start there. The key conclusion is that the opportunity we spoke about with Florida Blue and many others is very, very exciting. And because of that, we decided to focus all our efforts around it because we believe that's the best ROI for Amwell and the best way we can create value for our customers. We do have a long list of legacy products that do the job but do the job well. Examples are automated programs for hospitals or inpatient solutions and so on and so forth. These are good products that are secure and reliable and dependable, and we plan to continue and use them, but we are going to spend less, significantly less in growing these market segments in comparison to this very clear enormous opportunity that I shared earlier. And that's really part of our strategy that we are implementing as we speak.

Our next question comes from the line of Charles Rhyee of TD Cowen.

You talked about AI and implementing that across the enterprise and other technology to sort of inform patient intake, navigation, et cetera. Can you talk a little bit about how that can be monetized? Is that something that you are charging extra for? What is sort of the model as we think about that? And maybe, Mark, I know it's still probably a little early. How should we think about maybe any kind of guardrails to think about when looking out to '26 at all, at least from a top line perspective?

Absolutely, Charles. So suffice to say that AI is influencing everything we do and everything that happens in our ecosystem. It's very, very dramatic. Let's start with the product, and let's start with third-party partners. When you think about someone like Sword, for example, their ability to predict with AI likelihood of someone getting surgery very soon is incredibly important. Our ability to route this patient to Sword and then document these savings and report it back to the likes of Elevance and others is incredibly, incredibly valuable. The same is true for other partners like HelloHeart that is able to use predictive modeling to manage medication adherence better, and there are many other such examples. So first and foremost, AI is influencing both Amwell and non-Amwell clinical programs themselves. In addition to that, AI is allowing us to create a dramatically different experience for consumers. It can be highly personalized. You can get immediate attention as a person and have a very simple, easy, attentive, personalized navigation to programs that are likely to be helpful for you. So that's another area where AI has enormous value. The monetization of such value, both things actually really increase ROI for our customers and increase traction. So when a great experience is leading to a virtual primary care experience at over 30 days saving $500 for our customers, that's very good for Amwell. That's very good for our customers as well. In addition to that, using of AI for data analytics so you can push information about outcomes in a very coherent way across different programs for a whole person and whole cohort is allowing our customers to choose the right programs and refine them over time. It also allows us to further personalize the experience for consumers and getting more use…

But I guess it sounds like then maybe, Mark, in terms of how should we think about next year? And also if we're not necessarily charging more for these innovations and obviously demonstrating more ROI for customers, how should we think about margins at least? Is the current rate, I think it was 52% here in the quarter. Is that sort of the right level we should be thinking about next year? Or maybe any kind of thoughts there would be helpful.

Yes. Charles, I don't believe the introduction of the AI features and the attributes that we're looking to implement throughout the year are going to have any meaningful impact on our margins. What's going to lead to the margin probably variation from '25 to '26 will be exactly what we saw in '25, which was the greater ability to bring more software revenues into the top line. Clearly, we had significant to the tune of tens of millions of dollars of implementation revenues generating very high margins. They impacted the margin profile tremendously. And that's why we're exiting at these stronger margins compared to '24. '26, I believe, will be consistent with the '25 margin profile.

And maybe one last one, if I could. You talked about sort of divesting sort of noncore assets. Obviously, APC was an example. Is there a lot of other assets still that you would consider in that noncore bucket? And is there a sense for timing? Is this something that we'd like to do very soon? Or is this when you can get something a good value for it?

It's more the latter, Charles. We're not in the market with either of these, what I would suggest are a couple of defined assets that can be bifurcated from the rest of the business without losing any focus, without challenging any of the clients right now with removing some of these. These are distinct assets that have a certain profile of clients that we could, in fact, cordon off, we could run them separately. But I think throughout '26, we will try to, again, narrow our focus in those areas that Ido shared in his prepared remarks.

Our next question comes from the line of Jailendra Singh of Truist Securities.

This is Jenny on for Jailendra. Just had a question around macro with all the macro noise, tariffs and economic uncertainty. Have you seen any impact on your sales pipeline as health systems continue to evaluate their IT budgets? Just curious how that conversation has been going in terms of the last couple of months? And related to that, can you talk about your direct tariff exposure?

Jenny, well, essentially, what we see in the market is that our solution is serving very important pain points that many of the customers using the new ones see as obligatory in the sense that if you think about it for a payer, the ability to have reliable, effective solution around hybrid care and technology-enabled care is a tool that is demanded by the sponsors, by employers and others and generate enormous savings. Implementing effective AI-driven care programs is not a question of if, it's really a question of how. You must do it, and that's very clear for our customers. That's very dangerous. It's very confusing. It's error-prone. We offer our customers an ability to create less noise by having one platform that is embedded in their infrastructure and much less vendor fatigue by allowing us to do the heavy lifting of connecting to more and more solutions and making it still part of one experience and one report. So when we talk to them, that's not a line item they are likely to pass upon even if pressed. As it relates to health systems, we definitely believe that when we look at things like workflow automation, inpatient solutions, hardware solutions, things of that nature, there's definitely some resistance right now and some caution because of the economical impact. And that's one of the reasons why we are moving away resources from promoting such solutions into our core offering. At the same time, when you look at delivery network that are implementing value-based care, when you look at their competition for patients, their need to add, for example, behavioral health to their core offering, things of that nature, their ability to expand their reach beyond catchment areas, all these things directly influence revenues, directly influence their livelihood and are considered as essential. And therefore, we see that we still have an offering that resonates and is relevant right now. As it relates to tariffs, very minimal impact. We have a tiny business line that still has some hardware outside the United States. And that, of course, is impacted, but it has a negligible impact on our performance. We are proudly creating our software as a U.S. firm and therefore -- and our businesses in the U.S. as well. So we don't see any meaningful impact -- direct impact as it relates to tariffs. Of course, it may influence the market and the macro like everyone else, but it's not Amwell specific.

Our next question comes from the line of Kevin Caliendo of UBS.

This is Jack Senft on for Kevin. I wanted to go back to the comments on diverting resources away from the noncore assets. So just to clarify, this is something that's not embedded in guidance this year, correct? And then maybe as a second part to that, is this -- if it's not, is this something that could move up your time line on being cash flow breakeven next year? Or is this something that could even meaningfully move up cash flow expectations? If you can just comment on kind of what your expectations are there, that would be great.

Yes. This is not included in any of the guidance that you've seen throughout 2025 or the new guidance we provided for the final quarter this year. The impact that it would likely have would not be substantial to the degree that it would change our perspective on cash flow breakeven from operations in the end of 2026.

And then maybe just a quick follow-up. I know your sales and marketing expense, it took a nice step down sequentially this quarter. I know you're still targeting the declines of at least 25% plus this year. But maybe as we look at each like kind of line item in the operating expenses here, are these kind of good run rates to think about going forward? Or is there still additional leverage that you can pull next year? I think you touched on it a little bit briefly, but if you can just talk a little bit more about it, that would be great.

Yes, sure. As you pointed out, right, we had we really optimized the spend and reduced significantly the sales and marketing costs quarter-over-quarter, but obviously, compared to last year, that's material. I think there's still some meaningful opportunity to take out some costs in 2 other areas, probably G&A. We -- another significant area, probably the most from an absolute dollar perspective was in our costs and the delivery functioning. That's where we're likely going to be benefiting from the implementation of AI tools, both clinical operations, clinical delivery. We'll be able to scale the growth at a lower cost. And I think that will be visible throughout 2026 and beyond.

Our next question comes from the line of John Park of Morgan Stanley.

I know you guys talked about the cash flow breakeven target in '26. And also given the noncore divestitures that are conversations that are going on, if you had to prioritize or rank the factors going into this -- going into that target, factors such as customer renewals, perhaps price increases, service mix, maybe some other factors that I'm not considering right now, how would you rank those?

Are you asking how we would rank those in consideration of our target for cash flow breakeven next year? Or how do we rank them purely from a top to bottom priority?

Yes. Like how would you prioritize those things? Obviously, the divesting noncore assets is probably going to get you a decent chunk there, but just wondering how -- any other factors to consider to reach that target?

Yes. The divestiture of those noncore assets will certainly help to focus the company on our core initiatives and would obviously provide some additional dry powder for the balance sheet on top of our $200 million that we just ended the quarter with. And again, we have no debt. So that gives us a little bit more leverage. But I think we primarily have to focus on client retention, ensuring that our platform is delivering and our teams are handling the requests, the growth, the other opportunities for ROI that our clients are demanding. So I'd probably tell you retention is #1. And then, of course, some of the growth initiatives on the product side would then likely be ranked as the #2 priority

I know you mentioned Sword as kind of a way to implement more partners. Is there any areas or topics that you would not want to partner where you would want to just own outright versus integrate with third party?

So our service to our customers is the ability to help them under the brand, create one customer acquisition cost gateway connected to programs of their choosing. The fact that we come out of the box with a very long list of solutions across the full continuum doesn't hurt. But even more exciting is the fact that we can very easily add anything they want to or their clients want to implement. So as long as our customers believe that the solution is logistic, it's secure, it's compliant with different regulations, things of that nature, we will gladly implement it as part of their solution so they can benefit and monitor the value of such implementation.

I'm showing no further questions at this time. I would now like to turn it back to Ido for closing remarks.

Thank you, everyone, for joining. We really appreciate your time. It's interesting to see how relevant Amwell is in a time of great change, and it's exciting to see how this will grow even more as we go forward. Thank you again, and have a good evening.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you.