American Well Corporation (Amwell) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; amounts below are in U.S. dollars unless noted.
Business context
Amwell provides enterprise software and related services for digital healthcare delivery, including subscriptions, virtual visits through its affiliated medical group, and services and Carepoint hardware. Its strategic focus in 2023 is migrating health plan and health system clients to the Converge platform. In Q2, 43% of visits used Converge, up from 28% in Q4 2022.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $62.4 million | $64.5 million | $126.4 million | $128.7 million |
| Net loss | $93.5 million | $69.7 million | $492.0 million | $139.9 million |
| Net loss per share | $0.33 | $0.25 | $1.74 | $0.51 |
| Adjusted EBITDA (non-GAAP) | $(45.3) million | $(42.8) million | $(89.9) million | $(89.9) million |
- Q2 revenue fell 3% year over year. Platform subscription revenue was $28.0 million, visits revenue $28.1 million, and other revenue $6.3 million.
- Q2 cost of revenue, excluding depreciation and amortization of intangible assets, was $38.2 million, implying a 38.7% gross margin on that basis, versus 43.4% a year earlier. Management attributed the decline to revenue mix.
- Q2 operating loss was $94.5 million, including a $27.3 million goodwill impairment; first-half operating loss was $491.8 million, including $357.6 million of impairment. The impairment was non-cash and followed sustained declines in the company’s share price and market capitalization.
- Cash and cash equivalents were $161.4 million and investments were $297.3 million at June 30, totaling $458.7 million. Total current assets were $535.4 million versus current liabilities of $110.2 million. The company reported no debt.
- First-half cash used in operating activities was $68.8 million, compared with $105.4 million in the prior-year period. Cash used in investing activities was $308.9 million, largely reflecting purchases of investments; financing provided $1.3 million.
- Deferred revenue was $66.8 million. Remaining performance obligations were $192.4 million, with 47% expected to be recognized in the 12 months ending June 30, 2024.
Material changes versus prior periods
- Revenue decreased modestly in both Q2 and the first half. Management cited customer churn during Converge migration as a factor in lower subscription revenue; Q2 visit revenue also declined with lower visit volume and specialty-care utilization.
- Q2 research and development expense decreased 30% to $25.8 million as Converge development consulting costs declined; $7.1 million of software development costs were capitalized during the quarter.
- Q2 cost of revenue rose 5%, while sales and marketing rose 15% and general and administrative expense rose 4%. Higher employee-related and stock-based compensation costs contributed to expense increases.
- Q2 net loss widened year over year, partly because of the impairment charge and higher operating costs. First-half reported loss was substantially affected by the impairment.
- Cash, cash equivalents and investments totaled $458.7 million, down from $538.5 million at December 31, 2022; the balance-sheet mix shifted to include $297.3 million of investments.
Outlook, management commentary and risks
- Management expects cash, cash equivalents and investments at June 30, 2023 to fund operating expenses and capital expenditure needs for at least the next 12 months. It also expects operating losses in future years and notes that additional financing may be needed; there is no numerical revenue or earnings guidance in the provided filing text.
- Management expects research and development spending to continue declining toward more normal levels in coming periods. It cautions that platform migration may affect revenue timing and customer churn.
- Management reported 3.2 million visits in the first half of 2023 versus 3.3 million in the prior-year period; active providers were 106,000 at June 30, down from 108,000 at March 31.
- Key disclosed risks include virtual-care market volatility, losses and uncertainty about achieving profitability, reliance on significant clients, competition, Converge adoption and migration, healthcare regulation and reimbursement, privacy and cybersecurity, and provider capacity. One client represented 24% of Q2 revenue.
- The filing states that the end of the U.S. public health emergency in May 2023 may reinstate some regulatory requirements, but management did not anticipate a material business impact. Visit demand is seasonal and may also vary with flu and COVID-19 activity.
- Management reported no pending litigation expected to have a material adverse effect and no material changes to previously disclosed risk factors. Goodwill remains sensitive to share-price and valuation assumptions; the filing estimates that a further 10% stock-price decline could result in approximately $50 million of additional impairment if a triggering event occurs.
Important facts for investors to verify
- Whether Converge migration progresses without further material customer churn or disruption to subscription growth.
- Whether revenue, visit utilization and active-provider trends stabilize, particularly given the large-client concentration.
- Operating cash burn and the adequacy of the $458.7 million cash-and-investment balance against ongoing losses and investment needs.
- Goodwill valuation assumptions and any further impairment indicators; distinguish non-cash impairment from recurring operating performance.
- Stock-based compensation and potential dilution: first-half stock-based compensation was $42.5 million, and approximately 63.0 million potential common shares were excluded from diluted loss per share as anti-dilutive.