American Well Corporation (Amwell) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing also reports unaudited fourth-quarter results; quarterly cash flow is not provided in the filing text. Amounts below are in USD millions unless otherwise noted.
Business context
Amwell provides enterprise telehealth technology, implementation and related services, Carepoint hardware, and clinical visits through its affiliated Amwell Medical Group (AMG). At year-end it served 58 health plans representing more than 80 million covered lives and 158 health systems. Clients completed 5.9 million platform visits in 2020, versus 1.1 million in 2019. Amwell completed its IPO in September 2020.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Q4 2020 | Q4 2019 |
|---|---|---|---|---|
| Revenue | $245.3 | $148.9 | $60.4 | $45.0 |
| Operating loss | $(227.4) | $(94.7) | $(49.6) | $(24.5) |
| Net loss | $(228.6) | $(88.4) | $(50.6) | $(22.7) |
| Adjusted EBITDA, non-GAAP | $(92.7) | $(72.7) | Not provided | Not provided |
| Cash used in operating activities | $(112.5) | $(81.9) | Not provided | Not provided |
- FY revenue increased 65%. Visit revenue rose to $117.2 million from $40.7 million; platform subscription revenue was $98.4 million, up from $83.7 million. Services and Carepoints revenue was $29.7 million, versus $24.5 million.
- Q4 revenue increased about 34% year over year, but declined from $62.6 million in Q3 2020. Q4 2020 net loss narrowed from $64.6 million in Q3, but more than doubled versus Q4 2019.
- FY 2020 cost of revenue was $156.8 million, implying gross profit of approximately $88.5 million and a gross margin of 36.1%; the filing attributes margin pressure to a higher mix of visit revenue, which has a lower gross-margin contribution. Q4 cost of revenue was $37.8 million, implying gross margin of approximately 37.4%, compared with approximately 44.7% in Q4 2019.
- FY general and administrative expense rose to $166.2 million from $54.2 million, primarily reflecting $100.6 million of increased stock-based compensation, predominantly related to restricted stock units for the co-CEOs. Total stock-based compensation was $118.4 million in 2020, versus $12.1 million in 2019.
- Cash, cash equivalents and short-term investments totaled $1,041.6 million at year-end, versus $177.6 million a year earlier. Working capital was $992.3 million; total liabilities were $130.4 million. The company reported no debt and no outstanding line-of-credit borrowings; approximately $5.9 million remained available under the facility.
- Financing cash flow included $772.9 million of net IPO proceeds and $99.1 million from Google’s private placement. Management said available cash and investments should fund working capital and capital expenditures for at least 12 months from the financial-statement issuance date.
Material changes versus comparable periods
- COVID-19 drove a sharp increase in telehealth utilization and visit revenue. AMG visits increased to 1.595 million from 759,000; AMG accounted for 27% of platform visits, down from 66% in 2019, as clients’ own providers delivered a much larger share.
- Operating costs grew faster than revenue: total costs and operating expenses rose 94%, to $472.7 million. Cost of revenue nearly doubled, while research and development increased 56% to $84.4 million as the company expanded capacity and accelerated product development.
- Platform subscription revenue grew more moderately than visit revenue: health-system subscriptions rose 28% to $49.8 million and health-plan subscriptions rose to $34.9 million from $30.6 million.
- The company shifted from a pre-IPO deficit position to $1,246.2 million of stockholders’ equity at year-end, primarily reflecting the IPO, Google investment and conversion of preferred shares. The weighted-average share count also changed substantially; annual loss per share was $(2.27), versus $(2.12) in 2019.
Outlook, risks and unusual items
- Outlook: No specific numerical revenue, margin or earnings guidance is provided. Management expects operating losses to continue and anticipates higher near-term research and development spending, including accelerated multiyear platform investment during 2021, alongside continued sales and marketing investment.
- COVID-19 and regulation: Management believes increased telehealth awareness may support longer-term adoption, but the duration of elevated demand and relaxed reimbursement, licensure and other rules is uncertain. Future visit volume and seasonality remain difficult to forecast.
- Customer concentration: Anthem represented 22% of 2020 revenue (23% in 2019); the top ten customers accounted for 42% of 2020 revenue. Loss or reduced business from major customers could materially affect results.
- Profitability and expenses: Amwell has a history of losses and an accumulated deficit of $582.4 million. The 2020 loss included unusually high CEO-related stock compensation and $6.1 million of COVID-related expenses; adjusted EBITDA is non-GAAP and excludes, among other items, stock compensation and specified costs.
- Financial reporting controls: Management concluded disclosure controls were ineffective at year-end because material weaknesses remained in the control environment, revenue transaction controls and period-end financial reporting. The tax-accounting weakness disclosed earlier was reported as remediated; other weaknesses were not yet considered remediated.
- Contingency: Teladoc sued in October 2020 alleging patent infringement involving certain carts and peripherals. Amwell disputes the claims and intends to defend them; Carepoints represented approximately 6% of 2020 revenue.
- Other risks: The filing highlights healthcare regulatory and reimbursement uncertainty, privacy and cybersecurity exposure, competition, provider recruitment, implementation and technology risks, and the possibility of additional financing or acquisition-related costs. The founders’ Class B shares maintain at least 51% of voting power while outstanding.
Important facts for investors to verify
- Whether visit volumes and revenue remain durable as pandemic-related demand and temporary policy changes evolve, and how the mix of AMG versus client-provider visits affects margins.
- Whether subscription growth, customer retention and expansion can offset any normalization in visit revenue; review Anthem exposure and contract renewal terms.
- How much of the reported GAAP loss reflects recurring operating costs versus CEO stock compensation and other adjustments; assess adjusted EBITDA alongside GAAP results and cash use.
- Progress and cost of the 2021 platform investment, and whether the company can scale capacity and improve margins without impairing service or implementation quality.
- Remediation and testing of the remaining material weaknesses in internal control over financial reporting.
- Developments in the Teladoc patent litigation, healthcare regulation and reimbursement, and the company’s privacy and cybersecurity controls.