American Well Corporation (Amwell) — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions.
Business context and reporting period
Amwell provides enterprise telehealth technology, related services and Carepoints, and clinical visits through its affiliated medical group. As of quarter-end, it reported serving over 55 health plans representing more than 80 million covered lives and over 150 health systems; approximately 80,000 active providers used its platform.
In August, Amwell acquired digital mental health platform SilverCloud and automated virtual healthcare provider Conversa. Their results were included from their respective acquisition dates; the company said their contribution was not material to reported results for the periods presented.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $62.2 | $62.6 | $180.0 | $184.8 |
| Operating loss | $(55.5) | $(64.3) | $(131.7) | $(177.9) |
| Net loss | $(50.9) | $(64.6) | $(128.9) | $(178.0) |
| Adjusted EBITDA (non-GAAP) | $(31.5) | $(26.2) | $(81.6) | $(57.3) |
| Operating cash flow | Not separately provided for the quarter | $(96.6) | $(87.9) |
Subscription revenue was $26.7 million in Q3, up from $25.8 million; visit revenue was $30.0 million, up from $28.5 million; other revenue, including services and Carepoints, was $5.4 million, down from $8.3 million. For the first nine months, subscription revenue increased 8% to $78.1 million, while visit revenue fell 6% to $85.4 million and other revenue declined to $16.5 million.
Costs of revenue, excluding acquired-intangible amortization, were $35.2 million in Q3 and $104.8 million for nine months. Revenue less those costs implies an approximate margin of 43.5% for Q3 and 41.8% for the nine-month period; these are calculated measures, not company-reported GAAP margins. Operating losses narrowed versus 2020, but adjusted EBITDA losses widened. Lower 2021 stock-based compensation—particularly the absence of substantial prior-year CEO IPO-award expense—helped improve GAAP loss comparisons.
Cash and cash equivalents were $790.4 million at September 30, down from $941.6 million at year-end 2020; restricted cash was $0.8 million. Total assets were $1.48 billion and current liabilities $127.1 million. The company reported no debt outstanding and no borrowings on its $7 million line of credit; letters of credit reduced available borrowing capacity. Management said existing cash and cash equivalents were expected to fund operating expenses and capital requirements for at least 12 months. The company also expects operating losses for the foreseeable future.
Material changes and notable items
- Nine-month revenue declined 3%, principally reflecting lower visit volume after the pandemic-driven peak in 2020 and lower Carepoints/hardware revenue; higher subscriptions partly offset the declines.
- Client providers performed more than 75% of platform visits in the first nine months, versus 70% in the comparable 2020 period. Total visits were 4.3 million in each period. Q3 active providers rose to 80,000 from 71,000 in Q2.
- Acquisitions used $156.5 million of cash, net of acquired cash, in the first nine months. Amwell issued approximately 12.8 million shares in the transactions. Preliminary purchase accounting added $251.7 million of goodwill; reported goodwill reached $443.9 million.
- Acquisition earnouts had a recorded fair value of $45.2 million at quarter-end, with payments contingent on revenue and integration thresholds and subject to remeasurement. Acquisition-related expenses were $7.4 million in Q3.
- Deferred revenue was $68.0 million, down from $74.8 million at year-end. Remaining performance obligations were $184.0 million; the company expected to recognize 48% in the 12 months through September 2022.
Outlook, risks and contingencies
No numerical revenue or earnings guidance was provided in the supplied filing text. Management described continued investment in technology, including accelerated development of the Converge platform, and expected near-term increases in research and development and sales and marketing spending. It also expects general and administrative costs to rise in absolute dollars as the business grows and bears public-company compliance costs.
- Management cited risks including telehealth-market growth and utilization, competition, customer concentration, regulatory and reimbursement changes, privacy and cybersecurity, Converge adoption and execution, and integration of SilverCloud and Conversa.
- COVID-era telehealth reimbursement and licensing flexibilities may be changed or withdrawn; the duration and effects of those policies remain uncertain.
- One customer represented 26% of Q3 revenue and 25% of nine-month revenue. One customer accounted for 21% of accounts receivable at quarter-end.
- Teladoc has alleged patent infringement relating to certain cart products and peripherals. Amwell disputes the claims and intends to defend itself; management said it did not expect pending litigation to have a material adverse financial effect.
- Disclosure controls were deemed ineffective due to ongoing material weaknesses involving the control environment and revenue transaction controls. A previously identified weakness in period-end financial reporting was reported as remediated, but the remaining weaknesses had not yet been remediated as of September 30, 2021.
Important facts for investors to verify
- Whether subscription growth and active-provider expansion can offset lower visit and Carepoints revenue, and whether utilization supports renewals and contract expansion.
- Cash burn and the timing of progress toward profitability, including the effect of planned platform investment and acquisition integration costs.
- Conversa and SilverCloud integration, realized growth or cost benefits, final purchase-price allocations, and potential earnout remeasurement or payments.
- The status and potential cost or business impact of the Teladoc litigation and the concentrated revenue and receivables exposures.
- Whether revenue controls operate effectively for a sufficient period to remediate the disclosed material weaknesses.