American Well Corporation (Amwell) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; amounts below are in millions of dollars unless noted. Amwell provides enterprise software and services for digital care delivery.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $61.9 | $69.2 | $188.4 | $198.0 |
| Gross profit and margin* | $21.5; 34.7% | $27.7; 40.0% | $70.9; 37.6% | $83.2; 42.0% |
| Operating loss | $(143.4) | $(71.1) | $(635.2) | $(211.0) |
| Net loss | $(137.1) | $(70.6) | $(629.1) | $(210.5) |
| Adjusted EBITDA* | $(38.5) | $(41.9) | $(128.4) | $(131.8) |
| Net loss per share, basic and diluted | $(0.48) | $(0.25) | $(2.21) | $(0.77) |
*Gross profit and margin are calculated as revenue less costs of revenue, excluding depreciation and amortization of intangible assets. Adjusted EBITDA is a company-defined non-GAAP measure.
- Revenue fell 11% year over year in Q3 and 5% for the nine-month period. Q3 revenue included $28.4 million in platform subscriptions, $26.7 million from visits, and $6.8 million from other sources.
- Cash used in operating activities was $106.8 million for the nine months, versus $156.4 million a year earlier. Net loss included $436.5 million of noncash goodwill impairment; stock-based compensation was $59.6 million.
- Cash, cash equivalents and investments totaled $418.1 million at September 30, 2023, down from $538.5 million at December 31, 2022. The balance sheet reported $319.4 million of cash and equivalents and $98.7 million of investments. Amwell reported no debt.
- Current assets were $488.8 million and current liabilities were $98.7 million. Total liabilities were $115.3 million; stockholders’ equity was $519.7 million.
- Management expects cash, cash equivalents and investments to fund operating expenses and capital expenditures for at least the next 12 months. It also expects operating losses in future years and notes that additional financing might be needed depending on business needs.
Material changes and operating developments
- Q3 subscription revenue declined $3.5 million, primarily due to customer churn during the Converge re-platforming, partly offset by growth at strategic clients. Visit revenue decreased $2.0 million, reflecting lower volume and specialty-care utilization; other revenue declined $1.7 million, primarily from lower marketing revenue.
- For the nine months, subscription revenue decreased $5.1 million, visit revenue decreased $1.9 million, and other revenue decreased $2.6 million. Management attributed the subscription decline mainly to re-platforming-related churn and other revenue weakness primarily to hardware and marketing.
- Research and development expense declined 24% in Q3 and 28% for the nine months as Converge development consulting spend fell; $13.8 million of software development costs was capitalized during the nine months. Sales and marketing expense rose 10% in Q3 and 11% for the nine months.
- Q3 gross margin, as calculated above, fell to 34.7% from 40.0%, which management attributed to revenue mix. The nine-month margin similarly decreased to 37.6% from 42.0%.
- Amwell recorded $78.9 million of goodwill impairment in Q3 and $436.5 million in the nine-month period, driven by sustained declines in its share price and market capitalization. Goodwill was reduced to zero. Testing found no impairment of definite-lived intangible or other long-lived assets.
- Management reported 4.6 million platform visits in the first nine months of 2023, versus 4.7 million a year earlier. Q3 visits were 1.445 million. In Q3, 50% of visits used Converge, up from 28% in Q4 2022. Active providers were 104,000, including 101,000 client providers and 3,000 AMG providers.
Outlook, risks and contingencies
- The filing provides no specific revenue, earnings or cash-flow guidance. Management expects research and development spending to return toward normal levels following the Converge development peak, while migration of health-system and health-plan clients to Converge remains a strategic focus.
- Management says re-platforming may affect revenue timing through onboarding and customer churn. Digital-care demand, contract renewals, platform adoption and visit utilization are key drivers of future results.
- Key disclosed risks include persistent losses and uncertainty about achieving profitability; virtual-care market growth and competition; reliance on a limited number of significant clients; adoption and implementation of Converge; healthcare regulation and reimbursement; privacy and cybersecurity; provider capacity; and acquisition integration. The company said its Form 10-K risk factors had no material changes.
- One client represented 22% of Q3 revenue and 24% of nine-month revenue. One client accounted for 14% of accounts receivable at quarter-end.
- Amwell said it was not party to pending litigation expected to have a material adverse effect and reported no material changes in contractual obligations. It expects some temporary pandemic-era regulatory flexibilities to be reinstated after the U.S. public health emergency ended, but does not anticipate a material business impact.
Important facts for investors to verify
- Whether Converge migration, customer retention and subscription growth improve, and how the platform rollout affects revenue timing.
- Whether visit volumes, specialty-care utilization and active-provider levels stabilize or grow.
- Cash burn excluding noncash impairment, the use and maturity profile of investments, and the assumptions behind management’s at-least-12-month liquidity assessment.
- The operating assumptions and market valuation factors behind the $436.5 million goodwill impairment, and whether further impairment indicators emerge.
- The extent of revenue dependence on the largest client and the potential effect of client concentration on renewals and collections.
- Adjusted EBITDA reconciliation and exclusions, including that it is a non-GAAP measure and does not replace GAAP results or cash-flow analysis.