American Well Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. American Well (Amwell) provides enterprise software and related services for digital healthcare delivery, including subscriptions, clinical visits and Carepoint hardware.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $64.0 million | $64.2 million |
| Operating loss | $397.3 million | $70.5 million |
| Net loss | $398.5 million | $70.3 million |
| Net loss attributable to Amwell | $397.7 million | $70.0 million |
| Basic and diluted loss per share | $1.42 | $0.26 |
| Adjusted EBITDA (non-GAAP) | $(44.6) million | $(47.1) million |
| Cash used in operating activities | $29.1 million | $62.2 million |
Revenue less cost of revenue, excluding depreciation and amortization, implies gross profit of approximately $25.2 million and a margin of 39.5%, versus approximately $27.5 million and 42.8% in Q1 2022. These are calculated from reported amounts.
Q1 2023 included a $330.3 million non-cash, non-deductible goodwill impairment charge, equivalent to $1.18 per basic and diluted share. Excluding that charge does not eliminate the company’s substantial operating losses. Stock-based compensation was $21.0 million, up from $12.1 million.
At March 31, cash and cash equivalents were $112.9 million and investments were $394.3 million, totaling $507.2 million. The company reported no debt. The decrease in cash and cash equivalents from $538.5 million at year-end largely reflects purchases of short-term investments; investing cash outflow included $390.0 million of investment purchases. Management said available cash, cash equivalents and investments should fund operating and capital needs for at least 12 months. Current liabilities were $115.6 million; total liabilities were $136.2 million.
Changes versus the prior-year quarter
- Revenue was essentially flat. Platform subscription revenue was $28.7 million in both periods; visit revenue rose to $32.5 million from $30.7 million, while other revenue declined to $2.8 million from $4.8 million.
- Total visits were approximately 1.71 million, down from 1.78 million; scheduled visits were 1.2 million versus 1.3 million. Amwell Medical Group providers accounted for 25% of visits, compared with 22%.
- Research and development expense declined 31% to $25.9 million, partly reflecting reduced Converge-related consulting and $6.8 million of capitalized software costs. General and administrative expense rose 11% to $36.4 million, including increased employee and stock-compensation costs.
- Operating cash use improved to $29.1 million from $62.2 million. Deferred revenue increased to $73.8 million from $55.8 million at year-end; remaining performance obligations were $195.0 million, with 47% expected to be recognized in the following 12 months.
- Converge accounted for 36% of visits, up from 28% in Q4 2022. The company reported approximately 108,000 active providers, including 104,500 client providers.
Outlook, commentary and risks
- The filing provides no specific revenue or earnings guidance. Management expects operating losses in future years while stating liquidity is sufficient for at least the next 12 months.
- Management’s 2023 strategic focus includes migrating health system and health plan clients to the Converge platform. It expects research and development expense to decline gradually during 2023, while continuing technology investment and spending to support growth.
- Management identified sustained declines in share price and market capitalization as the trigger for the goodwill impairment. It estimated that a further 10% stock-price decline could result in approximately $85 million of additional goodwill impairment if a triggering event occurs.
- The company expects some telehealth regulatory requirements to return after the U.S. public health emergency ended in May 2023, but did not anticipate a material business impact. Visit volumes are seasonal and may also vary with viral outbreaks.
- Risks highlighted include virtual-care market growth and competition, customer adoption and retention, reliance on a limited number of significant clients, Converge migration and development, healthcare regulation, privacy and cybersecurity, provider capacity, and acquisition integration. One customer represented 25% of Q1 revenue; two customers represented 25% and 12% of receivables at quarter-end.
- The company reported no material pending litigation and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether revenue growth, visit volumes and customer adoption support the Converge migration and offset ongoing operating losses.
- Liquidity and cash-burn trends, distinguishing operating cash use from movements into short-term investments; confirm the assumptions behind management’s 12-month funding statement.
- The valuation assumptions behind the $330.3 million goodwill impairment and the possibility of further impairment.
- Customer concentration, renewals and collections, as well as the timing and realization of the $195.0 million remaining performance obligations.
- Potential equity dilution: 63.5 million potential common-share equivalents were excluded from diluted loss per share as anti-dilutive, and stock-based compensation was $21.0 million for the quarter.