Amwell scores major deal with Defense Health Agency, but stock slides as losses grow

Telehealth giant Amwell (formerly American Well) inked a major contract with the Defense Health Agency (DHA) to expand its reach into the government and public sectors.

In partnership with Leidos, Amwell will provide a hybrid care technology platform designed to power the “digital first” transformation of the Military Health System, according to the company.

The contract, worth up to $180 million, will deploy Amwell's Converge platform to replace the Military Health System's video connect solution. The project will start at five initial sites followed by a phased enterprise rollout. 

"The award demonstrates our market leadership position as an enabling digital transformation partner. It also extends our TAM [total addressable market], expanding our reach into the government and public sectors. This is a major event in our company's history that increases our revenue visibility and fortifies our path to profitability," Ido Schoenberg, M.D., chairman and co-CEO, told investors and analysts during the company's third-quarter earnings call Wednesday.

"After the initial phase next year, the enterprise rollout outlined in the task order would place the U.S. government among our largest customers with a very substantial weighting in recurring software revenue," Schoenberg said.

Amwell executives believe the company is well positioned in the market as organizations move toward hybrid care and solutions that optimize the provider and patient experiences.

"After years of internally investing and struggling with fragmented IT assets, healthcare organizations are increasingly turning to us. They recognize the value of a partner who can speed the path to the right hybrid care modalities to achieve their goals," Schoenberg said.

"As I think about our company, I believe we are at a turning point, leaving behind us many of the risks of replatforming and rapidly putting in place the strategies to pursue our market opportunity and realize profitable growth. We have shared many green shoots with you tonight. As we emerge from this time of transformation, it is clear from our vantage point, the market is moving to us," he told investors during the call.

But the virtual care company saw its revenue decline year over year and its net loss widen during the quarter. 

Amwell recorded total revenue of $61.9 million, flat to last quarter and down 11% from a year ago when revenue came in at $69 million.

Bob Shepardson, Amwell's chief financial officer, said approximately 50% of that decline in revenue versus last year was subscription-related, "driven primarily by legacy platform declines with the balance split between lower visit and services and Carepoints revenue."

Subscription revenue for the third quarter was $28.4 million in the third quarter, up slightly from the second quarter. AMG visit revenue hit $26.7 million during the quarter, also down compared to a year ago.

"AMG visits were 8% lower versus the third quarter of 2022, reflecting a return to normal seasonality with last year elevated due to COVID-influenced volume. Average revenue per visit was slightly higher than last year at $77, driven by better urgent care pricing," Shepardson said.

Amwell also reported flat growth for its total virtual care visits with about 1.4 million visits in the third quarter, about equal to last year. The company ended the third quarter with 104,000 active providers on its platform, flat compared to a year ago.

Amwell's losses grew during the quarter as the company posted a net loss of $137 million, or a loss of 48 cents per share, up from a net loss of $70 million during the third quarter of 2022.

The company was hit with a noncash goodwill impairment charge of $79 million in the third quarter caused by a sustained decline in its share price.

Amwell took a noncash goodwill impairment charge of $330 million in the first quarter this year, followed by a charge of $27 million last quarter, for a total of $436 million in 2023.

The company's losses have ballooned to $629 million in 2023. 

Amwell's third-quarter results missed Wall Street estimates with analysts expecting an EPS loss of 21 cents per share and revenue of $63 million.

The company's stock was trading at $1.18 at market close Wednesday, down from a high of $35.54 in October 2020. Amwell's share price dipped 8% in after-hours trading.

The company's gross profit margin stood at 35%, and adjusted EBITDA came in at a loss of $38.5 million, improved by 15% compared to the previous quarter.

Amwell executives said the DHA contract will have a significant impact on Amwell’s future financials.

However, executives expect 2023 revenue to be within the previously guided range of $257 million to $263 million.

Amwell now projects adjusted EBITDA for 2023 in the range of a loss of $162 million to a loss of $167 million, compared to previous guidance of a loss of $160 million to a loss of $165 million.

Shepardson said this reflects incremental research and development investment in the fourth quarter associated with the deployment of the DHA project.

"We view this incremental spend as a high priority, as we undertake the important development and deployment work with our Leidos partners and the DHA to build and deploy Converge for the military health system," he told investors and analysts on the call.

The initial deployment phase is expected to be cash flow accretive, and the full enterprise rollout will significantly expand subscription software revenue, he said.

Amwell is betting big on its Converge platform to help support a digital-first approach to healthcare as virtual care evolves post-pandemic.

Schoenberg touted several "wins" during the earnings call, including continuing to migrate clients over to its Converge platform with 50% of virtual visits now completed on that platform in the third quarter, up from 43% last quarter. The company hit that milestone a quarter earlier previously planned.

"With over half of our volume now on converge, the data is confirming that our new platform is a game changer," he said during the call.