Q1 2024 American Well Corp Earnings Call

Participants

Sue Dooley; Investor Relations Contact; Vocera Communications Inc

Ido Schoenberg; Chairman of the Board, Co-Chief Executive Officer; American Well Corp

Robert Shepardson; Chief Financial Officer; American Well Corp

Craig Hettenbach; Analyst; Morgan Stanley

Jessica Tassan; Analyst; Piper Sandler

Jailendra Singh; Analyst; Truist Securities

Matthew Shea; Analyst; Needham & Company

Stan Berenshteyn; Analyst; Wells Fargo Securities

Hannah Lee; Analyst; Bank of America.

Jenny Chan; Analyst; BTIG

Jack Wallace; Analyst; Guggenheim Securities

Presentation

Operator

Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amwell Q1 2024 earnings call. (Operator Instructions) Thank you. I would now like to hand the call over to Sue Dooley, Head of Investor Relations with Amwell. You may begin.

Sue Dooley

Hello, everyone. Welcome to Amwell conference call to discuss our first fiscal quarter of 2024. This is Sue Dooley of Amwell Investor Relations. And joining me today are Amwell 's Chairman and CEO, Dr. Ido Schoenberg and RobShepardson, our CFO.
Earlier today, we distributed a press release detailing our announcement. Our earnings release is posted on our website at investor dot analog.com and is also available through normal new sources. This conference call is being webcast live on the IR page of our website, where a replay will be archived before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the course of the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities
This forward-looking information is subject to the risks and uncertainties described in our filings with the SEC, and actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements.
On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. With that, I would like to turn the call over two Ido.

Ido Schoenberg

Thank you, Sue , and hello, everyone. I'm pleased to report that Q1 was a busy quarter for our company, one that provided a strong start for an important year for us. As a reminder, on our last call, we shared our guidance for step function in our growth it will help us achieve our profitability goal in 2026.
Before I show some highlights on our first quarter, I would like to open with a few general comments. It is now clear that the need for digital care enablement is significant. It is also clear that convergence performing well in power, sophisticated solutions across diversified clients on a large scale and finally, it is evident that new large customers are recognizing the value of our platform as reflected by the size and revenue mix of our recent wins.
Importantly, as we deploy our offering in the government sector, modernizing the military health system, we also expand into a new sizable market. In addition, we believe that implementing our platform in the demanding government environment is demonstrating important proof points that are also relevant in our existing commercial markets.
Those include scale, versatility and cybersecurity capabilities that will shine a spotlight on our market differentiation across all our sectors. During the past three months, we've taken major steps to adapt and transform our organization that will result in a greatly reduced cost structure as reflected in our forward guidance In addition, we have good visibility into strong top-line growth in 2025, coupled with greatly improved margins.
The guidance we gave on our last call described a 30% jump in our 2025 line rich with subscription software that will drive gross margin expansion to over 50%. We believe this is a clear indication of the completion of our re-platforming investment period. We believe our technology offering is unique and will continue to drive favorable high-margin software revenue mix and our strong balance sheet fuels us well beyond our needs to achieve profitability.
We are proud of our many clients, big and small that are now committed to utilizing converted their platform. Converged connects their health care services with millions of health care consumers. It drives efficiencies and fueled new revenue opportunities for them on a foundation of very high user satisfaction scores and NPS ratings.
The market for digital health is just starting and we are well positioned to benefit. What we do is complicated value to patients, providers and payers is significant, and we believe our deep integrations and vast deployments from long term bonds we've helped organizations that make up a big part of the US ecosystem. We are proud of what we've accomplished in the past three years and believe it is beginning to pay off. And now I would like to review some highlights from Q1.
First, we are delivering for our clients. In addition to the successful go-lives and migrations, we completed this quarter for several clients. We are steadily completing critical milestones as we deploy our solution for the military health system, working alongside the latest partnership for defense health.
Following our successful rollout of our digital behavioral health solution in Q1, we're now targeting the next capability offering go-live for Q3. Our efforts are on schedule, and we look forward to supporting damages in the full enterprise deployment of our solution scheduled for Q4. Interest in the work we're doing together with the DHA is growing early in Q1 itself does meal website. The DHS also announced its launch of our digital be able to have solutions in the beginning of this journey.
Also recently, an article for modern health care described the DHS commitment to modernization with our offering at its core. Second, we solidified important initiative in our growth organization aimed at reaccelerating our bookings and increasing our mix of subscription software revenue. Our growth org is embracing the changes we have put in place in tonight will show an example of our booking success.
Third, we continue to drive for efficiency. We are optimizing our company by instituting a cost structure that provides a baseline for meaningful profit expansion and growth scales in a very active Q1. We successfully migrated a large portion of our visit volume onto our converged platform via some of the most strategic payer migrations, including previously announced elements and highlights with the term converge with nearly 70% in Q1, meaningfully higher than 54% in Q4.
Our platform is scaling and performing well. And client feedback remains strong, with funds operating consistently well over 90%. And now I would like to provide some color around the successful Q1 client expansion demonstrating the growth potential within our existing client base.
With the sizable expansion with an existing East Coast blue payer client that will deploy several of automated programs to drive engagement, reduced costs and compete for members in a crowded regional market for health insurance, leveraging our programs, the fair intends to identify high-risk members and proactive encourage them to engage with high value care programs like that, it is managed.
We also had a good quarter for client renewals, including Highmark, Intermountain and Camino health Penn State and deliberately concluding my discussions on our growth initiatives. We think we have the right team structure in place and engagement with existing and prospective clients is high. We have completed detailed client reviews and creating rigorous account plans with metrics and compensation plans to emphasize a high value ROI selling approach and a focus on selling subscription software.
Our new Oregon team embracing a robust enterprise selling motion, which we believe will accelerate our growth, fueled by demand for our hybrid care expertise and a differentiated approach, enabling hybrid care delivery across the health landscape. Based on these achievements, we continue into 2024 with high conviction regarding our guidance for meaningful growth next year in our plan to achieve profitability in 2026.
With that, I would like to turn the call over to Rob to review our financials and key metrics and our guidance.

Robert Shepardson

Thanks, Ido, and good evening to everybody on the call. We ended the first quarter in a position of continued strong visibility into our future growth and our path to adjusted EBITDA breakeven.
Tonight, I will walk you through a few operating metrics and financial results from the first quarter then I will review our guidance for 2024 as well as our expectations for 2025 and 2026. To begin, total visits were approximately $1.67 million in the first quarter, a small decline versus $1.7 million last year. Visit volume this quarter was negatively impacted by two onetime events.
First, the Change Healthcare security breach, and second, a temporary disruption associated with our largest client migrations to converge to date, we resolve those issues before quarter end, scheduled visits represented 63% of total continuing to highlight the evolution of our company from providing virtual urgent care through a platform provider, enabling hybrid care.
We continue to make good progress migrating our clients to converge as we announced in February, we successfully migrated some of our largest payer clients, and we saw volume from them ramped this quarter with their volume now migrated the percentage of visits on converge is materially higher than the 52% from last quarter and for 1Q was over 68%.
Turning to our Q1 financials, total revenue was $59.5 million for the quarter, down $4.5 million or 7% from a year ago. Approximately $4 million of the decline in revenue versus last year was subscription related driven primarily by legacy platform declines with the balance driven by lower visit revenue, offset by higher services and care points revenue.
Subscription revenue declined 9% from Q4 and was $24.9 million in Q1. We believe the first quarter was our low point for the year for subscription. We believe that subscription revenue will increase each quarter this year with contracted customer go-lives, the full benefit of which we will see in the fourth quarter.
From a run rate perspective, we continue to expect our subscription revenue for 2024 to be approximately flat to 2023. AMG visit revenue trended 4% lower than last year and was $31 million in Q1, and AMG visits were 6% lower this quarter versus a year ago, due in part to the onetime dynamics I just mentioned. Average revenue per visit was slightly higher this quarter than last year at $77 driven by a mix shift within AMG away from on-demand urgent care visits.
Our AMG business continues to be strategically important to client expansions and new client wins. Our services and care points revenue was $3.6 million for the quarter, a decline of $7.7 million from last quarter, driven primarily by the timing of professional services and marketing. These revenues are uneven from quarter to quarter due to customer buying patterns for marketing services programs and for care points, as well as the professional services milestones that precede deployments.
We anticipate that our services and care points revenue will represent approximately 10% of our total revenue for 2024 two thirds of which will be recognized in the second half of the year, driven primarily by go-lives of contracted deployments.
Turning to profitability, our fourth quarter gross profit margin was 31%, a decline of approximately 300 basis points from last quarter. We view this decline as temporary, and it was largely due to lower subscription software and services revenue combined with onetime costs related to the very large payer migrations. We completed this quarter for the year.
We expect our gross margin to approximate the levels we saw in 2023 and expand meaningfully in future years as our mix of subscription software increases. We are tracking well on our path to normalizing R&D spending. Gaap R&D expense was flat to last quarter and with 7% higher after adjusting for $3 million of software development capitalization associated with our government work. Inclusive of this spend, software cap adjusted R&D spend is 10% lower than a year ago.
We continue to expect our total R&D spend to decline at least mid 10% percent this year versus 2023. Sales and marketing expense was $4 million higher than 4Q '23, driven by severance and other costs associated with our growth transformation. We also had higher compensation accrual compared to last quarter, which was offset by lower salary expense due to our headcount reductions. Overall we expect GAAP sales and marketing costs to be level year over year, inclusive of one-time costs.
G&A expense was $8 million higher versus last quarter, driven primarily by higher compensation accruals plus higher stock-based compensation expense due to the partial vesting of 2024 grants. We expect our quarterly run rate for stock-based comp for the remainder of 2024 to be below the level we achieved in the fourth quarter of last year.
Adding it all together, adjusted EBITDA for the quarter was negative $45.7 million versus negative $44.6 million last year. Our gross profit contribution is lower by $7 million, driven by lower subscription software and onetime migration expenses, offset by lower R&D. Transitioning to the balance sheet. We ended the fourth quarter with $309 million of cash and marketable securities.
Turning to our outlook, Q1 represents a good start to our year and tonight we are reiterating our 2024. We continue to expect revenue for 2024 to be in the range of $259 million to $269 million for the year. We expect subscription revenue to be roughly similar to that of 2023 and to grow incrementally each quarter this year with contracted go-lives, the full impact of which will be evident in the fourth quarter.
As to adjusted EBITDA, we continue to expect our 2024 adjusted EBITDA to be in the range of negative $160 million to negative $155 million. Additional context around our assumptions remains unchanged. We are on track to reduce our converge related R&D spend annually by 25% to 30%.
However, government related customization of our platform will moderate the overall decline in R&D to a circa mid 10% reduction for the year. Our headcount actions will result in over $15 million in compensation related savings. So our guidance assumes we return to normal levels of incentive compensation versus 2023.
The progress we have made in recent quarters, significantly adds to our financial visibility and meaningfully derisks our path to adjusted EBITDA breakeven. The impact of our plans supporting the DHA., including the enterprise expansion. It's not fully visible with a single year of guidance for 2024. And so in February, we took the extra step of providing a range of longer-term financial expectations the highlights of which are as follows. We expect revenue in 2025 to be in the range of $335 million to $350 million, representing growth of circa 30% compared to 2024, primarily driven by go-lives of contracted software backlog, including our plan to enterprise-wide DHL deployments.
We further expect an approximate 70% improvement in our adjusted EBITDA to a range of negative $45 million to negative $35 million. We expect the change in our revenue mix towards subscription software to lift gross margins from the high 30% area in 2024 to over 50% in 2025. After configuring our platform for operation in the government ecosystem, it will be fully scalable and ready to deliver complete hybrid care across the entire MHS enterprise with minimal future development required.
And finally, rounding out our forward-looking expectations, we currently expect to achieve adjusted EBITDA breakeven in 2026 with a cash investments balance of approximately $150 million. In conclusion, we are encouraged by the strides we have made in our business. And in Q1, we made good progress toward our goals. We believe we are just beginning to capitalize on the opportunity in front of us, and this guidance marks the early days for the long term profitable growth trajectory we envision. Thank you for listening.
With that, I'll turn the call back to Ido for some closing remarks.

Ido Schoenberg

Yes, thank you, Rob. In closing, I would like to thank our team for the work we completed in Q1. We are on track for our goals and we made progress towards our strategic initiatives and improved deploy and migrate our customers and the market takes note of the benefits of the hybrid care we enable we are solidifying our role as a digital transformation partner. We believe we are just getting started.
With that, we are ready to conclude our formal remarks. Thank you for listening today. Operator, we are ready to open the line for questions.Thank you.

Question and Answer Session

Operator

(Operator Instructions)
Charles Rhyee, TD Cowen.

Oh, yeah, thanks for taking the questions from that. I wanted to first ask about the number of the renewals that you kind of highlighted or Mountain, Cleveland Clinic, et cetera, and maybe get a little bit more details on and these are your length of these renewals, if they were adding any new capabilities, any kind of additional commentary you can provide on sort of value they are currently benefiting from converge and sort of what their roadmap looks like in terms of advancing further with you guys. Thanks.

Robert Shepardson

Hi, Charles, and thank you for your a question on the duration of our agreements did not change much in Italy, it's roughly around the three years, give or take the renewals are first and foremost, a vote of confidence in the Converge virtually all clients between you are looking at the new A. platform and each new client does look to add new elements to it. And of course, those elements in those solutions.
In addition to traditional a virtual visit of on-demand or scheduled a vary from one client to another. I'll give you a few examples. It payers typically add in relevance is a good example of that a virtual primary care, we believe EPC is enormously valuable and has a lot of potential for growth, adding a lot of value to members and creating a lot of saving and impact clinical and financial aid to the sponsors.
In addition to that, we see same-store growth and certainly relevant for renewal in all the area of automated interaction, automated interactions are very broad in their impact. They could be as simple as facilitating a bureaucratic activities like showing up for appointments for colonoscopy, all the way to managing complex illnesses like diabetes and in others. And that's certainly something that we've seen. And I that is one example of a Blue plan, and that's a new client actually, I'm sorry, that's an expansion. So that's really very relevant to your question.
Another example that we see now in renewals and expansions is virtual nursing. There is a very big shortage of a staff in hospitals and the ability to add to the roster, nurses that extend their career and could be very helpful in setting hours and hours of time in facilitating things like admissions and discharges is very significant to many of our customers.
And lastly, last example, and there are others that you're short of time, the whole notion of a collaborative care as it relates to be every health, our ability to use single cloud technologies to help primary care providers drastically improve access to behavioral health services is something that many of our customers are very interested in So in short, I believe that all of our renewals are really focusing on the broad capabilities of the Amwell platform today, which is very different from our legacy offerings.
Appreciate all that detail then and you mentioned elements adding sort of virtual care. Just curious your thoughts here, the recent announcement of United with the Optum virtual care platform being kind of wound down here. I'm just curious your thoughts on what that says about the market here for virtual care and the role that payers play in that, thanks to.
So if you know, United be very, very on very old car, a partner of a unless we have very strong relationship that they'd make a really long a longer time in those relationship are strong and internal events within the United Group do not expect to have material impact on our relationship or is it impact on our guidance as to the specific case, the two that you've mentioned, but certainly we've seen and you absolutely right, we've seen quite a few examples.
We're a tech oriented companies offered the care, and it was very challenging for them. And quite a few a repeat of this business in many ways. We believe the testimonial of a how difficult a offering doing what we do is in the sense that it's really important to work with existing providers that are trusted managing this network for digital services is far from obvious. And the technology that is required in order to do that is nothing but a commodity like some people suggested at United and many others reaffirmed their deep commitment, hybrid care and digital care.
So it's important to understand that those people, the dead weight including Walmart and others do not say that a easier access to health services is not something important. They just realize that some of their initial models, a really arm were struggling a little bit to find their way. We see that as a firm, affirming our view where we offer technology to connect existing, trusted the providers with consumers, but opening the gate to tidal wave of technology innovation that we believe could be very, very impactful.
And if you want, one example is the use of automation and AI. We believe that those technologies could have far-reaching effects on improving the outcomes in health care. It's almost impossible to use them as a standalone. And in the context of interacting between trusted providers and patients, they could find a very good way and to realize this potential.

Operator

Craig Hettenbach, Morgan Stanley.

Craig Hettenbach

Yes, thank you. I just question on the DHA. program and really looking for just any key milestones to watch as we progress through this year and what that means for the visibility of the program and and the setup into 2025?

Robert Shepardson

Absolutely. And book and follow with some financial observations, but essentially our relationship with the DHA and with the Leidos partnership on healthy, it's really terrific They're very experienced. This is a very large project and it's going very well and we're going to really do everything we can to make sure that it continues to go away when as I shared in the prepared remarks, the first milestone for the year is behind us. We went live with the ever Health, which according to the client preference was the most urgent thing for them to deploy.
As I mentioned earlier, there are two more milestones in the deployment of converged, which we are focused on right now. And lastly, the deployment of automated care towards the end of the year with expected enterprise rollout at the end at the end of the year. We believe this time line is still a very realistic and very viable, a growing going forward. On any other common stock?

Ido Schoenberg

Yes, Craig, thanks for the question. Am I guess I would say and from a revenue perspective, you can expect to see some of them. So the lion's share of the impact in the fourth quarter and with a lot of that revenue coming on with go-lives in the fourth quarter and for the first couple of quarters, Q2 and Q3, you're going to see a lot of services revenue come online.
There's two components to the services revenue that we'll be recognizing as we go forward here on the customization of the platform. One is and tied is that recognizing the revenue is tied to go live. So there's that aspect that we won't see in the next few quarters. But then there's another leg of that we will see and it will drive a significant growth in our in our services and care points revenue in Q2 and Q3.
So from a from a financial perspective, you'll see a few things going on. Our revenue's highly fourth, fourth quarter focus there. Services revenue, you'll see come on in Q2 and Q3 in a meaningful way. Those will be our largest quarters from a revenue perspective and services and care points. And then you'll also see some capitalization of our software spend, R&D spend some much higher in the second and third quarters as well. So I think financially, that's what that's what you can expect as we.
Yes, as it relates to that, the DHA.

Craig Hettenbach

That's helpful color. I appreciate it. Just a quick follow-up and Bobby touched on just some of the cost initiatives and kind of path to breakeven what are some key variables that you are mindful of in terms of marching towards that breakeven? Mike, on any potential tailwinds or headwinds on the cost side of things.

Ido Schoenberg

And I feel like we've got it pretty programmatic at this point, Craig, in terms of as I think about the components, I think Yum, gross profit is it is is going to rise very meaningfully over the next few quarters. It's getting us back to about what we did last year on the cost of goods sold side and the resulting gross margin. And then increasing to north of 50% the next year.
So I don't I don't see much a concern around masks. And then as we think about the operating expense line items, we have a very good bead on what the CONVERGE related spend and the declines there continue to expect. That's going to be in this area of 30% year over year. And and have a very good idea and a lot of comfort, I think, built into the and what we're spending for customization in the government sector.
So I don't I feel like we've been conservative in how we've estimated that. And the mid 10s decline reflects that level of conservatism and the contingencies built in for that work and SG&A, I think we've done we've taken some actions in January. I expect that we'll find incremental efficiencies going forward.
On the SG&A side, I think historically, we've been talking about a lot of operating leverage there I think there's we've got we've got scope to actually take those costs down year over year. So I don't I think those are really the points I'd make. I don't know you know, if you had anything you wanted to add.

Robert Shepardson

Yes, maybe giving you some color. And from another angle, as Bob mentioned, the big events, of course, is the completion of converge the platform we've built and proven, and that allows us to really greatly reduce the R&D investment.
In addition to that, we spent the last few months really focusing on efficiency and effectiveness in the company across the entire company with special focus around the efficiency and effectiveness of our growth organization. So we together with third-party consultants and our own team, we took a fresh look on it on the market.
A lot has changed in the market and that drove some some very interesting opportunity as it relates to our strategy and the focus, redefine our TAM SAM and chose to basically redefine also our business lines with special emphasis around the profitability we used to.
We took the new market segments and we decided to focus on segments where we have the highest right to win and the best opportunity to generate a better gross margin, especially driven by favorable mix towards a subscription software or a subscription. We did change our entire growth organization. We built a whole new structure around sales operation to support the strategy that is fit for the current market condition. The competitors and converge.
Our marketing that is really resonating right now with the market was revisited. We upskilled our talent. We brought some people from the outside that area that needed to and trimmed on people that are less relevant to what we're doing. We trained the entire staff on the new a plan and we created new comp plan that they really are encouraging our team to focus on higher margin software subscriptions.
And clearly, one of the outputs that we have less quota carriers in the bag they are carrying is much a broader that's not only interesting financially and where the effectiveness. That means that these people are able to tell a story. We have a much more broad end-to-end solution that we believe the clients appreciate we no longer have separation around business line, but other other consultants are able to talk about our entire portfolio will no longer have hunters and farmers.
We really have one team that is nurturing the relationship with both new customers and existing customers. So these are some examples on what happened in the past few months in well and the net of it is that we believe that we have already achieved a much more focused in efficiency in our organization, and we fully expect to continue those efforts over the next a couple of way a quarter, which will be demonstrated also in our cost structure.

Operator

Jessica Tassan, Piper Sandler.

Jessica Tassan

Hi, guys, and thanks for the question. So I wanted to confirm first up the sequential growth you're guiding to from a subscription perspective that contemplates it kind of known and understood. Attrition is net of that attrition.

Ido Schoenberg

Yes, that's correct as I am often.

Jessica Tassan

And then my follow-up is just and I I think you guys mentioned that the DHA. has expanded in some respects into behavioral capabilities that were not part of the initial deployment. And can you just help us understand what's the scope of the initial deployment from a product perspective? And then what is this incremental behavioral business.
And and my last one is just can you confirm that the DHA. enterprise-wide deployment is like locked and loaded funded and and and and that's going to occur in the fourth quarter of the year. Thank you.

Ido Schoenberg

I just couldn't hear your voice. So the behavioral health was always part of what the DOJ wanted to deploy in fact, their kickoff, the taking care of people initiatives is really focusing on the overall health care for our men and women in uniform. So that's why it was always the plan and indeed, the plan was executed to start with the automated, the behavioral health, which we deploy.
The product basically allows a providers to prescribe different treatment plans that are highly automated but with a hybrid approach together with coaches around things like depression, anxiety, a long list of other other ailments that are and be able to help a specific. So we've done that. And if you remember, the initial year is about deploying the services in five demonstrative sites across the VHA. And once this is done and working well to go to an enterprise expansion.
So this the first milestone is deploying those services in the site and of the DOJ. And we went live with it. It's operating. The other two milestones are a the converts deployments that we're focused on right now in the last one is the automated, the carry opportunity that I mentioned earlier. All that is done a complying with long list of requirements for cyber security for our staff, a credential credentials as for the GovCloud day operation and many other things.
So we are really investing here in capability that will be very relevant across the government market. And now also very nice showcase that some of our commercial customers are looking at as far as the a contract in the budget is a reminder, the $180 million budget for this part of the $4 billion, a task order vehicle A. for ADHA. and all that it was a grant in this budget is both for the initial deployment that I mentioned, but also for the enterprise expansion that is planned to take place on the fourth quarter. And while declined, of course, have always the right to delay or stop anything that we are doing. We believe that so far, everything that we are doing is going very well and generates much value. And there is no budgetary or contractual barrier for the enterprise expansion part of the existing funded vehicles.

Operator

Jailendra Singh, Truist Securities.

Jailendra Singh

Thank you, and thanks for taking my questions. So I want to follow up on your comment earlier about visit volumes being impacted by Change Healthcare and the temporary disruption from the large client migration. First, are you willing to quantify how much was the revenue impact in the quarter? And the second did change healthcare impact in any ways in our decision-making process at your potential prospective clients in terms of as they were preoccupied with this problem dealing with change for issue and all the other client migration disruption? Any other color you can provide what exactly happened.

Ido Schoenberg

Sure. I'll give you did under high. I'll give you the on, you know, the details on what took place and then Bob can add. We hear you on the on the on the impact to the extent we can share. So essentially, I think what happened in change is evident to everybody as it relates to us when we went live with the likes of relevance in Highmark.
The experience was that consumers logged in and they were not able to continue with this. Is it because they were not able to see their co-pay and really going forward. So we had lots of doctors waiting to see patients that couldn't go in lots of patients that couldn't see their doctors obviously, that's a serious serious barrier. Our initial solution was to find an alternative to change. I took some time that we could recruit. And of course, after a while a change, the go to solution and we were able to resume may resume the service.
Many, many participants in the ecosystem were affected by this. We certainly were not only one. So I don't think that this has an impact. But I don't remember any example of an impact on our pipeline or discussion with potential customers or with existing with existing clients, say maybe a little bit in the reserve. The fact that we're able to recover from such a major challenge is somewhat of a plus in our reliability in the markets.
Generally, the migration itself it was the largest integration we had in our history. It was very interesting because it took place at the beginning of the year a time or access to provider the harvest and demand the highest. In addition to that, we also launched a new product within events to virtual primary care that we had to staff.
So there was really an interesting uplift there and to all our operations, both a technical and sales building, two-way integration with a lot of clients, the systems that were ramping up over time. In addition to that, we had to manage a network that was in full capacity in a very high a demand, pleased to report that we were able to execute in the system, a big go-live and scale is now in full production for both a high market and the elegance on broadband, Rob, you have some more comments.

Robert Shepardson

So Jailendra, we estimate that the changed, it has changed not happened. We would have been flat from a visit perspective year over year. So that cost us the volume decline that we saw in May in the first quarter here. And so I think I think that was the question you asked, but the absent that we would have we would have been at least flat. And then and then what Ido described about the the migrations. Some of that was also a one-time event that cost us some volume, but that would have been the growth on top of being flat. These are the the changes here.

Operator

Ryan MacDonald, Needham & Company.

Matthew Shea

Matt Shea on for Brian. Thanks for taking the question. Just wanted to circle back on the Optum shuttering digital health as well as Walmart closing their digital health operations. Do you see this as creating a potential opportunity for Amwell to move more into the retail space or see kind of some some greenfield opportunity that wasn't there before? And maybe kind of in conjunction with that, these announcements change at all how CVS is thinking about their digital health programming. They're seeing more opportunity here, anything to call out there?

Ido Schoenberg

So, Matt, these are really great questions. And of course, I cannot opine or share anything about specific clients of ours, but more a more a general. So is zooming out for a second. A do we believe that a people will use digital care. It is an opportunity to access the healthcare system. And I think that everybody agrees that the answer is is very stronger.
Yes, we don't think that that trend is going anywhere. There is so much potential convenience, cost savings, improvement of outcome, the access to higher quality care that is possible when you use a high bogey of care, I think that some of the events that you mentioned demonstrate that this is really complicated and the solution is not very, very easy, not only for a single organization, but it really requires integration.
he answer is not by having one here or do it all, but rather have a solution that is working across the ecosystem to build bridges and really combine in a hybrid way. The solutions that exist there is no substitute to the trusted brands of providers, and there is no substitute for very sophisticated network management to take into account conscious of considerations, there is no substitute to reinvest in what would it actually take to allow patients and consumers to navigate through this very important complex, settle the settle the option.
So having said all that, we believe that we build an infrastructure that facilitates that a connection and does not overlap with the traditional roles of traditional players that we believe continue to be leaders saying it another way, we believe that what we build is proceeding very well to benefit from everything we said. And just to give an example, UnitedHealth Group was very vocal saying a after, you know what they announced that they are very committed to a to telehealth to hybrid care.
Definitely plan to continue to sponsor it and decided to ask Mr. to the world. So in many ways, my short answer to your long mile after the long a detail is that we are here. We're still serving a big part of new Sequel System when they are going to be less players in the masses that we are likely to net benefit it. But we it's early days and we're not trying to suggest right now how quickly this trend is going to evolve from our vantage point.

Operator

Stan Berenshteyn, Wells Fargo Securities.

Stan Berenshteyn

Hi. Thanks for taking my questions. First on maybe just a follow-up on your comments regarding the go-to-market strategy. You mentioned. Are there some changes there? Can you maybe just expand specifically what are the changes, what are the focal points that are different versus historically? And maybe if you can also comment on how is your sales team now splitting their time between upselling existing clients versus going to market for new clients?

Ido Schoenberg

Sure. So as I mentioned earlier, the market today is so different from a few years ago. Essentially, buyers want to complete solutions when you think about the solution. It's helpful to I think, talk about it in a way or what does what do patients want? Our does, what do consumers want? And we all want to go digital, go online, either proactively or reactively and have the richest set of options from trusted sources with a combination of in-person automated in vitro.
And in addition to that, a providers are key to that solution. So providers want to have a solution that is very intuitive, very easy, but is fully embedded in the workflow allows protects the licensure allows them to get paid for the time in a fair way. And all those things are not not very easy, and we believe converge a solve for it in a really comprehensive fashion.
We also believe that the combination of our own network together with long, long list of partners that is getting longer value day like Cleveland Clinic and Darial and many others it allows us to offer the full gamut, not only urgent care, but also diabetes and hypertension and nutrition and GMP one and stroke. And it's a cadre of psychology and therapy and so on and so forth in a really efficient, efficient way. So you have trusted services from non-brand. It cause the full care continuum for an interface and confer unique. The connects you to people that you trust.
Having said all that as it relates to the market demand, what I just said, appeals to subsegments and this we have defined and we just don't have the time to go through within the payer and provider a community where this is the most compelling where what we created has the best right to win. So together with our friends at Mackenzie and others, we will map those out in mix and package our products in the right way to address those those those needs and the ARM team that we built and no longer separated by product line or by a new logos and existing customers
Basically, the idea is that each pod of consultants is able to basically establish new relationships, but then continue this relationship and manage it to expand it or focus on existing relationship and just expand it. And the metric here is more relates to capacity rather than the on the type of people that do that. And that may sound like a small change, but it's actually very profound change. Anyone that is facing our client number today knows that there from the first interaction that they are going to own this relationship for many years. And that change the dynamics both on our end, but very importantly and for RA for our customers.

Operator

Diana Li, Bank of America. Please go.

Hannah Lee

And this is Hannah Lee on for Diana. Let's Thanks for taking my question. And so just over the past few months, have there have been any changes with what you've been seeing in the spending environment and just overall macro pressures with health systems? We just have to hear it, Henry. And how much you expect growth in 2025 and 26 come from either?

Ido Schoenberg

Hannah Lee. Finally, well on think that the biggest change we've seen is maybe from two or three years ago to today. And we think that many of those changes are permanent on the what we've seen, first and foremost is dramatic rise in sophistication of health systems. If say telehealth was somewhat exciting in some cases may be here today. Hybrid care is a very effective tool that is known to do important things for health systems to retain staff, to improve efficiency, to save time to engage patient in a very meaningful way to manage risk in any way to name to name a few.
So the RFPs that we see and the dialogue with health system, both existing customers and new ones, is a very different dialogue than the one that we held only a couple of a couple of years ago, and the ROI is really front and center to those dialogues on and it's no longer enough to talk about in broad platform. It's very important to dig deeper into specific solutions.
And I gave a few examples earlier on the call today is the benefit of having converts today is it's really it's already coming out of the door with a very broad set of solutions, but it's very open to get new ones, not only for Madewell, but also from a newly partners into also embed solutions that our clients bring to the table. And that's a really important the importance they attribute. So I would say that there is ready to pay for clear ROIA. The model that is preferred is a model risk-sharing whenever a possible, but there is growing conviction that we see in making those payments.
So in summary, and we believe that it is telehealth two or three years ago was a part of the innovation differentiation vision part of the health system. It's really much closer today to the operational mundane part of the infrastructure that has very clear goals and very clear our why to be proven by a DEPARTMENT.

Operator

David Larsen, BTIG.

Jenny Chan

Jenny Chan for Dave Larsen.
Thanks for taking my Quest. I just wanted to ask you've mentioned it 90% plus of the revenue increase that you from 2024 to '25 is associated with contract go-lives or backlog. Can you give us some more color there? Any update just to have better idea on concentration, how much of that is related to the DHS contract? And any additional comments you can give us in terms visibility how you're feeling longer term outlook for profitability by '26 and any comments?
Fine, I your good bookings, which you made some positive comments on, Charlie?

Robert Shepardson

Yes, Jenny, we I think we gave really specific guidance back in February. Nothing's really changed there in terms of those of the statistics and the percentage of growth that's underpinned by and by contracted go-lives still in that in that same ZIP code. And if anything, we have higher conviction around around all that. So I don't really have anything incremental to share on that.
And then as far as you know, the path beyond that and to profitability, again, I would say higher conviction as we've really dug in on our cost structure, we're going to show just independent of all of the all of the goodness that we're going to see top line in gross profit. If you just look at where we were in 2023 from an operating expense perspective, and we're going to be down high single digit this year and then we'll be down, call it circa 25% from that level in in 2025. So costs are coming out of the business very quickly. And again, on the revenue side, and the mix side and the gross profit margin side, we continue to feel really good about the guidance we gave in February.

Operator

Jack Wallace, Guggenheim Securities.

Jack Wallace

And congrats on what looks to be an increasingly positive outlook here. A question on the provider business for the providers that have migrated have we seen any churn there. And I say that because I my hunch is no and if most of the providers have been migrated at this point, there shouldn't be much of a churn element in the subscription line going forward? Am I correct?

Ido Schoenberg

So we have many clients, but they are not I think you're right, but I need to check all of them some of them are very small. So I don't want to mislead anyone obviously on the on the call, but as a general rule, I don't recall any migrated the customer that terminated or departed that I'm aware of, notwithstanding the people that had some known market events that we cannot talk about, it are not connected necessarily through to us at all, but as a whole in whatever market people that migrated are very happy and I'm not going anywhere anytime soon as hard our vantage point to say is concerned.
Rob, any color on that?

Robert Shepardson

No, I think you said I think that's right.

Jack Wallace

Great. Thank you so much.

Ido Schoenberg

You're welcome.

Operator

There are no further questions at this time. I will now turn the call back to you Ido Schoenberg for any closing.

Ido Schoenberg

Well, thank you, everyone. We really appreciate your support of unwell and going through this enormous period of transformation. I it was a long road, but we are excited that it's nearing the hard part and we're excited about what's to come. So thank you for joining us on this journey, and thank you for joining us this evening.

Operator

That concludes today's conference call. You may now disconnect.