Amwell (AMWL) Q2 2023: Converge Hits 43% of Visits as Platform Shift Reshapes Growth Path
Amwell’s Q2 marked a pivotal migration milestone, with Converge now powering 43% of total visits and driving strategic client wins. The company’s shift to an ROI-driven, modular platform is reshaping both sales cycles and pricing power, even as legacy churn and delayed bookings weigh on near-term results. Execution on platform transition, sales force upskilling, and international expansion will determine the pace of margin normalization and long-term growth.
Summary
- Platform Migration Accelerates: Converge now supports nearly half of all visits, fundamentally changing client engagement.
- Sales Transformation in Motion: ROI-based selling and modular offerings are extending deal cycles but increasing strategic depth.
- Margin Path Hinges on Execution: Efficiency gains from migration and cost control are critical as Amwell targets profitability at lower scale.
Business Overview
Amwell is a digital health platform provider that enables hybrid care delivery for health systems, payers, and governments. The company generates revenue from software subscriptions, visit fees, and professional services across its core segments: platform software (subscription), Amwell Medical Group (AMG, visit-based care), and care points/professional services. Its new Converge platform, a unified hybrid care infrastructure, is central to Amwell’s transition from legacy telehealth to a broader, modular digital care enablement model.
Performance Analysis
Amwell’s Q2 revenue declined slightly year-over-year and sequentially, reflecting ongoing churn from the legacy platform and a normalization of visit volumes post-pandemic. Subscription revenue softened due to this churn, while AMG visit revenue fell 6% YoY, driven by lower volumes and a mix shift toward urgent care, which reduced average revenue per visit. Professional services revenue surged sequentially on the back of new Converge implementations, highlighting the lumpy but strategic nature of these deployments.
Gross margin compressed to 38.8%, impacted by lower subscription revenue and elevated onboarding costs for new psychiatric care clients. While R&D spend remained flat sequentially, management reiterated that Q4 2022 marked the peak and expects a mid-20% decline by year-end. SG&A is also set to decline, aided by lower stock-based compensation, as Amwell sharpens its focus on cost control and sales efficiency.
- Churn Concentrated in Legacy Platform: Most customer attrition remains isolated to legacy offerings, with zero churn reported on Converge.
- Visit Volume Realigns to Historical Patterns: Q2 visits down 4% YoY, reflecting seasonality and telehealth normalization post-COVID.
- Migration Drives Strategic Wins: Successful large payer and provider go-lives on Converge validate market fit and future expansion potential.
Amwell’s ability to complete client migrations and ramp new Converge modules will be central to stabilizing revenue and unlocking margin improvement in coming quarters.
Executive Commentary
"The highlight of Q2 was the successful launch of a new and very large strategic payer client on Converge. We are proud to be the engine powering their approach to hybrid care... Converge has already delivered efficiencies by propelling a meaningful reduction in the load on the client's own support call center."
Dr. Ido Schonberg, Chairman and CEO
"We have a substantial cash position, which provides the resources to fund this temporary period of investing, as well as flexibility to pursue strategic opportunities that are aligned with our financial and strategic goals."
Bob Shepardson, CFO
Strategic Positioning
1. Converge Platform Migration and Value Proposition
Converge, Amwell’s unified hybrid care platform, is now the focal point of its growth strategy, with 43% of visits in Q2 and a target to surpass 50% by year-end. The platform’s modularity allows clients to adopt capabilities incrementally, tailoring solutions to their ROI priorities. Zero churn on Converge and record-high provider NPS scores reinforce its competitive differentiation versus legacy offerings.
2. Sales Force Transformation and ROI-Based Selling
Amwell is overhauling its go-to-market approach, shifting from point solution selling to an ROI-driven, enterprise model. This transition includes upskilling the sales team, new leadership, and pricing model innovation. While this has extended sales cycles and delayed bookings, it is expected to yield larger, stickier deals and higher pricing power as clients validate value and expand use cases.
3. Margin Path and Cost Structure Realignment
Management now targets profitability at $400 million revenue, down from a prior $500 million estimate, enabled by R&D normalization, SG&A discipline, and platform-driven delivery efficiencies. Achieving this depends on rapid client migration and sales transformation, as cost benefits from legacy sunset only materialize post-migration.
4. Expansion in Automated Care and Virtual Nursing
Automated programs and virtual nursing solutions are gaining traction, addressing labor shortages and operational efficiencies for health systems. These high-ROI modules are in demand and represent key growth vectors as clients seek to modernize care delivery amid budget constraints.
5. International and Behavioral Health Growth
Amwell’s digital behavioral health programs, now integrated within Converge, are driving international wins in the UK, Ireland, South Africa, and Australia. Behavioral health and automation are central to both domestic and international expansion, leveraging the platform’s flexibility and evidence-based outcomes.
Key Considerations
Q2 reflects a business in deep transformation, as Amwell shifts its revenue base, sales methodology, and operational focus. Investors should weigh the following:
Key Considerations:
- Legacy Churn Nearing Inflection: Most attrition is now confined to legacy clients, with Converge adoption driving renewed commitment and expansion opportunities.
- Sales Cycle Elongation Offsets Near-Term Bookings: Strategic, multi-stakeholder deals are taking longer to close, but increase client stickiness and total contract value.
- Pricing Power and Modularity: The modular Converge architecture enables value-based pricing, with clients willing to pay more for incremental functionality and integration.
- International Proof Points Validate Platform: Wins in government and payer markets abroad demonstrate scalability and adaptability of Converge, broadening Amwell’s addressable market.
Risks
Execution risk remains elevated as Amwell navigates the dual challenge of migrating its client base and retraining its sales force. Delayed bookings and elongated sales cycles could further pressure near-term revenue and margin if not offset by accelerated migrations or new client wins. Legacy platform churn, while abating, still poses downside risk until full transition is achieved. Competition in digital health, client budget constraints, and evolving regulatory requirements also represent ongoing uncertainties.
Forward Outlook
For Q3 and the remainder of 2023, Amwell guided to:
- Annual revenue of $257 to $263 million, reflecting migration and sales cycle impacts
- Adjusted EBITDA loss of $165 to $160 million, with cost reductions expected in R&D and SG&A
Management expects subscription revenue to rise mid-single digits in the second half, while visit revenue will remain in line with 2022 levels. The company aims to complete most provider migrations by year-end, with payer migrations accelerating in 2024.
- Continued focus on client migration to Converge
- Ongoing transformation of sales organization and pipeline development
Takeaways
Amwell’s Q2 underscores the complexity and opportunity of platform transformation. While near-term bookings softness and churn weigh on results, the rapid scaling of Converge and ROI-based selling are setting the stage for improved efficiency and growth.
- Migration Progress is the Key Lever: As more clients transition to Converge, churn headwinds should abate and margin improvement will accelerate, but execution pace is critical.
- Sales and Pricing Transformation Will Define Upside: ROI-driven, modular deals are extending cycles but enhancing long-term value and pricing flexibility.
- Watch for Margin Inflection and International Expansion: Investors should monitor the pace of cost normalization, client expansion, and new international partnerships as leading indicators of sustainable growth.
Conclusion
Amwell’s Q2 marks a pivotal phase in its platform and business model shift, with Converge adoption, sales transformation, and cost discipline each playing a decisive role. The company’s long-term potential hinges on flawless execution of migrations and the ability to monetize its differentiated hybrid care infrastructure.
Industry Read-Through
Amwell’s experience highlights the complexity of replatforming in digital health, where ROI-based, modular solutions are increasingly demanded by both payers and providers. Industry players must adapt to elongated sales cycles, multi-stakeholder decision-making, and value-based pricing models, as digital care moves from point solutions to core infrastructure. The convergence of behavioral health, automation, and hybrid care is becoming a competitive necessity, with international partnerships validating the scalability of platform-first approaches. Legacy telehealth models face mounting pressure as clients prioritize integration, flexibility, and measurable outcomes in their digital transformation strategies.