American Well Corp

NYSE:AMWL

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amwell Second Quarter 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, executive]

Hello, everyone. Welcome to Amwell's conference call to discuss our second fiscal quarter of 2024. This is Sue Dooley of Amwell Investor Relations, and joining me today are our Chairman and CEO, Dr. Ido Schoenberg; and Bob Shepardson, our CFO.

Earlier today, we distributed a press release detailing our announcement. Our earnings release is posted on our website at investors.amwell.com and is also available through normal news sources. The 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 this 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 to Ido.

[Ido Schoenberg, executive]

Thank you, Sue, and good evening, everyone. Q2 was a busy quarter for our company, marked by progress on all fronts. Our focus is strong as we deliver on key strategies that support our guidance, which calls for a step function in our growth in 2025, leading to our plan for adjusted EBITDA breakeven in 2026.

We see 3 ways in which we advanced our business during Q2. First, we continued the successful deployment of the Defense Health Agency's digital first initiatives. Second, we had a high degree of focus on cost-cutting initiatives in the first half of the year that drove the improved 2024 EBITDA guidance in tonight's release. And finally, our growth transformation is progressing well. Engagement with prospects is high and our deal pipeline is expanding.

Now let me get into a little more detail. Our self-guided behavioral health solution for the DHA is live in production at all 5 designated sites. Converge and automated care implementations are progressing well as planned. We're targeting the next capability offering go-live for Q3 and Enterprise Go-Live is still scheduled for Q4. We are honored to have the opportunity to positively impact the health and readiness of our men and women in uniform and their families. We remain fully committed to our partners to improve access to care and support the military health system's digital first transformation.

Turning to our cost structure. We continue to make good progress in rightsizing and optimizing our company to benefit from our new platform and go-to-market focus. Bob will provide you with details on Q2 cost-related results that led to our improved guidance for 2024 EBITDA.

Across all aspects of our business, we continue to drive for efficiency. We are beginning to deliver the significant savings and efficiencies that are part of our path to profitability. Importantly, our strong balance sheet fuels us well beyond what we need to achieve profitability.

Our sales team is embracing a robust enterprise selling motion to accelerate our bookings and deliver sustained long-term revenue growth. Notable Q2 expansions include Elevance, [ Altumind ] Health System and [ CommonSpirits ]. We believe these wins demonstrate the opportunity to grow within our existing client base.

We also documented significant renewals, including St. Luke's, Prisma Health and [ Noah Health ]. We continue to deliver for our clients. Our patient thumbs-up rating for Converge is above 90% and visit on Converge are 70% of total. One notable migration to Converge late in Q2 was Capital Blue Cross, where we saw one of our most efficient and streamlined migrations to date.

Now I would like to recap that we recently announced some important steps to evolve our company beyond this time of transformation. As we shared earlier, our co-CEO, Roy Schoenberg stepped away from day-to-day operations. As our Executive Vice Chairman, Roy maintains an active role in furthering Amwell's mission as a global provider of our world-class platform for digitally enabled care delivery. This change reflects the end of our re-platforming era and is designed to streamline decision-making across the company to propel profitable growth.

Second, we are fortunate to add a new member to our Board of Directors, Ricky Goldwasser. Ricky is the senior industry veteran many of you know. She has a strong financial and health technology leadership track record. We are confident she will bring in new perspective and intense focus to her role. Ricky takes the seat of Governor, Deval Patrick, who departs our Board after 9 years of valued service. We thank Governor Patrick for his pivotal role in Amwell's history to date.

Wrapping up, I would like to speak for a moment about the market for digital healthcare. At this time, it is evident that the digital first approach is resonating. Facing operational challenges, payers and health systems are looking to unify, personalize and simplify the healthcare consumer experience.

They also aspire to mobilize longitudinal all-person data sets to improve care and outcomes. All that to help consumers cost effectively engage in a broad array of digitally enabled clinical programs across the care continuum. Related to this, in Q2, we signed a new partner agreement with Hello Heart, adding to our list of valuable clinical programs enabled by our ecosystem.

Amwell is uniquely positioned to address the challenges our clients are facing, realize their aspirations and help them deliver on these goals. We offer an end-to-end comprehensive solution. It is dependable, safe, secure with a proven track record at scale. It powers the large part of the U.S. ecosystem and can enable the exchange of data and services between entities across our client base to make care even more efficient and accessible.

The partnering approach we are pursuing is unique. The value to patients, providers and payers is significant. We believe our deep integrations and vast deployments for long-term bonds with healthcare organizations [ that ] make up a big part of the U.S. ecosystem.

With that, I would like to turn to Bob to review our financials, some key metrics and our positively revised guidance. Bob?

[Robert Shepardson, executive]

Thank you, Ido, and good evening to everybody on the call. The highlights of this quarter versus last, our total revenue increase of 5%, a gross profit margin increase of 660 basis points and adjusted EBITDA increase of 23%. And as Ido mentioned, based on our first half performance and expectations for the second half, we are improving our guidance range for 2024 adjusted EBITDA by $10 million.

To begin with a few operating metrics. Total visits were approximately 1.5 million in the first quarter, approximately flat to last year. Scheduled visits represented 66% of total, continuing to highlight the evolution of our company from providing virtual urgent care to a platform provider enabling hybrid care. Volume on Converge held steady at approximately 70% of Q2 visits.

Turning to our Q2 financials. Total revenue was $62.8 million for the quarter, similar to last year. Higher visit revenue offset a small decline in subscription revenue compared to 1 year ago with services and care points flat. Subscription revenue increased $2.6 million or 11% from Q1 and was $27.5 million in Q2. This was a bit ahead of our earlier expectations. Approximately 1.5 million of the increase is onetime in nature and relates to a change from our expected timing of the completion of certain contracts.

With this as context, we expect a small quarter-over-quarter decline in subscription revenue in Q3, followed by a substantial increase in 4Q to bring total subscription software revenue for the year to approximately flat [ with ] last year.

AMG revenue trended slightly higher than last year at $28.7 million in Q2. The number of AMG visits were slightly lower than 1 year ago. Average revenue per visit was 4% higher this quarter than last year at $80, driven by a mix shift within AMG away from urgent care visits. Our AMG business continues to be strategically important to successful client expansions and new client wins.

Our Services and Carepoint's revenue was $6.6 million for the quarter, an increase of $3 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 Carepoint as well as the professional services milestones that precede deployments. We continue to anticipate that our Services and Carepoint's revenue will represent approximately 10% of our total revenue for 2024, driven primarily by go-lives of contracted deployments.

Turning to profitability. Our second quarter gross profit margin was 37%, an increase of approximately 660 basis points from last quarter on higher subscription revenue and as we put some of the onetime cost impacts from Q1 behind us. As a reminder, these costs were related to the changed healthcare breach and the very large client migrations, which we successfully completed in Q1. For the year, we expect our gross margin to approximate the levels that we saw in 2023.

We are tracking really well on our path to normalizing R&D spending. We are currently at peak spending for our government work and yet our GAAP R&D expense for Q2 declined 22% to Q1. This is 12% lower after adjusting for $5 million of software development capitalization. Compared to 1 year ago, software cap adjusted R&D spend is 21% lower. We continue to expect total R&D expense to decline mid-teens percent this year versus 2023 with most of the remaining decline to be in Q4 as we complete the bulk of our government work.

Sales and marketing expenses were $7 million lower than last quarter, driven by cost initiatives as well as declines in onetime growth transformation costs compared to Q1. Overall, we expect [indiscernible] sales and marketing costs to decline mid-single digits year-over-year, inclusive of onetime transformation costs.

G&A expense was $4.3 million lower versus last quarter, driven primarily by lower stock-based compensation expense, along with some benefit from lower headcount. We expect our quarterly run rate for stock-based compensation for the remainder of 2024 to be around our second quarter level.

Adding it all together, we are now beginning to see the impact of our planned cost initiatives, and we are putting some non-recurring expenses behind us.

As a result, adjusted EBITDA for the quarter was negative $35 million versus negative $45.6 million last quarter and negative $45.3 million last year. And transitioning to the balance sheet, we ended the second quarter with $277 million in cash and marketable securities.

Turning to our outlook. We are pleased with our progress in the first half of the year. And tonight, we are revising our 2024 adjusted EBITDA guidance. 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 with the balance of the growth for the year to occur in the fourth quarter with the full impact of contracted go-lives.

As to adjusted EBITDA on the strength of our first half and expectations for the second half, we are improving our guide for 2024 adjusted EBITDA by $10 million to negative $150 million to negative $145 million from our prior range of negative $160 million to negative $155 million.

In conclusion, we are encouraged by the strides we have made in our business. And in Q2, we made good progress toward our goals, which support our confidence in our path to adjusted EBITDA breakeven in 2026.

Thank you for listening. With that, I'd like to turn the call back to Ido for some closing remarks. Ido?

[Ido Schoenberg, executive]

Thank you, Bob. We are executing well and energized by our results and the improved financial visibility that underscores our path to growth and profitability. At this time, I would like to thank our team for their hard work, passion and perseverance.

We will now open the call to questions. Operator, please go ahead. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Craig Hettenbach from Morgan Stanley.

[Craig Hettenbach, analyst]

It's encouraging to see the improving trend in lowering EBITDA loss. Ido, can you just touch on just the change in go-to-market strategy with the sales force? Any proof points in terms of what's resonating with clients and what that might mean for the setup for 2025?

[Ido Schoenberg, executive]

Sure. Absolutely. So in essence, we are in a situation where Converge that used to be a new, a promising and exciting platform is rapidly becoming a clear best-of-breed in the market with 70% of our volume on it and practically all our [ strategics ], including the contemplated DHA, is on this platform.

We are pleased to see that people are using this platform really across the board for multiple programs. So there is a long list of programs for payers that are interested to cater for digitally first members that want to use digital services across the care continuing. There are programs that are more popular than others, like virtual primary care, but it's really across the board. It's a very wide variety. And every client is typically starting with the most important program with the most important pain points.

The same is true for providers. Providers are looking for efficiency and growth and better services to their own patients, which we are able to provide as an envelope to EHRs that typically missed out in certain important areas like specialty visits, telestroke, telebehavioral health, e-nursing and the like. The list there is also quite significant. So we're encouraged to see that automated program is another important high demand area that we are definitely seeing in the provider space.

So what we see right now is, and I mentioned a few examples this evening, is more and more clients that are expanding on their initial investment with Amwell on Converge. And I think what's resonating the most is the peace of mind that you get by starting from really important ROI-driven spaces and ability to scale with the same level of integration quite quickly. We believe that, that trend is going to become stronger and stronger as more and more people begin their interaction with digital health online.

[Craig Hettenbach, analyst]

And maybe just building on one of your comments in terms of how customers start and then they can scale over time. What do you see more broadly just in the demand environment just from a sales cycle perspective across providers and health systems?

[Ido Schoenberg, executive]

I think they're very, very different in their DNA and what they are looking for. Providers are really looking for a better way to offer more effective and efficient care through digital first experience. The cost of engaging a member is pretty high and the fragmentation is pretty enormous.

The opportunity to have one digital door that is helping with orchestration of care to a whole person long list of program is incredibly important to reduce the member acquisition cost and engagement, also realize the promise of those digital programs and provide a level of transparency in reporting that is necessary for those payers to turn around and show to their clients, the employers.

I believe that the main pain points of providers relate mostly to efficiency. So we gave in the last earning call a few examples which are resonating with health systems as it relates to automation and the ability to use text in a very personalized way to make sure that people show up to their outpatient clinics or avoid the readmissions on ongoing frequency or manage their ER interactions in a better way, are just a few examples of that.

So the system really benefits from those 2 strong value propositions, so the 2 parts of the market. And growingly we see more and more opportunities where connections between those market segments are becoming very relevant. Because at the end of the day, to achieve a better and more effective care for payers, you do need to build on the brand trust of community providers and providers that want to grow beyond their catchment areas need to be able to package their services digitally and make them available to growing number of payers.

[Operator]

Your next question comes from the line of Jack Wallace from Guggenheim Securities.

[Jack Wallace, analyst]

Ido, it seems like there's an incremental commitment to getting the streamlined organization to you getting to profitability. Can you talk a little bit more about over the last 1.5 months or so since you've been the sole CEO, what you've seen from -- you're looking into the R&D department from areas that maybe you weren't directly focused on that Roy was, areas where either there is better lines of communication, elimination of some processes, potentially consolidation of divisions, whatever it is, where that part of the house is -- you got opportunity to get leaner and more efficient? And then just kind of broadly elsewhere in the organization, if there's any other incremental places where you believe the organization will become more efficient?

[Ido Schoenberg, executive]

Absolutely, Jack. So the net of it that for the past few years, as you know, we had an enormous undertaking in building Converge and that was led by Roy and the organization. And we are glad that we did it this way. Now it's very clear that this effort is very much behind us, as indicated also by the dramatic decline that bought share in the R&D cost, which will continue also through the rest of this year.

In addition to that, the assets that we have today is very different from the asset that we had. And we were able to really revisit our go-to-market strategy to select subsegments where the ACV potential is much greater and the mix of clients and the mix of products favors high-margin, recurring revenue and long-term very accretive relationships.

We had to change our SG&A and mostly our sales organization to realize what I just said and create something that is not only very efficient with smaller headcount and yet much more impactful results, but also really geared to grow.

The new platform is much more efficient. So our delivery organization is just operating much better. So you see a change in the [ spend and ] layers in the company, in the old structure, in the headcount. You also see alignment in processes that are laser-focused on really being as efficient as we can, as effective as we can, meaning addressing the key markets that we selected and also accelerate growth. That type of operation is really all about execution and calls for a very streamlined, clear decision-making structure with new processes and the more [ auto dock ] structure of a single CEO fits that very well.

Roy remains very active as our Executive Vice Chairman and continue to offer a very differentiated and important vision for the company, but the team is really all hands down, laser focused on reaching our path to profitability as quickly as we can, because as I talk to a lot of our shareholders, and we care deeply about our shareholders, that's what they're talking about. That's what they want to see in the company right now, and that's exactly what we are going to deliver.

[Jack Wallace, analyst]

And then just a question about the kind of the revenue and the billings this quarter. It sounds like we had a little bit of a onetime good guy on the subscription line. But otherwise, it seems to be pretty strong under the surface. Your billings were up 45% year-over-year or about $10 million or so. Was there any pull forward in billings associated with the NHS contract, just associated with the the staging of that? It sounded like there was some really good renewals and upsells from the quarter. Can you just talk a little bit about how much additional billing activity there was, because it does seem like there was a nice change in direction there?

[Robert Shepardson, executive]

Jack, a good bit of it was related to the government contract. And so, the growth there was the lion's share of the increase. Yes, the good guy, I just wanted to make sure everybody was aware and cognizant that, that growth is terrific, and it looks really good. But we have talked about growth every quarter in subscription. We're going to get to the same place. We just had -- we had to recognize a bit more of it in the second quarter than we expected. And so there'll be a little bit of a dip, a small dip for the third quarter and then a very large increase to get us to what we've been talking about for year [indiscernible].

[Ido Schoenberg, executive]

Zooming out a little bit -- Jack, Can you hear me?

[Jack Wallace, analyst]

Yes.

[Robert Shepardson, executive]

Yes.

[Ido Schoenberg, executive]

Zooming out a little bit, we are very satisfied to see our pipeline growing significantly. The conversion rate accelerating. We're also very pleased to see next year, with a very big jump in top line, with a very big jump in margin and very brief progress in our path to profitability. So all that in very big picture is very much there for us without any heroic efforts, without any substantial growth left or unforeseen event at this point. So that's beyond the queue. Just a reconfirmation of the trajectory that we talked about before that as we near the time of delivery, it's nice to see that we are getting closer.

[Operator]

Our next question comes from the line of Ryan MacDonald from Needham & Company.

[Matthew Shea, analyst]

This is Matt Shea on for Ryan. So good to hear about the pipeline development. Wondering if you -- if there's any ability to parse out the contributions from net new versus client expansion? It sounds like maybe expansions are a bigger portion? And then with the go-to-market changes, are you seeing expansions happen faster or net new clients land larger? Or any changes of that nature to call out alongside those go-to-market changes?

[Ido Schoenberg, executive]

So we see both. We see both very, very clearly. Obviously, we recognize the expansion, the upsell, the same store much faster. We also like this trend very much because it creates even stronger relationships that are more sticky with our customers. We talked about more programs even tonight and there are many more third-parties that are joining our ecosystem.

So there is a lot of nice runway with our existing customers to continue and grow and offer them more value that they can turn around and offer to their own clients and members. That offering is not lost on new logos, and we have a healthy dose of new logos that we are engaging. What we have today is resonating for sure. And I think those -- both those opportunities are very much real for us at this time.

[Matthew Shea, analyst]

And then maybe just picking a little bit. The percentage of visits on Converge slowed down a little bit this quarter from a quarter-over-quarter change, which makes sense after some sizable client migrations. But just thinking about the remaining migrations, should we expect that to be sort of long tail and modest percentage gains in terms of visits on Converge each quarter from here? Or how do you expect the transition to progress as you kind of migrate those remaining or lagging customers on the Converge?

[Ido Schoenberg, executive]

Yes, you're right. So essentially, we're very focused on making sure that Converge becomes the real reliable asset in the market that is considered working well at scale. And where we are right now, check that box in a very real way.

In previous calls we talked also about the type of customers that are left on legacy for various reasons, like international customers or customers that have very unique integrations and workflow. I think we figured out a way to continue to manage them well for whatever reason that they cannot migrate right now in a way that we can contain the cost and really separate that activity from the main event, which is Converge. We expect that to linger surely during '25, but we don't expect it to be a major barrier for growth and for efficiency as a company, which is governed today in all practical ways by the new way of Converge platform.

[Operator]

Your next question comes from the line of Jenny Cao from Truist Securities.

[Jenny Cao, analyst]

This is Jenny on for [ Jailendra ] Singh. So I just wanted to ask about weight management solutions. One of the major focuses for employers and payers these days have been cost around GLP-1 medications and weight management solutions. I know this might not be your core focus, but just curious if you see any opportunities in that area given your provider and payer partnerships either in terms of working with PBMs or various third-party weight management vendors?

[Ido Schoenberg, executive]

Absolutely. So weight management is part of health and GLP is very promising for a lot of people administered of course, correctly. As a general rule, we would like to integrate the full gamut of whole person services across the continuum for our customers. We have our own areas like psychiatry, psychology, urgent care, virtual primary care and others that are operated mainly by Amwell today, but a long list of other cardiometabolic, weight management, dermatology and many other programs that are offered by a third-party.

We believe the sponsor, eventually, the payer, the employer are the ones to choose the right programs for them based on their different considerations. And our role is really to create the best member experience in the best orchestration and the best reporting and access to these line of services in a very reproducible, efficient way. GLP-1 and weight management are a good example of such services, but Amwell does not intend to offer them independently as their own product.

[Operator]

Your next question comes from the line of Jessica Tassan from Piper Sandler.

[Jessica Tassan, analyst]

Congrats on the good quarter and the guidance. I'm curious if you can just give us an update on the level of Converge integration with Epic and any other EHRs that are kind of predominant throughout your installed base?

And then just on the health plan side, what are the kind of key health plan software systems or platforms that you guys have integrations with? And I guess how would those integrations insulate you from competition from some of these non -- from some of these vertical agnostic telehealth players?

[Ido Schoenberg, executive]

Sure. So Jessica, you're absolutely correct that integration is essential for what we do. When you talk about -- and starting with the providers, so I'll start there. Obviously, each provider wants usually to operate from their EHR. So to give you an idea, we have about circa 100,000 providers on our platform give and take. We don't report this number, but as a general rule, only 3,000 to 4,000 of them are AMG providers, which really means that the rest of them are offering on a variety of EHRs in an integrated way. Epic is very prevalent, obviously. So we checked that box many times with many of our customers. But we also have Cerner and quite a few others.

The opportunity in delivery networks is to add all the missing pieces that EHRs don't excel in or don't offer at all. like a very engaging scheduled visit and on-demand visits capability that are very consumer friendly, different type of specialty care, telestroke, telebehavioral health, automation and so on and so forth, I think I mentioned a few examples earlier tonight.

As it relates to payers, of course, you need to also integrate deeply into their digital doors because they typically open -- offer those services through those doors. So a good example is [ myUHC ] in United or [ Sydney ] in Elevance. But of course, there are many other examples, [ Blue Plans ] and other payer customers. When you operate under this environment, you need to make sure that you're able to collect the right [indiscernible] from a patient, that you can route the patient to a service that is licensed to treat this patient.

The payment is passed through to the vendor that is operating. The service time line is okay, the wait times are in check. There are many, many other elements to providing consistent great service that is cost effective and impactful for those payers. And that requires a deep integration with their financial, regulatory and operational systems.

We don't see Amwell very much in the standalone. It's almost always integrated in our clients' infrastructure. And the name of the door -- on the door is their name, and we are just enabling technology that allows them to do well, what they're aiming to do and achieve the business goal and the pain point resolution through what we created.

[Jessica Tassan, analyst]

I'm curious if any kind of AI-powered clinical decision support tools or prescribing aids or transcription tools have been integrated into Converge?

[Ido Schoenberg, executive]

So AI is most important throughout our industry and Amwell is no exception. There are many, many areas where AI will influence our road map in the coming years. I'm not prepared to begin to share that right now on this call, but I can assure you that the performance of AI has impact on pretty much every aspect of our activity, both as it relates to our products, but also as it relates to our operation, and we are thrilled about this opportunity and the way that we are implementing it.

[Operator]

Your next question comes from the line of David Larsen from BTIG.

[David Larsen, analyst]

Congratulations on the quarter. Can you talk a little bit about your gross margin expectations and your expectations for 2025 in terms of revenue and EBITDA? I think that you had been talking about like a high 30% gross margin range for fiscal '24. It looks like you're actually almost -- you're there for 2Q. And then you're talking about a higher gross margin for '25. Just any color there would be helpful.

[Robert Shepardson, executive]

Yes, you got it, Dave. The -- we're talking about a gross margin for the year, 24%, in and around same level we had last year, which is high 30s. That changes dramatically in 2025. As we've talked about on prior calls, February notably, where we talked about expectations for gross margin in excess of 50%. And that's really the impact of -- primarily of the DHA contract expanding to Enterprise at the end of this year.

So it has a pretty meaningful impact because it's software revenue as opposed to software and visits, which is what we have with a lot of payer customers. And so the margin -- the flow-through there is a lot different because we're not paying away a lot of expenses to, or profitability to our [ 1,099 ] doctors on the visit side.

[David Larsen, analyst]

And then revenue expectations, $335 million to $350 million for '25 and EBITDA minus, I think it was $35 million to $45 million?

[Robert Shepardson, executive]

Yes. We put that out in February, and we put it after a real specific reason, right? We really wanted to give longer-term guidance so that folks would be able to conceptualize what the impact is of this contract and other growth that we have going live in that time period. We fully intend to update that as we go here in our normal cadence in February. But we're not going to take our beat here this quarter and our raise in -- or improved EBITDA guidance for the year and talk about what that might imply for next year.

We're going to focus our updates on the period of time where we have really good visibility, which is 2024 and continue to give our perspective on that. And then in -- on our fourth quarter call, we'll give certainly very fulsome guidance on our expectations for '25. But there's no change in any of that, Dave, or in the timing or path of our profitability.

[David Larsen, analyst]

So it sounds like breakeven in '26 -- And then for the military health system contract, I think you're talking about a full sort of Enterprise deployment by the fourth quarter, the behavioral health...

[Robert Shepardson, executive]

At the end of the fourth quarter.

[David Larsen, analyst]

Okay. So in 2025 -- at the start of 2025, there'll be a full deployment for the military health system. Is that correct?

[Robert Shepardson, executive]

Correct.

[David Larsen, analyst]

Congrats on a good quarter.

[Operator]

[Operator Instructions] Your next question comes from the line of Charles Rhyee from TD Cowen.

[Charles Rhyee, analyst]

Just following up on the DHA. [ I don't suppose ] -- is there any kind of color or look you can give us and how maybe utilization has looked for the behavioral health solution within the initial [ pipe ] sites so far? And maybe how that might compare with -- utilization might compare with other clients using your solutions? Just trying to understand sort of the uptick there and how it's progressing?

[Ido Schoenberg, executive]

The short answer is progressing very, very well. I can share what I'm allowed to share by the client. But overall, we are very pleased with the progress, and it's definitely going ahead or aligned with our expectations in some cases.

A few comments. One, the environment there is almost ideal. It's unlike other government environment, this one is very homogenized, less moving parts, a very centralized command and control. So it's a really ideal environment to work with. Our agreement is signed. There is no discussion about that. The budget is in place, and the client is extremely motivated. Obviously, providing access for care for the men and women in uniform, starting with behavioral health, which you asked about, is something that has enormous exposure and interest in the DHA. So that's very helpful. And obviously, our partner, [ Leidos ], is also extremely supportive of what we're doing. So the relationship is really terrific, and that's great.

The behavioral health service is live since Q1. And we are very satisfied, and we are told that the client is also very satisfied by the client and the partner as to the way that it goes. Also, the Converge progress and automated care progress, the 2 next milestones are going very well and are definitely on track. As well as the very important go-live for the Enterprise rollout, as Bob mentioned, at the end of Q4. All that would not have happened if -- I guess, if there were execution hiccups or lack of satisfaction, and they do reflect the way that this project is moving and we certainly are very pleased with the [ way ] it goes so far.

[Charles Rhyee, analyst]

And then maybe, Bob, one question for you. I think we saw kind of a big step down in sales and marketing spends sequentially. How should we think about that sales and marketing as we go through the year? And how are you thinking about sort of balancing sales and marketing spend and investing to drive growth reacceleration as we think about bookings growth in the future?

[Robert Shepardson, executive]

Yes, Charles, we kind of restructured the go-to-market for the sales organization in the fourth quarter and the first quarter. So the customer-facing side of that is baked at this point and has been in place and is seeing really good success in terms of a lot of things that has talked about in building pipeline, et cetera. A lot of what we're doing here from a cost perspective at this point is more around support. So sales support and really streamlining that along with looking at G&A in the same vein.

So we are being very prudent in terms of -- and very focused on the cost side of things here. Our headcount is down across the Enterprise, mid-teens from where it was at the end of the year. And that's really one of the big drivers for our improvement in guidance. But as far as the impact on the commercial side of things, that's something we're very careful about. And as I said, we kind of had that baked in the first -- in the fourth and the first quarter and not looking to do anything else on the customer-facing side.

[Charles Rhyee, analyst]

So would you say that this is a good sort of starting to kind of a baseline point as we think about sort of the rest of the year going into next year in terms of -- for sales and marketing and G&A at these levels and kind of growing from here?

[Robert Shepardson, executive]

I think there's always room to do better. But we are going to see better second half performance, I think, on the SG&A side than we had in the first quarter, no doubt. Especially, when we're talking about GAAP because we did a decent amount of transformation in the first half of the year, which is behind us now. So that's going to come out of the GAAP numbers in the second half.

[Operator]

And there are no further questions at this time. Mr. Ido Schoenberg, I turn the call back over to you for some final closing remarks.

[Ido Schoenberg, executive]

Thank you, operator, and thank you, everyone. We really appreciate your time, and we look forward to talking with you soon. Take care. Good night.

[Operator]

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