Q4 2023 American Well Corp Earnings Call
Participants
Ido Schoenberg; Chairman & CEO; American Well Corp
Robert Shepardson; Chief Financial Officer; American Well Corp
Jessica Tassan; Analyst; Piper Sandler
Stan Berenshteyn; Analyst; Wells Fargo
Glen Santangelo; Analyst; Jefferies
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 Q4 2023 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.
Hello, everyone. Welcome to Amwell's conference call to discuss our fourth fiscal quarter and year end of 2023. This is Sue Dooley of Amwell Investor Relations. And joining me today are Amwell's 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 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'll make forward-looking statements regarding projected operating results and anticipated market opportunities.
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'd like to turn the call over to Ido.
Ido Schoenberg
Thank you, Sue, and hello, everyone. Q4 marked the close of the strategic flywheel. We advanced the breadth and maturity of our offering and migrated a big part of our installed base to our new platform converts.
We have had an excellent reception to our solution, sizable market wins, powerful client validation and we documented compelling proof points. Also, we improved focus and efficiency in our company and are committed to continue optimizing our organization to streamline and propel growth based on the 2023 achievements.
We begin 2024 with high conviction regarding our path to profitability. So tonight in our guidance, we will provide new transparency into how we are completing this re-platforming period returning to growth and how our path to profitability will play out.
To begin here are a few highlights of Q4. The standout event of Q4 was the previously announced win with a Leidos partnership for defense health. Together, as described in the $180 million task order, we will modernize and provide digital care enablement for the Defense Health Agency benefiting that organization has 9.6 million beneficiaries.
We are progressing well with deploying our solution for the US military, enabling the DHA's digital first initiative. I'm pleased to report that we have achieved the first milestone as planned and on schedule to launch our digital behavioral health program for the initial five sites.
In Q4, we also prepared for large payer migrations that have already taken place in Q1. The percentage of Q4 visits on Converge were relatively similar to Q3 when we met our goal for the year a quarter early. In the first days of Q1 '24, we successfully migrated our strategic clients, Elephants and Highmark. As a result, this from converged today approach nearly 70% of total. Our platform scaling and performing well.
I would also like to mention a sizable Q4 win with Ampere part of Medibank, one of Australia's largest private health insurance companies, serving more than 3 million customers. Their initial rollout is planned to include automated programs in digital, we have a health and lifestyle management.
I'm proud to say that in Q4 provider and patient satisfaction measured by our sons operating metric reached all-time. Also indicative of high client satisfaction, we had an active quarter for renewals and extensions, including the following.
The HSE in Ireland is expanding use of our digital behavioral health solution, thanks to healthy adoption. Integrity Health was a large win for us in Q2 of 2023 and is already a Q4 expansion win. Integrity will extend its use of our ED discharge program outside AD.
With our automated checks integrity, our health specialists can stay closer to patients between visits while prioritizing high acuity patients. In addition, our virtual nursing solution continues to resonate in the market. Related to this, we had a healthy expansion with St. Bernard Healthcare, our Q4 performance demonstrates how our existing client base is fertile ground for future growth.
Continuing on the topic of growth, we are putting the final pieces in place to transform our commercial organization and reaccelerate bookings momentum this year. Specifically, we are a few highlights. We completed the sales model transformation, moving from distinct account management and sales to a combined hunter-farmer model.
This will allow us to streamline client interaction, engage in more strategic selling discussions and sell a broader basket of services. We completed tenant review and upskilling initiatives, including adding important leadership in sales operations.
New talent is coming from ROI oriented Hunter-Farmer based enterprise selling environments with optimal experience and skill set to sell our new hybrid care delivery plan. We launched a new sales and compensation model at our commercial kickoff held last week.
The bulk of this work is behind us with fine tuning going on in the first half of this year. We have a growing list of expansions and new client wins under our belt, and we are confident our selling motion resonates across the healthcare landscape.
It's an approach squarely aligned with operational and financial pain points. The direct our clients' spending priorities we have achieved a lot in the past year. I believe we are better positioned than ever to deliver the profitable growth promised by our large market opportunity in highly differentiated SaaS based software infrastructure platforms.
As we turn to page to 2024 and believe it is crucial to understand the transformation. We have successfully achieved a transformation from a telehealth vendor to a hybrid care enablement partner for telco organizations are turning to the seek to modernize and achieve operational goals. It's also transformation from selling video visits to connecting and mobilizing digital assets and provider networks within and between client organizations.
I wanted to share a couple of key points about this. Our infrastructure platform acts as the distribution system digitally empowers our clients to address the challenges they face and generate better financial and health outcomes.
Our clients are looking for one infrastructure, consolidating the digital initiatives. The path forward connecting disparate healthcare facilities, team, stations, and digital assets is far from obvious. Time and again, we feel they have tried to build this layer themselves and they are coming to us recognizing our expertise.
In addition to our technology platform, our professional services teams are proving to be a powerful differentiating element for us. We are particularly good at the challenging and complex work of integrating workflows and connecting our clients' most important assets. And our AMG services further set us apart in the markets.
Our payer clients leverage our AMG providers to deliver high quality care for members and also increasingly virtual primary care that improve access and reduces costs. Our provider clients look to make the most of their own teams while maintaining the highest standard for care in wait times.
AMG provides a combination of critical bandwidth, clinical expertise and load balancing provided services that are unique in the market today. Our partnering role is validated in the markets, our strategic clients, CVS element, the Leidos partnership for defense, health and others are powerful examples of organizations are turning to us to help them achieve their goals.
In white our largest clients give us realization annual expertise and value benefits a broad spectrum of clients. Our future ready platform enabled clients of all sizes to address the needs of today and expand to new use cases when they're ready. Our installed base of clients is a substantial baseline from which we intend to grow our company.
And finally, at Amwell, we believe we are in the early innings in health care has only just begun to modernize and leverage the benefits of technology driven care. The market for enabling this is substantial from where we sit today, we never been more clear that the down well, we are unique in our approach to this market.
Before Bob covers our financials, I'd like to share our key priorities for the coming year. With our healthy balance sheets and improved financial visibility, we have high conviction in our path to profitability. We are laser focused on advancing towards profitability, supported by the following top three priorities.
First, we will work to ensure a successful deployment of a broad portfolio of our solutions for the military health system. We will continue to execute on the initial phase of our implementation demonstrate value and support the DHS enterprise expansion, which is anticipated late this year.
Two, we will migrate the majority of our remaining clients onto converge. Finally, our sights are set on reaccelerating bookings. We believe we've made the right move to return to growth by expanding our footprint within our installed base and winning new clients in 2024. We will continue to enable the digital aspirations of health care organizations with long term profitable growth well within our sights.
With that, I would like to turn the call over to Bob to review our financials, some key metrics and our guidance. Bob?
Robert Shepardson
Thank you, Ido, and good evening to everyone on the call. We began the year in a position of strong visibility into our future growth and our path to profitability. Tonight, I will walk you through a few operating metrics and financial results from Q4 as well as our guidance for 2024.
Then given the near term opportunity we have to meaningfully expand our revenue and profitability. I will provide you with additional transparency into our expectations for 2025 as well as our plan for adjusted EBITDA breakeven.
To begin, total visits were approximately 1.65 million in the fourth quarter, a small decline versus 1.7 million last year. Last year's early and severe flu season did not repeat this year. So the relatively strong visit volume reflects growth within some of our strategic payer clients.
Schedule visits represented 60% of total, continuing to highlight the evolution of our company from provision of virtual urgent care to a platform provider, enabling hybrid care. We continue to make good progress migrating our clients to Converge.
After achieving our migrations goal for the year one quarter early, Q4 migrations temporarily leveled off as we teed up strategic payers for January launches.
Visits on Converge were 52% for Q4. We successfully migrated some of our largest payer clients at quarter close. With their volume now on Converge and that percentage is materially higher and at the end of January stood at nearly 70%.
We will report a formal visits on Converge number for the quarter on our next earnings call, and we expect a steady stream of migrations to continue this year.
Another important metric is our average annual contract value or ACV, which is a good indicator of the success of our land and expand strategy. Health Plan ACV was $902,000, and ACV for health systems was $415,000 in 2023.
We look for ACV for both groups to expand as we grow our footprint within existing clients and add new clients over time. The number of active providers on our platform was 103,000 at the end of last year. After careful consideration, we plan to sunset this metric beginning in Q1.
Active providers was initially conceived as an indicator that the activity on our platform in a post-COVID world was healthy and sustained. After growing from approximately 8,000 in late 2019 to almost 100,000 by the end of 2021, our number of active providers for the last eight quarters has remained steadily at or above the 100,000 level.
With the majority of our volume now on Converge, we are finding that many of our clients are aiming to improve outcomes, less by adding providers, but rather by increasing the number of patients each provider can care for by using our platform capabilities, including our automated care programs.
Turning to our Q4 financials, total revenue was $71 million for the quarter, an increase of 14% to last quarter and down 11% from a year ago. Approximately $3 million of the decline in revenue versus last year was subscription related driven primarily by legacy platform declines with a balanced split between lower visit and services and care points revenue.
Subscription revenue declined slightly from Q3 and was $27.3 million in the fourth quarter. AMG visit revenue trended 8% lower than last year and was $32.1 million for the quarter. AMG visits were 10% lower this quarter versus a year ago, reflecting the early and severe flu season in 2022 and a return to more normal to a more normal onset of flu season in 2023.
Average revenue per visit was slightly higher this quarter than last year at $72, driven by a mix shift within AMG. Our services and care points revenue was $11.3 million for the quarter, an increase of $4.4 million from last quarter, driven primarily by an increase in professional services and marketing.
These revenues can be uneven from quarter to quarter due to customer buying patterns for our marketing services programs and for care points, as well as the timing of professional services that precede deployments.
Turning to profitability, our fourth quarter gross profit margin was 34%, flat to last quarter and down from 42% last year. This was largely due to lower subscription software revenue, combined with a revenue mix shift away from higher margin implementation services to lower margin marketing services.
Recall that in 2022, Q4 was a professional services heavy quarter as we perform deployment work associated with the strategic client go live in January.
Turning to operating expenses, we are applying ongoing cost discipline across our company that figures into our guidance. As a merit-based organization, our incentive compensation in 2023 reflected our revenue attainment, which was below plan.
Our operating expenses reflect this and underlie a portion of our expense containment over the year. Further since the end of 2023, we have reduced our headcount across the company by approximately 10%. We are tracking well on our path to the normalization of R&D spending.
GAAP R&D expense was 5% below Q3 and with flat after adjusting for $1 million of software development capitalization associated with our DHA work. This brings the quarter and the year to down approximately 27% and 19%, respectively compared to last year after adjusting for software capitalization.
SG&A declined approximately 8% in Q4 and 18% overall in the second half of 2023 compared to the first half of the year. This is primarily due to lower stock-based compensation expense. Sales and marketing spend increased by $1 million, primarily due to severance costs and G&A expense was 18% lower this quarter compared to last quarter also on stock-based comp.
We continue to streamline and rationalize our commercial headcount in keeping with the changes in our growth organization. We believe we do not need to spend more in SG&A to achieve our growth goals, and there is healthy operating leverage as we scale.
Putting it all together, adjusted EBITDA for the quarter was negative $36.9 million, a 4% and 15% improvement on last quarter and last year, respectively. And transitioning to the balance sheet, we ended the fourth quarter with $372 million of cash and marketable securities.
In conclusion, while our 2023 financials reflect the headwinds associated with our re-platforming, we believe we are coming out the other side, our business has moved meaningfully ahead in terms of putting in place our growth transformation, normalizing and rationalizing costs and growing our contracted backlog.
Turning to our outlook, the progress we made this year significantly adds to our financial visibility and meaningfully derisks our path to profitability. The impact of our plants supporting the DHA, including the enterprise expansion, is not fully visible within a single year of guidance for 2024.
So we are taking the extra step tonight of providing a look at the growth and profitability we expect in 2025. And we will also provide some thoughts on our plans to reach adjusted EBITDA breakeven.
First, I would like to provide our 2024 guidance, we 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. We expect visits to range from 1.6 million to 1.7 million and services and care points to be in the high single digits percent of total revenue.
Here are a few key assumptions we carefully assessed in arriving at our guidance range. The replatforming and related headwinds from prior periods will impact 2024 subscription revenue, which we expect to decline approximately 10% in the first quarter, then build back up with contracted go-lives.
With respect to DHA work, our plan is to implement the full portfolio of solutions at the initial five sites for the DHA over the year with the enterprise rollout anticipated at the end of the year. As we have discussed, there are three separate go-lives in the initial deployment. So revenue will ramp over the course of the year.
We've achieved the first milestone as planned. We expect little to no revenue from the enterprise expansion in 2024. We are assuming a gradual return of bookings growth as we finalize the transformation of our growth organization in the first half of the year.
As to profitability, we expect our 2024 adjusted EBITDA to be in the range of negative $160 million to negative $155 million. As for additional context around our assumptions, we are on track to reduce our converge related R&D spending annually by 25% to 30%.
This year however, government related customization of our platform will moderate the overall decline in R&D to a circa mid-teens percent reduction. Our headcount actions will result in over $15 million in compensation related savings. So our guidance assumes we return to normal levels of incentive comp versus 2023.
As we complete 2024 and move beyond the initial phase of deployment for the DHA. and reaccelerate bookings, our financial story changes fairly dramatically in 2025. We currently 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 planned enterprise-wide DHA deployments.
Moving on to 2025 profitability, we 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 customizing our platform for operation and the government ecosystem, it will be fully scalable and ready to deliver complete hybrid care across the entire Military Health System enterprise with minimal future development required.
And finally, rounding out our forward-looking guidance, we currently expect to achieve adjusted EBITDA breakeven in 2026 with a cash and investments balance of approximately $150 million.
In conclusion, we are encouraged by the strides we've made in our business. We believe we are just beginning to capitalize on our market opportunity. And this guidance marks the early days for the long-term profitable growth trajectory we envision. Thank you for listening.
With that, I'd like to turn the call back to Ido for some closing remarks. Ido?
Ido Schoenberg
Thank you, Bob. We are addressing every day at Amwell to advance along the path to achieving our goals and pursuing our mission. Our solution solves the most important problems facing healthcare organizations today and is now proven in the marketplace.
We begin 2024 on strong footing with a high degree of financial visibility and laser focused on our priorities. As always, I want to take a moment to thank our team for their extraordinary work and passion as we pursue our mission as one team.
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) Craig Hettenbaugh, Morgan Stanley
Yes, thank you. I'm understanding you're going through some transitions in '24. It does look like there the health systems are starting to benefit from improving utilization. And just curious, Ido know what you're seeing from spending intentions kind of at health systems versus health plans currently.
Ido Schoenberg
High-grade our Well, you're right. I mean, health systems are going through a financial hardship as we only know what they buy is different from what they vote only on a recently, a general on health systems are interested to buy platforms and systems that help them improve staff retention and help them improve the efficiency.
So I'll give you an example. Just from nursing is the high demand. The item for health, say, systems as well as the automated programs to do a variety of tasks to improve their. They're a they're a performance. So they continue to be a very important part of our business.
However, is the biggest story in many ways is the transformation that we've seen, payers that are now laser focused on becoming much more meaningful for their clients. For employers and members putting in place a digital first option and especially virtual primary care options that allow a to upgrade the member experience and stickiness and greatly improve effectiveness steerage it were available and cost effective option.
Especially sub the area of focus for them is behavioral health, which seems to be in very a big need. So I would suggest that in general, the need and awareness for a platform to enable all parts of digital hybrid care are very relevant today, more than ever.
And there is growing understanding of the challenges and sophistication required for such a platform. And the fact that we have so many clients migrated to converge with very clear proof point is definitely a very strong tailwind for us. In both segments, both for providers and payers.
Great. And then just a quick follow up, Bob, Bob, thanks for all the detail on 24 and bridge into 25 and 26 on the 10% headcount reduction. Can you just touch on kind of maybe some of the things you are doing with that in terms of getting leaner within the organization and anything else you're able to share.
Robert Shepardson
And basically so this was across the company and some of it was programmed in, as we know, get rightsized in terms of our spending related to R&D. And some of it was related as to what we're doing in the growth organization, Craig and really, and maybe it's massive Ido really addresses in a little bit more detail what we're doing there and what we're trying to accomplish.
Ido Schoenberg
Thank you, Bob. Look, in essence, Craig, at the headline or zooming out for a second, we are completing if we didn't even complete the re-platforming period for a unreal. And our investors and our partners have been enormously patience with us as we went through this very important day investment.
And we are today reporting on what is very clearly already the growth phase that comes after a reduction in. The biggest opportunity is in the top line in the growth and we talked quite a bit about it in Bob's a guidance. You can see what's happening, which is all contracted in a '25 and beyond. And really the only risk and focus area is execution.
But in addition to that, we are completely transforming our entire cost structure across the company. So obviously, in R&D, we completed this giant investment in R&D is really rightsizing very dramatically. But in addition to that, people need to understand that our delivery organization is now doing less and less migrations only because we sort of did most of them.
And we have some to go but not a lot but much more importantly, everything we do with Converge is dramatically more efficient. The deployment cycles are shorter, supportive, easier it's a very, very modern, very reliable platform.
The support tickets are a fraction what they were in the legacy. And in sales and marketing is the changes that we've seen in the market in competition really allow us to completely transform the growth organization.
The first thing we've done is to reassess our segments and we are going after very well defined segments we have the right to win. And of course, that includes the very large, very sophisticated clients where we have enormous advantage over a others. Then we are implementing a very a specific go-to-market plan with a greater operational rigor in our beginning to execute on that. We changed our team.
We upskilled a lot of our team, the headcount in the model right now and we changed the model from a fragmented account management and sales, a represent representatives into a single hybrid partner, individuals that are very well trained, very skilled to sell the full portfolio and of our offering in the model of Hunter a farmers.
So we have less quota carriers, but their impact is already very clearly a much a much a bigger We also changed our compensation to encourage the high margin recurring subscription software in that change is beginning to pay off.
So we are now in a product that we believe is significantly more attractive in the market. It's proven in the market by very large, sophisticated customers, the cost of maintaining it and selling it is smaller and that all explains the results that Bob shared, which really don't require us to do anything unnatural.
I've mostly contracted a we just need to continue and execute, and we have a lot of execution under our belt. So we think that execution risk, it's very small for where we sit today.
Thanks for all that.
Operator
Jack Wallace, Guggenheim Securities.
Yes, thanks for taking my questions. And I appreciate the multiyear guidance outlook and echoing comments in the prior analyst. I sound like a transition year and then a pretty exciting '25.
Focusing on '25, just wanted to get a better understanding for how the NHS deal impacts that the model and maybe more specifically with the terms of that contract by understand correctly at the past quarter and sometime in the middle of '25 and just thinking about contribution from NHS in the back half of that year.
What is in the guidance for '25? And how should we be thinking about and that that customer wants the task order?
Ido Schoenberg
Maybe I'll take the headline and then Bob will give you more of the of the details. This year is really not a transition year of any sort. We are basically investing in a new market segment, which is the government, a market segment take this out and you can see the transition in our number already today.
But we are doing some really big investments with the military health service that will allow us to get very strong returns which are already contracted with this client and hopefully with other similar clients in the same sector, it will work with Leidos and the others.
And we talked in the last call on the last call about the task order. The $180 million task order is already budgeted and contracted, and it includes a few phases, the initial phase which we are now going through and already part of it is live, as I mentioned earlier, is that the permitting five sides of the entire portfolio that will step up for the full enterprise deployment.
This is about one go-live for a quarter across the behavioral health, the automated, the chronic care programs. And of course, the Converge, a deployment. From that we're going to step up in '25 to the full enterprise. And this vehicle that we are using the financial vehicle is covering us.
But it does cover the entire military helicopter service, Genesys contract of the government. That includes the EHR in other elements. So this is really the core infrastructure for the military health systems we are quite confident that this will continue through the process going forward.
And we believe that assuming that we execute on what we need to do are likely to continue to provide. It is very, very high because of the enormous investment that us and the rest of the partners are making in now in these deployments.
And we don't believe there is a budgetary risk for this. This is a mission critical infrastructure, and we don't see a scenario where the governments will not do that. We think that in this setting us not continuing, as I mentioned earlier, advertisement, but I don't know Bob if you have anything to it.
Robert Shepardson
I think you covered it. You know, you know, it's just tight. You know, I think our actions would just to be clear, Jack, we're assuming that run rate from the end of '24 beginning of '25 it continues going forward. We're not assuming any growth in it. And although I think that's conservative. But we are we are assuming that it's part of a sustaining contract and together with the multibillion-dollar EHR deployment that the government undertook for the DHA here over the course of the last couple of years.
Excellent that you. That's really helpful. And then you alluded to it before that as we're thinking about potential expansion within but broader government customer fee. I think the VA and others, what I think I heard you say was pretty much all of the heavy lifting on the R&D side getting done this year.
So in future expansions potentially happen, it's a matter of just turning on the software in the US and some training at that point, there's not a big lift. I have that correct.
And if so, just as a quick follow-up to that, how have your discussions gone with the military health system and others about potential expansion opportunities? Thank you.
Ido Schoenberg
Sure. So yes, the short answer is you are correct. A look, we're doing a lot of work today that is super relevant to the military health system that will pay off to the entire IT sector. Digesting a little quick headlines. We are now creating multiple environments, demonstration environment, staging environment, production preproduction across our entire portfolio of silver cloud, an automated care and the converge.
We are configuring although this system. We are going through the elaborate in detail cyber security, hardening and accreditation of the NHS and the government. We are training a lot of users and administrators.
And of course, we are going live in the sequence that I described and beginning to measure an impact, which we are confident will be a very encouraging going forward. A upskilling from there, which is contracting in budgeted fully is it does not require any additional airport if it's an identical the environment.
And as I mentioned earlier, when we turn to the next government, the client, we are probably not going to repeat a lot of this work. There is a lot of similarity in between these clients and other clients in these segments.
Robert Shepardson
Jack, I think the great thing about the great thing about the of the project we have now is we're integrating into a brand new, a singular EHR across the H that was just implemented. I did agree that it's like him in many health systems.
You might have a customer in the government sector that has multiple EHRs and different environments that have built up over time. It's not going to it wouldn't be as clean, but this one really is and this is a great one to get going on.
And all of the work that we're doing here relates to operation in that ecosystem, regardless of what the HR is.
Ido Schoenberg
It just shifts and when maybe just to end with one last point, which is important to take away a one with the bookings that we shared today, we have a very, very high degree of visibility into everything into our formulaic profitability in the '26 in something that is even more important.
We believe that the mechanics and DNA of this transaction is going to be very typical to future transactions you're going to see in Amwell, namely we are mostly selling almost entirely selling software, which is very scalable and much higher margin than before.
And as you can connect the dots and extrapolate from there. This really opens a new page in the new era for Anwil is we are really moving into software SaaS, almost entirely a world, which is very different from where we were only a couple of years ago.
Understood.
Operator
Charles Rhyee, TD Cowen.
Yes, hey, thanks for taking the questions on. Wanted to touch on. You're talking about bookings and one of your key strategy initiatives, right, is to have the bookings acceleration. You mentioned Entegris at the start as an expansion client.
Can you talk about sort of the focus of the sales force in this next period? Is it really trying to expand Kipa services with existing clients? Or is our focus on getting new clients on board?
And just curious, going back to an earlier question, sort of receptivity in health systems who have not yet really thought of an integrated platform for digital capabilities. You know how higher is that on the priority list at this point? And so is the focus more on clients that are already committed to this our strategy going forward?
Ido Schoenberg
Charles, that's a great question. The answer is both. Obviously, we have a very, very large installed base that is currently even after migration. It has a lot of room to grow in way of traction in additional solutions that we can offer through us and through third parties that we can resell to those the customers demanded sophistication is growing almost a daily.
The appetite really it depends on the type of a client and as I mentioned earlier, was high on their mind, is very, very different. And from health systems, health systems are really focusing on savings and staff retention, while a health plans have different aspirations as if we return to offering better outcomes for their clients and for their at-risk population through ownership of the member and better a better experience.
So we are so pleased that most of our clients are on Converge and it's going to only get better from here. So this effort is the winning. We know they are really, really happy. Our NPS is at all-time high. A sum that up, I will say patients slash our members and providers in the high 90s in the very, very impressive.
So that's a great starting point to begin, as we discussed in the past, the dialogue on further rate expansion that are higher-margin and of course, will make our relationship the more valuable, both for them and for us and obviously a more sticky.
But there is the world big world out there of additional systems and health plans and even governments that don't use their own Well, typically this the entire market is very risk-averse. They're very, very careful. So the value of the proof points.
The referenceability of this enormous installed base that is now on Converge is our biggest. And we certainly plan to expand to also add new logos and begin the journey of starting with what they need today and with our future-ready platform, selling them more as we go, we see those relationships is really lifelong relationships.
It's not a transactional we are even hopeful and expect that some of the people that we lost during the re-platforming years are likely to come back as they discover the value of what we are offering today. But everything we discussed is to bring us to profitability doesn't require anything dramatic or Herculean.
On the contrary, it's mostly based on what we already booked. It's entirely dependent on the quality of our execution going forward and require very, very realistic, a work by our a market-facing teams. That's not to say that we're not optimistic. We are hugely optimistic we just don't count on it to get to this very important milestone of profitable growth.
That's helpful. And maybe Bob, and we think about the '25 sort of revenue guide here in this kind of a step-up of around $80 million. How much of that is really DHA? Because it sounds like with the enterprise expansion coming in at the end of the year, most of that contribution falls into '25. So you've got to give us a rough sense perhaps of how much from government versus backlog from existing clients?
Robert Shepardson
Yeah. Look, I think, Charles, I think the important thing there is and a very high percentage, 90% plus of that is contracted backlog. And I really don't want to go into too much detail beyond that in terms of what associated with the one client versus another.
We clearly know this. Our work with Leidos for the DHA. is a big component of that. But the most important thing from that, I want to communicate about this 30% increase in revenues and 70% increase in adjusted EBITDA. Is that a huge amount of that is predicated on contracted backlog, inclusive of what we're doing with Leiters.
Operator
Jailendra Singh, Truist Securities.
Hi, guys. This is Eduardo on for Jailendra. Thanks for taking the question. On the comment of achieving breakeven adjusted EBITDA and '26, I think you guys previously mentioned that you could get to breakeven on $400 million of revenue, that sort of indicating a ballpark of what you're I think for '26?
Robert Shepardson
Yeah. I mean, look, we've updated, I think everything from a from a few quarters ago, our mix I would expect is more heavily weighted towards software than prior. And so that has a meaningful impact on our gross profit margin.
And what's available, obviously, to cover operating costs. And so the $400 million number, I would view it's kind of ancient history. And I think the important thing is that I'm really reluctant to we've kind of gone long guidance here, 2024 ending '25, and I talked about what has to happen in '26.
It's pretty clear that we're guiding negative $35 million negative $45 million on EBITDA so that goes to zero plus in the following year. And I am I feel like we don't need to put yet another number out there for top line in '26. But I think it's fair to say that it's lower than $400 million given the given the change in mix that was that we're anticipating.
Operator
Eric Percher, Nephron Research.
Thank you. Bob, another question for you. I think you flashed up the revenue side and I'd like to ask you to dig in a little bit more on the R&D commentary. And I think what I heard was a path to 25% to 30% reduction over time and remind us how that kind of stair steps with Converge in getting that 70% of volume, what the it's a step function reductions are, but and then was the last part that with DHA, there is mitigation, but that's in the mid-teens with that mid-teen reduction?
Robert Shepardson
Yes, let me clarify, Eric. So the Converge related spending, so assume pretend there's no work for the government here. We saw year over year high 20s decline in '23 versus '22. I would expect that that would have continued in the area of down 30% in 24. The spending the investing that we're doing for operation in the government ecosystem will mitigate that decline to more like mid-teens as opposed to 30%. Is that clear?
Okay, that's so that's helped.
Robert Shepardson
Yes, your overall declines are going to be more like mid-teens. If you segment that it would have been down 30% but the but the spending the investing on the government side takes it back up to mid-teens. And then I will.
And then from going forward from '24 we get we get back on track for those declines. And by '26, we're envisioning a kind of a run rate that's in that ZIP Code of, call it 25% to 33% of software revenue.
Got it. And at that point, you're getting the dividend from sunsetting anything beyond Converge?
Robert Shepardson
Yes.
Okay, thank you.
Robert Shepardson
Thank you.
Operator
Jessica Tassan, Piper Sandler.
Jessica Tassan
Hi, guys. Thanks for taking my question. And I appreciate the update just on ACV by customer type. And I guess just maybe can you help us understand whether the four Q subscription revenue and level includes kind of the CVS and elevate or all of these large customer payer migrations that you spoke about.
And then just and kind of as those transitions or the migrations to converge have occurred there, is there any shift in the way you expect to recognize revenue from these big payer customers like a shift maybe from subscription to visit on that would have occurred alongside the migration?
Robert Shepardson
No short answer is no, just the there is no, I think fourth quarter includes all the revenues from the customers that you mentioned, we're not charging for migrations. And just migrating clients alone won't change that type of revenue that they're doing with us or how we recognize what it does do, it puts us in a fantastic position to upsell those customers now that they're on Converge.
And so the revenue potential from them is much enhanced relative to them remaining on the legacy platforms. So there's that and then doing that.
Yes. So I think that's really, I think where you'll see the upside associated with the current basis, we expect to be able to see increases same-store sales and expanding with those customers over time.
Ido Schoenberg
Maybe I'll just I'll just maybe I'll just give you one example, so that I think it's public information. The go-live of the 11th, which was the largest migration we did in our history, included everything we've done before on the Converge fully integrated with Sydney.
But in addition to everything we've done before and a different program to enable, we enable a lot of painful events. We also and elements were public about it a begin to do virtual primary care. And we are currently very cautious in the way to think about how to model this, but that interaction has enormous potential of same-store rate growth and enormous value, a four-way relevance.
There are similar examples with other customers somewhat public in the summer. Only note. So the biggest opportunity with migration is increased stickiness with the customer increased level of satisfaction and an opportunity for selling additional solutions.
And we are seeing a much more significant ramp up in the volume because the experience is just dramatically different for the different participants for both providers and IT members of the patients.
Operator
Stan Berenshteyn, Wells Fargo Securities.
Stan Berenshteyn
Hi, thanks for taking my questions. Bob, I want to crystallize the comment you made earlier. It seems you expect the future to be a steady contributor to revenue beyond 2025. Is that correct?
Robert Shepardson
No question. That is our expectation.
Stan Berenshteyn
Okay. And I guess if that's the case, where do you expect to pick up in
Robert Shepardson
(inaudible) no different, no different than any other customer that we would time we are we expect that they'll be with us for a long time. I don't know why we would think about this one any differently, especially going right?
Stan Berenshteyn
Right before aside just parlaying that into a question about 2026, if we if we're thinking about incremental growth in 2026, if it's not coming from DHA, where is it coming from? And what's your visibility there? Thanks so much.
Robert Shepardson
It's a big, wonderful world out there of customers and we expect to do a lot of business with all of them. We're signing new logos and we are expanding with our existing customers. So yes, Dan, I mean, we're presuming success across our lines of business.
But if you look at what the guide is for 2025 and then breakeven in '26, and there's a probably about a of the improvement there from a cash flow perspective is probably somewhere at 25%, 30%, driven by cost. The balance is driven by revenue and gross profit.
Stan Berenshteyn
Got it. Super helpful. Thank you. Sure.
Operator
Ryan MacDonald, Needham & Company.
This is Matt on for Ryan. Thanks for taking the questions. I wanted to circle back on an earlier question about the referenceable base of customers. You have this nice base now, but also commented over the last couple of quarters on how the sales team has been seeding opportunities with new health systems and payers.
Just curious if that referenceable base is starting to make converge less of an evangelical sale and more of a must have best of breed solution or just ultimately curious how the wind-down of converged development and the new sales force design is increasing
The velocity of those net new customer conversations.
Ido Schoenberg
Met this is almost not a question. It's almost like a statement which I wholeheartedly agree. So I would there's still on, you know, maybe give you more color and details are the initial customer for Converge were super early bleeding edge doctors that we're excited by the vision and as to the value and signed up to be first to market with our a platform that not too many of those in the market.
They're essential, obviously, for any new platform to be excepted. We are very quickly reaching a point with all the go-lives that we have where we are becoming a very proven infrastructure that is scaling very, very well with very good proof points and metrics and a very safe choice in the market in health care, especially that's a really big deal on. It's not only the value of the workflow and everything else.
These are things like cybersecurity, which is all regulatory compliance. There are so many things that you need to think about when we deploy an infrastructure for digital care for the entire organization. So a few things happened.
Our platform really matured, and it's proven but also the need for our platform in the market, much more palpable and clear today than it was a year or two years ago. We don't need to explain much about what we do and why it's important that our speeds are detailed in the long people know what they want to buy and we are invited to participate today more than more than ever.
So we are at the boring execution phase, if you will, following day age of a lot of innovation and daring and renamed now it's really about we will build it. It's working really well, and it's 100% about execution, efficient execution to generate profitable growth, which also means a laser focus on software subscription, high margin part of our business more than anything else.
Operator
Glen Santangelo, Jefferies.
Glen Santangelo
Yes, thanks for taking my question. A Ido, listen to the prepared remarks it yes, I think Bob said, you know, subscription revenues were down just modestly from Q. three. And I think, Bob, maybe you suggested there was a decrease in from legacy platform.
Maybe that was the source of the decline of the curious about from those customers that have already migrated over to converge with now with more than half your volume on converged, like what sort of your booking experience has been with those new customers? And is that sort of translating to some increased subscription revenues with those that have already migrated over to the new platform.
Ido Schoenberg
Hi, Glenn. Well, a few things. You're absolutely right that in what you see in subscriptions that are missing are the outcome of decisions that were made some time for a few quarters ago, there was always a tail in the heart of replatforming and we are experiencing today.
As I mentioned earlier, the results we see with people that have migrated are really excellent in Wales, almost any metric that you choose. And if they give a few examples and which are not atypical for expansion, the first thing that clients are doing when they're happy is to buy more into the platform, a more a more often.
So we are now in just different realities than we were even 12 months ago where we are very optimistic on retaining and growing our convergent clientele. There are many, many ways to do that, but I'd like to point out again that nothing in our guidance assumes any dramatic thing beyond the reasonable index should not be confused with lack of enthusiasm or treatment share. We just don't want to put it in to our into our guidance and focus at this point.
Glen Santangelo
Okay, thanks.
Operator
There are no further questions at this time. I will now turn the call back to Dr. Schoenberg for any closing remarks.
Ido Schoenberg
Thank you, everyone, for joining us this evening or again, I'd like to express really my goal been so many other people in as well for your fate for your patience as we went through their replatforming we are very excited to be in the growth phase of our company and really humbled by the opportunity to help wonderful people, including our women and women in uniform and many other people that deserve better care than they get today. So thank you again.
Operator
This concludes today's conference call. You may now disconnect.
