American Well Corporation (AMWL) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon and welcome to Amwell's First Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. Leading today's call are Dr. Ido Schoenberg, Chairman and Co-Chief Executive Officer; and Keith Anderson, Chief Financial Officer. Ido and Keith will offer their prepared remarks and then they will take your questions. The Amwell press release and webcast link are available on the Investor Relations section of Amwell's website. Ido Schoenberg: Good evening and thank you for joining our first quarter earnings call. We opened the year with $58 million in quarterly revenues. Gross margin was 38% and our active providers grew to over 80,000. With the growing evidence for expansion trajectory of a rolling technology platform that enables all types of care. Our source of revenue continues to evolve as contribution from subscriptions grew to 43% of our revenues in Q1 versus 40% in the same quarter last year. Overall, visits continue to grow as 1.6 million visits were performed on our platform this quarter versus 725,000 this quarter last year. Visit mix continues to evolve towards more specialty services as revenue provision expanded from the low 70s for the full year last year to already in the low 80s range this quarter. Schedule visits continued to significantly expand with these scheduled visits, outpacing on demand visits as a positive indicator reflecting growing demand to enabling telehealth technology across the care continuum. Our dialogue with our clients and partners in Q1 is reflective of post-pandemic sentiment. There is a renewed interest in telehealth enablement technology, with special focus on interoperability, deep integration, and hybrid models of care. Our recent win over large Mid-Atlantic blue is a great example. In addition, we're pleased to see core selectivity with Google Cloud beginning to realize. After the quarter, on April 28, we unveiled our Converge platform to our clients and partners. With over 1,000 clients and partners, it was our most attended forum since inception. Our clients and prospects reaction to Converge was extremely positive. One client said Converge helped us see telehealth not as an alternative to normal care, but as an integrated way to deliver care. Keith Anderson: Thanks Ido and thank you everyone for joining us on our first quarter call. As Ido know highlighted we believe Q1 demonstrates a foundational level of utilization of digital health performed on our platform. While later in my prepared remarks, I will unpacked our performance this quarter. I want to first provide some insights and the specific themes and dynamics that customers are citing as compelling differentiation that strategically also lends some insights and the key components of our inorganic strategy. Coming out of the pandemic, conversations with current and prospective customers have been much more thoughtful, as they are now viewing virtual care as a significant and permanent component of their overall care delivery plan. Customers are coming to the table with more crystallized views on the role they want the Amwell platform to play. Many have expanded their views of telemedicine and are discussing full longitudinal care strategies that require an interoperable platform with virtual care delivery at its core. Ido Schoenberg: Thank you, Keith. As the conversion of traditional healthcare into a new model of care accelerates, we could not be more excited about the expansion of our platform and its strategic direction. Going forward, we see the role of Amwell is relevant, unique important than ever before. With that, I would like to open the call to questions. Operator: Thank you. We have our first question coming from the line of Ricky Goldwasser with Morgan Stanley. Your line is open. Ricky Goldwasser: Yes. Hi. Good evening and thank you for all the details. Investors are very focused on understanding the potential of future revenue contribution from Converge, so Ido thank you for all the details and explaining the opportunities associated with it. I mean one of the things you said is that it's going to be sort of an upgrade for current subscribers. So, maybe you can help us think through and about how over time that will translate to increased revenue growth. One metric that we look at is the number of modules that health systems buy from Am well, is that a way to think about the opportunity in the in the near to midterm, does it sort of expand the average number of modules that a health system would purchase from you? Ido Schoenberg: Hi Ricky, it's great to hear your voice and thank you for this important question. Essentially, what's happened is exactly what we said is likely to happen. The move from telehealth-as-a-service, initiate urgent care, then primary care, then specialty care is now becoming a enablement platform. In order to build the revenue around technology, the first order of business is to build exceptional technology that meets the future needs, in addition to the current needs of our clients. The second order of priority is to convert as many of our clients to the new platform. We don't want to create any type of barriers for that conversion. Because we see enormous amount of upsell opportunity, once the ecosystem is on this unified platform. Because of long list of reasons, I'll just give you the highlights, we believe that with Converge, every clients will use the platform more. It's much nicer and easier to use. It offers many more options and so on and so forth. We also believe it's more likely that clients that had certain plan for scale, the mental shape, or the audience for the platform, for long list of different reasons are likely to expand it even more with the Converge. And then the scope of use, what they're using our platform for whether it's utilities like programs and modules created by Amwell and now with new models by third-parties, we have an opportunity to really upsell additional value to this ecosystem, let alone the fact that the ecosystem itself could connect and offer to trade services with one another because it's one solid codebase with unique identifier. This is why we basically said that while we are focusing on converting most of our client base starting this year, we believe we're going to see a lot of the upside starting in 2022 and beyond. Ricky Goldwasser: That's helpful. Thank you. And then if we think about the opportunity as those with Converge to expand long-term margin profile. Ido Schoenberg: Absolutely. So, there are actually quite a few things A, B, as I'm sure you notice the competition in urgent care is pretty fierce right now and the margins is a result of very, very slim and we expect the same to happen in primary care and even in specialty care online when the services at the core is an alternative to main a pathway of care. The barrier for entry for those areas is fairly low, and you can see people from Amazon to Sigma to many others entering the field over simple carriers as replacements around those areas. In order to create an enabling platform that is fully embedded with lots of other platforms that is covering the full health care continuum, it takes a decade and a half, it takes over a billion dollars of institutional investment to create something that enables that. And we are a quite sure that as we implement the platform, we're going to -- the subscription fees from contribution of the platform are going to be far more significant in to our topline and bottom-line than any other source of revenue. The margin in app sell or programs and modules is far higher than the margin on -- over an urgent care visit and in addition to that this is the fairly new -- actually very new -- very modern platform which is incredibly efficient. So, things like the cost of deployment, the cost of hosting, and implementation are expected to be much smaller -- some of which will be passed to clients, but some of it will translate directly into our gross margin. Ricky Goldwasser: Thank you very much. Operator: Thank you. We have our next question coming from the line of Robert Jones with Goldman Sachs. Your line is open. Jack Rogoff: Great. Thanks for taking my questions. This is Jack Rogoff on for Bob. So, it looks like cost of service went down on a dollar basis sequentially, despite more specialty, mix in AMG and more growth of providers on your platform. And I know you talked about some other factors that led to expanding gross margins, but can you talk about how these two factors impacted gross margins, if at all? Keith Anderson: Yes, so I mean, gross margin there were, you know, there was there was more next shift to subscription. When you see, I think -- when you saw the press release and the breakdown, subscription made up a greater portion, margins would have been higher. But we're starting the migration over to the new Converged platform. So that was a headwind to margin. So, margin increased -- gross margin increase was because the increased subscription as a percentage of mix, as well as some other efficiency factors that with our partnerships with Google and some other operational efficiencies. As a headwind was the -- or is the initiation of the migration over to the new platform that that headwind is going to continue for the remainder of the year. So, we expect margins to be in the same zip code of where they are now. And then continue to grow after we're filling on the Converge platform. Jack Rogoff: Got it. Thanks. And then the follow-up, I just want to ask about program OS , which we learned about during the client forum. I guess I'm curious if you foresee your clients, mostly customizing the program OS or using a care pathway strategy that's more preset? I'd imagine you have a mix of clients that have KOLs on staff and others that would prefer something more turnkey. And then secondarily, do you see this solution being used more by hospitals or health plans? Ido Schoenberg: So, the answer is, as you rightly suggested, Jack is all of the above. We really want to step back and allow the market to do what it needs for different needs. Today, fairly rigid, they need to agree with every component of the plan in order to buy it, and then either it works or it doesn't work. But the cost of making changes in implementation is very significant. What we did with the program OS, and what we're doing in building it right now, is to really allow us when, when appropriate to offer turnkey solutions, but then we place them as needed. And that's the philosophy which you see, all through the architecture. It wasn’t today, something fairly heavy, but you can think about the program is something very small, is a little intervention that avoids the readmission, or helps we triage meaning either a little touch point that could be further customized and optimized. We believe that some of our larger clients are likely to take advantage of building their own apps and their own programs, while others may want to use those programs themselves or turn to third-parties. The end result is that you're going to see an enormous network effect in wave of creativity and span of options for the market and we are going to really allow every participant, every subscriber to be very dynamic in creating the solutions that are right for them. It, of course, will allow us to, for the first time in our history, to really monetize directly the ecosystem that we've built over a decade and a half by basically rev sharing those innovation as part of a revenue stream. Jack Rogoff: Very helpful. Thanks a lot. Ido Schoenberg: Thanks Jack. Operator: Thank you. We have our next question coming from the line of Sean Wieland with Piper Sandler. Your line is open. Sean Wieland: Hi thanks very much. So, keeping on the Converge theme, can you just address how it's impacting the sales pipeline the pace of new bookings? And can you give us an update on expectations of new logo ads this year? Ido Schoenberg: Yes, so what we report when we normally don't say report, I can tell you that we had crazy attendance in our client forum over 1,000 participants. It's not only the number, it's also the quality We are the best academic medical centers around the country, some of the largest payers in either a very meaningful way larger corporations and many innovators that participated and already expressed their desire to begin to work with Converge. As I said earlier, our number one goal is not necessarily to immediately getting logos or new clients. We are laser-focused on our existing clients and want to make sure that they have a great experience converting to our a new platform for reasons that already talked about. We believe that the success that we are beginning to see right now, with the first few clients, is going to be very helpful in accelerating the growth with new customers in the United States and beyond. But as I said, we are reiterating our guidance for the year and we are suggesting the change would be much more palatable in next year and beyond. Keith Anderson: I mean, Sean just to add on that, the customers that are we're talking to are coming with a bigger request list, they're coming with more crystallized views on the role that they want telemedicine to play. And the platform is further differentiating and we're winning business because of this expanded functionality and bigger picture opportunity. So, it's already paying off. There's a couple of recent wins that we had because of this differentiation. And because of them coming with, you must have this functionality, and we won't provide that on the platform. So, already, we're seeing out of the gate advantages to a broader platform that is more interoperable and can bring more of what they do into our ecosystem. So, we're already seeing the benefits. Ido Schoenberg: I would just add this, Sean, I think you and other people on this call, were invited and came to our client forum. And I think that it's very difficult to translate the bright eyes in the room, the reaction, the enthusiasm because it really gives the client the freedom to operate in a very new way, it's not a little better. It's dramatically better than any other technology out there and we are confident that that would translate into expansion, multi-dimensional expansion, starting with our existing equals. Sean Wieland: That's great. Thanks for that. And can you give us an update on what's going on with the rollout of virtual primary care strategy? Ido Schoenberg: Well, sure. I can tell you that it's a great product and the results from a work deployed are better than we expected. The VPC has become an acronym. Many people talk about it, and they mean different things. VPC is, of course, part of Converge as well and going to be folded in into the main platform. Sean Wieland: Okay. Thank you. Operator: Thank you. We have our next question coming from the line of Charles Rhyee with Cowen. Your line is open. Charles Rhyee: Yes. Hey, thanks, guys. Appreciate taking the question. Keith you talked about the per visit revenue getting up to 86 and that was sort of a target you had expected to get to over time. Any reason though, as we think about the full year guide, given the strength of this, and how much is coming into more like scheduled visits and specialties? How do we think about maybe upside, potential here in this part of the business? And then can you just go over again, when you talked about the providers on the platform this quarter? I kind of missed it a little bit. Can you just remind us, why does this number reset necessarily starting next quarter? Thanks. Keith Anderson: Sure Charles, thanks for the question. And if it wasn't clear, I'm glad we're going over it again. So, we were $73 -- $73.5 per visit in all of 2020. Already in this quarter, is shot up in the low 80s, we thought that that was going to be more gradual. The reason is because of behavioral visits. So, we're continuing to see that mix shift more specialty visits and the average for the year we were saying was going to end up being in the low $80s. We're already there out of the gate within the first quarter. So, can I say that there's further upside on year? Yeah, maybe I you know, we weren't expecting this massive shift. And this accelerated fashion, you know, because of the behavioral visits and other specialty visits. Now, there's that continued throughout the year, maybe, I'm not going to go there right now, but we were expecting the average for the full year to be in the low $80s In terms of scheduled visits and specialty, we're continuing seeing that ramp. Scheduled visits makes up almost three quarters over overall visits. So, that's a leading indicator, it's not urgent care. So the vision and the mission statement of being backup care, you know, providing those services, seeing that continued shift to scheduled visit, just shows the more stickiness of our platform. Looking at the providers, in Q2, we went from 24,000 to 57,000 in one quarter. So, we added 33,000 active providers. Q2 last year was the peak of the pandemic, entire hospital systems, entire larger, even a part of one state, put their doctors on our platform. Those doctors were actively delivering care virtually on the platform. As Q2 rolls off, so the definition of an active providers over a 12-month period, with Q2 2021, you subtract out Q2 2020. So, what you're going to see is, you're going to see a decline or a step change, decrease back to around the levels that we saw at the end of Q4, but you're going to see the continued growth that we've seen throughout the quarters at the end of last year, and then in Q1. So, it's just math, that as Q2 rolls off last year, you're going to see the step change plus the continued growth thereafter. Does that help? Charles Rhyee: Okay. Yes, so you're saying it's just the way your formula for how you calculate that number as is not more than anything. Keith Anderson: It's defined as a 12-month period. So, when we add to 2021 and subtract q1 or q2 of 2020, you know, that's where the change is going to be. Charles Rhyee: Got it. If I can just ask one more. You mentioned that three quarters of the visits were scheduled visits, does that mean that those are the visits in support of your health system clients, and that the on demand visits really kind of ties more to your health plan clients or if someone's using LiveHealth Online, they -- you're seeing a lot of people scheduled visits through LiveHealth Online? Thanks Keith Anderson: These are overall. These are both non-AMG doctors and AMG doctor. So, across the board, it's slightly less than three quarters, but somewhere between the majority and 75% are scheduled visits. So, I want to receive care virtually for my doctor, I'm scheduling a visit and then the visit results, and that triggers the criteria of a scheduled visit. Ido Schoenberg: But Charles, maybe, to elaborate on this just a little. Here's how we think we really have two businesses, one is very much the business of the past and it's sort of in decline. The other one is the business of the future, is definitely emerging, a fast and furious. The business of the past is very much telehealth service. So, you see these maturing on its own moving from urgent care to primary to specialty care. And, of course, the business of the future is telehealth with platform. Telehealth is enabling technology. We have one foot here and the other foot there. So, when you have an opportunity to speak with your doctor, it's most likely that you're going to use the open market from your prior employer to look for a someone else and we talked about it in great detail a many times. Makes no mistake, however, there is value to have a network. Even for telehealth as enabling platform, the ability that you can rely on the valuable national network with short wait time is proving to be very, very helpful to all our clients, health plans and health systems. So, we believe that the transition is not going to be sudden, it's going to be a multiyear process. But since our bet and our focus is on a technology, we really feel that we are much shielded from the obvious decline in competition in the telehealth service business that is seeing enormous amount of traffic and newcomers. Keith Anderson: And Charles, just to clarify Ido's point, the visit part of our business is not in decline. It's just the subscription business is outpacing the visit portion. Ido Schoenberg: Thank you, Keith. I meant in comparison and I meant long-term versus the long-term trend and everything is showing up it pointing up. He just said tech is pointed out much sharper than service. Thank you, Keith. Charles Rhyee: Great Thanks. Operator: Thank you. We have our next question coming from the line of Jailendra Singh with Credit Suisse. Your line is open. Jailendra Singh: Thanks. Thanks for taking questions. I was hoping we could share some more color on recent feedback from hospitals on telehealth post-COVID. Are you coming across many situations where providers are waiting for more clarity on reimbursement, post-COVID, before making any significant decisions on virtual care back from investments? And beyond reimbursement, I was hoping if you could touch on what health systems are looking for, throughout the process, while they're evaluating these telehealth platform options like yours? Ido Schoenberg: Yes, so we actually see different types of clients wanting different types of things. Of course, reimbursement is much better, but it's really far from what it can be and our health systems clients are aware of that. Although I can't think of anyone who simply says they're not going to telehealth, doesn't exist. Some of them use it in the most simplest way as a video conferencing platform embedded in their EMR, while others are building the whole spectrum of services and they're really using our platform to the maximum degree and many are in the middle. We don't believe that we can necessarily control that variability in our clients or the speed of adoption in a significant the way. The market will do what it will do. One of the benefits of Converge is the modularity. So, you don't need to buy the full spectrum of options today if you're not ready to use them, or you don't think that there is a business reimbursed model that will make it worth your while. However, many clients and that's a word that kept coming in again and again, look at Converge now, while its future-ready? It's a safe bet, I can start with simple modules and whenever I'm ready to expand, it's very easy to do that in a consistent and integrated way and we're not trying to fight this type of thing trend. Does that answer your question Jailendra? Jailendra Singh: Yeah, that does that does my follow-up on the health plan side of your business? We have seen some consolidation there with the one of the large health insurance company acquiring a telehealth company. Any thoughts on some of these transactions providing some incremental opportunity for you guys, as other health plans are not willing to work with a competitor on telehealth vendor and what do you think -- or how do you think about the timeline for these opportunities coming up? And how are you guys set up to capture those benefits? Ido Schoenberg: Sure, I think that the service part of the businesses we discussed earlier is seeing a lot of activity in the agenda of each party may be different. Some people want to own a telehealth platform so they can benefit from the PBM revenue stream related to prescription. Others want to use it as a way to get to providers, yet other one to use as a way to get to consumers, and so on and so forth. As I mentioned earlier, there is a big inventory of options. And people want to make sure that they have the best tools and ownership to realize their goals. The business of enablement technology that we've built is much higher bar is to compete. It's very hard to recreate. It took us 15 years and over a billion dollars and we also did it together with enormous amount of feedback from all the parties. So, if you were really good at one area, you really need to get the 360 degrees perspective that we got in creating what we have created. Very tactically, when a big health plan is buying a competitor, although some limited to the service part of the business, we should assume that initially, at least initially, they're not likely to become our clients, although we don't definitely give up on that opportunity. On the flip side, however, such a company has different clients that directly compete with the new owner, in real already seeing some very encouraging signs for us, at least by having going directly to the client and replacing them with us. We took a strategy as you know, for all those years that we never ever compete with our clients and partners. So, we are really phased on sort of Switzerland is highly competitive environment and we use that in order to allow everybody to transact with one another in a way that does not intimidate any other players. Jailendra Singh: Great. Thanks a lot. Operator: Thank you. We have our next question coming from the line of Eric Percher with Nephron Research. Your line is open. Eric Percher: Thank you. I want to come back to the margin commentary and your comment on, we're going to see a decline over time for services. I think you've always said you're not a visit company and keep that at that, that's long-term. But the markets clearly concerned about competition. And I think that's both volume and margin impact. So, we have to really expect that technology is going to fuel growth, well, then the question becomes, what can you feel over the next year or two? When we look at subscriptions, how much comes from functionality that you have today, versus the open auditions that you seem to be inviting with Converge? So, can you get a feel for within the base current functionality, what can that drive enough to drive growth? Keith Anderson: Yes, Erica, maybe -- we're not going to have declining gross margins. Gross margins would have been higher in this year alone had it not been for the initiation of the migration onto the converged platform, we saw this quarter with the increase in subscription revenue in terms of mix shift. The margins that we have for our technology business, the subscription are technology margins. They're in the low-60s. The visit revenue, if you look at us and other competitors, they are not technology margins. So, visits right now are 48% of all of revenue. If you go back to when visits were a third of our business, margins were in the mid-50s. So now with other efficiencies that we have with some of our partners, moving over to the converged platform, we're going to be able to capitalize on both operational efficiencies and technology efficiencies that are going to get us to those target margin levels quicker. So I'm glad you asked the question, because I think maybe you misunderstood me. What's holding back, no further expansion this year is the migration onto the new platform. Eric Percher: It sounds like you're talking about inflection back in margins. And I'm thinking about the inorganic elements that you mentioned, all of those are enablers of technology, they're not clinical content themselves, is that what we should take from the inorganic list that you provide? Ido Schoenberg: Okay. We're switching gears. So let me -- yeah, I wanted to give inorganic, we have $1 billion of cash on our balance sheet. And it's one that, we do have a very robust targeted inorganic strategy. And so wanted to give some more insights into now that converges out in terms of Ido's explained what the functionality and what its role is for Amwell, wanted to give some insights into areas that that we are focused. With Converge, it's much broader, which is great. There's different components to the ROI of the migrating over to the converged platform, and one of those is the broader inorganic strategy we have for businesses that and partners that we can put on the platform that will further accelerate growth or accelerate margin expansion. Keith Anderson: Eric with the reasonable funding in the models, we are fairly convinced, based on a lot of hard work and dialogue that we have today by far the leading platform. But we don't assume that that's necessarily say, for many years to come, we need to always invest and improve. Part of the tools that we have within organic acquisition and the purpose of those acquisitions will be to make us a better platform. We're not going to buy services. We're not going to buy things that relate to the past. We're going to really make sure that we offer the best experience for our clients, for partners, for innovators, so they can basically achieve and create more value with the platform that they have. There is greater clarity in who we are, who our DNA as the technology enable. Eric Percher: That's helpful. Thank you. Ido Schoenberg: Thanks, Eric. Operator: Thank you. We have our next question coming from the line of Ravi Misra with Berenberg Capital. Your line is open. Ravi Misra: Hi, good evening. Thanks for taking the question. So just wanted to go back to Converge and kind of ask the margin question from another perspective. As you kind of layer on these kind of third margin, third-party ad models, can you help us understand, what's the kind of incremental view to gross margin or operating margin that can be delivered here? I think in the past you've kind of talked about getting close towards breakeven around 2024, 2025ish period. Help us think about, what this kind of new stream brings from a profitability perspective? And then second, I think we talked about kind of a partnership with Twilio, during the call with Converge. Any kind of insight there in terms of, what that's going to be doing to kind of bring the cost of serving the visit a little bit lower? Thanks. Keith Anderson: Thanks, Ravi. I mean, we're not changing our EBITDA profitability timeline yet. That is one of the rationales for Converge. But we're not going to change that right now. I'll let you answer the rest. But I just wanted to take the first part, the easy part. Ido Schoenberg: Thank you, Keith. Look we know already many things and we're going to quantify and validate them as we go along. And then of course, we're going to share a view into the future. There is great clarity already that the new platform drives much better margin. On the cost side, the modularity allows us to renegotiate and rebuild all our suppliers and subcontractors in a new way, Twilio is a good example. We simply believe partnership is a strong word. We wanted to select a video engine. And we believe that Twilio is the best Epic use them too. So we are like minded on that front. And we are offering it to our clients. If down the road, we'll be a better video engine, we take this out, we put one in, we can do that today with the modular platform that we have. But this is a good example of creating value for our customers. Overall, because of that strategy, we expect the hosting costs to be dramatically less costly, and determined to be much faster, because of a one simple user interface and many, many other things that we touch upon on our clients form. Much More importantly, because we build as a real platform, the cost of add-ons, is almost insignificant. So when we build and we announce and open up our app store later by the end of the year, and we bring more and more apps a distant in the coming years, the cost of adding them is very small to us. But the value of accessing the network effect in our ecosystem is very considerable to all parties concerns. So we believe that we are going to see very high margin revenue stream and much greater stickiness. There is a reciprocity between the diversity of options, and the stickiness and the value that you bring to your clients. But these are all wins that we don't necessarily participate in. We are basically leveraging other people's innovation in order to create that network effect that we expect. Ravi Misra: Great, thanks. And just maybe one last follow-up, just going back to the revenue recognized per visit, Behavioral health, clearly benefiting from a mix shift there. Can you maybe give us some commentary on the pricing on some of the other kind of layers in that model? Thank you. Keith Anderson: We haven't gone to that to that level. I mean, we have some per transaction that can get as high as this was interest one $800. And then we have the lower urgent care price per visit. So the average we said for the full year was going to be in the low-80s. We got there pretty quickly in the first quarter, last year the average was $73.50. Operator, can we move to the next question? Operator: Thank you. We have our next question coming from the line of David Larsen with BTIG. Your line is open. David Larsen: Hi. Can you please talk a little bit about the 20% growth in revenue that would have occurred excluding those two customers that rolled off because of M&A? Where's that growth coming from, especially with regards to new client wins? Are you winning on the health plan side or the hospital side? Was it coming mainly from installs into existing health plan customers or you getting more members? Or is it really the visit volumes, where you're generating a fee? Any additional color around that growth would be very helpful? Thank you. Ido Schoenberg: It's pretty evenly mixed. Dave and hello -- by all those different areas. I would say the new logos are being a little bit paused because they now have a more evolved crystallized expanded view of what they want the platform to be. And they know that this is not an insignificant decision for their organization. So having a partnership with Cerner is helping on that end and we actually a large opportunity on the health system side. The health plan side is yes, it's ripping across the member base, and that's where the expansion is there, as well as introducing new modules and programs or programs on the health plan side given it's in the beginning of the year. And then in terms of the mix, it's -- those two large customers that returned due to M&A that we talked one of the IPO and then the other the plan that acquired a telemedicine company, if you back out those two customers, you get to the low-20% growth that I quoted in my prepared remarks. David Larsen: Okay. Great. That's very helpful. And then just regarding like using Amwell as a platform, can you talk a little bit about homecare, and I was intrigued by your relationship with Tyto Care? Do you have any relationships with home health companies where you could send nurses into the home and deliver a med, can offer like a complete sort of solution that would effectively compete with Amazon? Thanks. Ido Schoenberg: Yeah. Again, we are enabling others, we are not bringing our own solution and then recommending to the market. That's a very important differentiator between us and other telehealth players. You're absolutely right, homecare is incredibly important area. And players in the area are some of them are using Amwell and hopefully some -- many of them will use that Amwell also in the future, what we bring is the integration, because in home care, you needed more than ever, you want to connect to your payer, you want to being contact with gaps in care with your employer. And of course, you want to connect to devices and you want to connect to different types of providers and so on and different types of systems will continue to care in the full spectrum of care. Home Care is all about coordinate care, some of our urgent care or primary care necessarily alone. And we check all those boxes. So we believe that as home care is a trend is going to be much more prevalent as I certainly believe that. You're going to see those systems definitely connected to the Amwell platform and through the platform to the rest of the participants that are very relevant in the home care. A Tyto is a great example of that. So we don't say to our clients, use Tyto, but we resell Tyto, but we don't necessarily say that's the only device that you should use. But the plan is to really allow you to choose from a great variety of different devices, different programs and really customize what you need when you need it. David Larsen: Great. Thanks very much. Appreciate it. Operator: Thank you. We have our next question coming from the line of Donald Hooker with KeyBanc. Your line is open. Donald Hooker: Great. Good evening. Thank you. Just with regards to the -- I guess the step up in R&D expenses as we go through the year. How do we think about modeling that sort of stepping down potentially in 2022? It sounds like you're doing this program with Google Cloud Next year. Is that going to keep -- can you update us with regards to what R&D expenses might look like longer term? Ido Schoenberg: Sure. So --yeah. So everything we said in our client forum is going to be delivered in R&D this year, so all that expense is going to be delivered this year. However, then obviously, we expect the R&D costs to normalize. We are a technology company. We may invest in a new opportunity as they emerge, but they will be connected to new revenue streams associated there with them. Every part of what we discussed on the call in our client forum is going to materialize in this year's plan normalizing early next year. Keith, I'm sorry for taking your part. Keith Anderson: No, no, it's -- the spend for the entire year is going to be similar to the percentage of revenue that we experienced in Q4 of last year. And then the program will be completed, the projects will be completed and it's going to go back to a more normalized level in 2022. Donald Hooker: Okay. Got you. And just to be clear on more normalize level would be just looking back, is there a particular reference period, I guess first half of 2020 gramps kind of or what is a more normalized level? Ido Schoenberg: Well it was at the end of 2019. Donald Hooker: Okay, super. So that's great. And then maybe just one last one for me. I just I was very intrigued by the sort of the natural language, Google's sort of language translation app or whatever you call it, it's very interesting. It does seem like that would open up international opportunities. Can you update us on your ambitions there? Does any incremental comments on the international, obviously, large opportunity internationally. So love to hear about a couple points on that? Ido Schoenberg: Sure. So your question to a number of components, you talked about our relationship with Google, I'd like maybe to make a comment there first. We are beginning to see evidence of our partnership with Google becoming incredibly important for Amwell. So the app that Google launch and we were very thrilled that they were the first official app to launch on Amwell, hopefully, with many, many more to follow. It’s a very important application. I’ll talk about it in a second. So the technology collaboration is really working. And there is not more where that came from. The sales is beginning to work. Our -- we are on the Google marketplace, we signed all the required agreements, and our sales force is working together. And we actually started to sell in earnest, which is great. The third component is we are beginning to leverage some of the benefits of working with Google Cloud itself. And that has a favorite hosting costs and margin contributions for us as well. So that's really important. Converge is designed, as I said, in the global platform from the get-go. It's designed to work anywhere. As you probably know, we already as a very successful deployment in Israel on our current platform, which is not Converge. But the whole point of Amwell in general is an enabler is true anywhere. It's not only true in the United States, and we definitely plan to expand. And of course, the Google relationship is very relevant. But we have other partners like Cerner that operate internationally, not even to mention people like Allianz, Philips and others that also are our global presence. So we are going to leverage our relationship to go beyond the United States. And we believe that our investments in Converge. And things like the Google apps that we described will really help. And we know we have a JV together with Cleveland Clinic, for example, that has a really broad audience in some international clients. And for clients like that the ability to have real-time caption and translation, medical grade is a very big deal. We all know what's happening in India these days. And imagine how helpful it would be where providers in countries that are less effective could potentially chip in and help, and not talking about regulations right now, things of that nature, there is a way to go there as well. But Amwell technology, that's an enablement that is very important. So we definitely plan to do to be active in all those funds. Keith Anderson: I just want to make sure you got my answer correctly. It's what are Q4 of 2019 as a percentage of revenue, obviously, we're not going to go down to the R&D level that we had in 2019. We're bigger… Donald Hooker: Sure. Keith Anderson: …but on a percentage of revenue based. Donald Hooker: On a percentage. Keith Anderson: That's what we're looking for next year. Donald Hooker: Super. Thanks so much. Keith Anderson: Thanks, Don. Operator: We have our next question coming from the line of Ryan MacDonald with Needham. Your line is open. Ryan MacDonald : Hi. Good afternoon. Thanks for taking my question. You talked about in the prepared remarks about the opportunity for monetization of Converge partially through the apps that will be developed on the platform once the marketplace launch it. I know you mentioned there's already a few apps already out there. But I guess, I’d be curious to understand from the client form, what sort of interest you've seen from the development community to build out that potential pipeline of additional apps to come on to the platform and how quickly you think you might be able to start monetizing that. Thanks. Ido Schoenberg: Sure. So the interest is very strong. It came from all over. It came from a small companies with -- that we're thrilled to find the shortcuts to get it to market. It came from large established companies that sell their value to add like Google. And it also came from client, interesting enough. Many of our larger clients have big shops of innovation. A lot of what they've done to be very relevant and helpful to the rest of our clients. So there are two aspects wrapped in programs, the program with. One is the technology aspects. You can use API's. You don't need to write yourself code for real-time eligibility codes or integrates with multiple EMR, or do many other things that you’re doing because we already do that, and you can use our API. The other one, which is equally important, maybe more important is the ability to interact with the ecosystem that we've built. So you're already integrated, it's much easier to add components than to go retail and try to sell to a CIO yet another service. That's something that is fairly new. The general direction of this is that there is value in both the technology to provide to innovators, and the access that we provide into an ecosystem that took us many years and lots of resources to build. And as I said, in my remarks, we're going to give you more details about the way that we are going to enable it from a financial business standpoint later in the year. It's also based on dialogue that we are having with different innovators, and with ecosystem clients, so we can form a view on something that is very comprehensible, very simple to understand for everybody and very reproducible. And that's fairly new to us, we're learning. Ryan MacDonald: Excellent. And as a follow-up for Keith, you had mentioned, I think, to one of the previous questions on new logos, a bit of pause there based on some crystallized sort of vision of what they wanted to do. Were you seeing any instances of potential pent up demand, as customers were waiting or prospective customers were waiting for the launch of Converge, any chance that gets released as we look at through the remainder of the year? Thanks. Keith Anderson: Yes. I mean, we won a large Mid-Atlantic Blue. That was competitive takeaway, because of the functionality of our platform, and the partnership aspects of our business. So they were waiting. They knew that we were rolling this out. And that is -- that was a great win. Ido Schoenberg: Our clients are genuinely excited. And they do now many more things that they were waiting to do. I will not call it program , I would call it just a taking a serious look. It's what's possible in planning, deploying programs that was just unthinkable before. So overall, I think that we're going to be able to offer Converge to many larger audiences going forward. But when you put in front of a kid with a lot of toys on the table, there is an element of choice that takes a little longer to realize. Ryan MacDonald: Understood. Thanks for taking my questions. Keith Anderson: Thanks, Ryan. Operator: Thank you. We have our next question coming from the line of Glen Santangelo with Guggenheim. Your line is open. Glen Santangelo: Oh, yes. Thanks and good evening. Thanks for taking the question. Hey, Keith, I just wanted to follow-up on something you said in your prepared remarks, and I apologize make you repeat it, but I thought you were giving us some commentary with respect to 2Q. I know, we talked about the different providers, but do you make some comments with respect to the revenues in 2Q that may look somewhat similar to Q1? Or did I miss here that? Keith Anderson: No, I was saying that we're going to have a more normalized revenue profile. So when I when I think about visits, when you go into the summer, Q2 is normally somewhat, I guess, flat to Q1, at least that's what we're expecting. Services and care points really starts ramping up towards the end of the year. You have less marketing in Q2. You have the care points being to -- starting to because the capital budgets of the system starting to be bought, both of those are more backend weighted, the subscription growth is going to be continued growth. Glen Santangelo: Right. So when I think about the full year outlook, we see that sort of inflection coming in 3Q and if I heard you correctly, you're saying that's really driven by the services and the care points starting to kick in. Am I understanding that correctly? Keith Anderson: And the subscription. So we're going to have nice growth again next quarter on that line, but it's, I guess, more of the stuff coming out of Converge, more of the modules and programs being purchased in the expansion within the number of basis of the plans getting even more detailed. Glen Santangelo: Okay. Thanks a lot. Keith Anderson: Thanks, Glen. Operator: We have our last question coming from the line of David Grossman with Stifel. Your line is open. David Grossman: Thank you. Most of my questions have been answered. But I wonder if I could just go back to some of the structural questions about the Converge revenue model? Does -- when you convert an existing client to Converge, does that naturally create a lift in revenue for that client? Or does the incremental revenue come from selling incremental modules? And if in fact, it is selling incremental modules, can you help scope for us just how many of those modules are really available today for those clients to drive that increment? Ido Schoenberg: Yes. So basically, as I mentioned, we want to make -- it's an upgrade. You get it. If your client to run mill, you get an upgrade to your current platform with the Converge. And we try to make it as clean as possible. Of course, our clients are all over the place in world scope. Some are using very small parts of the functionality, while others are using a big part of it. The average client has lots of room to grow in many areas. So, a typical health systems, they have a lots of modules that they didn't buy, that are more likely to buy in Converge, because of the reasons that we already discussed. Many health plans, they are using certain programs that have new programs that they can do on Converge and they’re likely to buy. And as I mentioned also, because the change in user experience in many aspects, we expect them to use it more frequently and we expect it to use it with more people with bigger audiences. So there are aspects of frequency in volume. There are aspects of a scope of a use that are likely to drive the revenue growth from our existing clients. Later, in 2022, as I mentioned, a lot of that will come not from Amwell, but will come from a parties like Google and others that are already developing a really interesting solution, they're on our platform. Keith Anderson: And there is one, to expand upon that answer even more, we had to justify the elevated R&D spend for Converge this year. And so I view it from being CFO, an ROI perspective. So I mean, there's three components that I broke it down, when we were explaining it internally to leadership. There's the revenue side where we do believe it's going to accelerate and steepened the slope of our revenue growth, because, A, they're going to be buying more modules and programs, but we're also going to have access to more of the wallet. And the wallet is also going to expand, because we're going to be doing more on the platform that expands margins. I think we've already talked enough about that. But it also was opening up a broader inorganic strategy, some of the things we're looking at, because of the functionality, because of the different ways of delivering care virtually, we're looking at some targets that on the previous platform, I don't think it would have made as much sense. Now, it's actually pretty exciting on the Converge platform. So those are the three ways I look at Converge and justifying the elevated spend this year. David Grossman: Right. So thanks. That's actually very helpful insight. So Keith if you think about that, and I think by your own admission, you got a heavily -- more heavily back end weighted year, some of that care points and some of the other elements you talked about, but also more kind of modules being purchased under Converge. So, I assume your clients are sharing some of their plans with you, and you know what you have in developments? So, how much visibility do you have at this point on the back half of the year, if you could at least share some of the -- whatever visibility you do have. Keith Anderson: I mean, like we said in our prepared remarks, and we tried to give some insights into the selling season into the pipeline, they're coming to the table with bigger opportunities that get us even more excited, because we can take a greater share of that wallet. So, while we have the volume of logos in the pipeline that we're mapping out for the rest of the year, you can see a greater opportunity, the large Mid-Atlantic Blue that we won that Ido mentioned in his prepared remarks by having this new platform, we're going to be able to access a greater portion of that wallet, deliver more functionality, more modules and programs or programs to that customers. So we're very excited about what we're seeing, because we're seeing the opportunity expand beyond just the addition of logos. So we are looking for you to see expanded average contract values, and a portion of our growth coming from that as well as you know just the simple additional logos. David Grossman : Great. Thanks very much. Keith Anderson: Thanks, David. Operator: Thank you. There are no more questions on the queue. I will now turn the call back over to the speakers for additional comments. Ido Schoenberg: Well, thank you everyone for joining. I know that many of you spend a lot of time with the client form and also discussing our progress, there is a lot to chew on. It's a big change. It's exciting change. And we are very glad that our vision of many yours is coming into fruition. So we look forward to continue to dialogue with you and keep you updated with our progress. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.AMWL Ratings Summary
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American Well Corporation Review Following Q3 Results
Analysts at Berenberg Bank provided their outlook on American Well Corporation (NYSE:AMWL) following the recent Q3 earnings report, with a top-line miss and step-down in the FY revenue outlook.
For investors with longer time horizons, the analysts see this as a buying opportunity. The central tenet of their thesis – the company becoming a key component of the healthcare IT spine market – seems to be moving forward. This is evidenced by ongoing increases in average annual contract values which signify a growing value proposition for the user base in the Subscription business. Moreover, this comes with a key growth driver, Converge, which is still in the early stages of a roll-out.
