American Well Corporation (AMWL) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Welcome to the Amwell session. I'm Bob Jones. I'm joined by my colleague, Jack Rogoff. Together, we cover the health care services and digital health space here at Goldman Sachs. Very excited to have Amwell with us. And from the company, we have Co-Founder, Chairman and CEO, Ido Schoenberg, as well as Chief Financial Officer, Keith Anderson. So welcome to you both. Really appreciate you being here today for our 42nd Annual Global Healthcare Conference.

I thought, just to kick things off, obviously, the format here is Q&A to the extent anybody has questions, please submit them to me, and I'll make sure if there's time, we'll get those out in front of Ido and Keith. But just given what we just came through, Ido, I thought maybe a good place to start, clearly, it goes without saying that telehealth is forever changed because of the pandemic. And I think today, as we look back over the last year plus, I mean, clearly, a lot of different offerings, a lot of different competitors have either emerged or been created or come to the surface. And so I think there's, to some degree, a lot of confusion in the marketplace of who exactly is offering what. And so I thought just for starters to kick us off, maybe from Amwell's perspective, obviously, how is Amwell different from a telehealth perspective relative to a lot of the other companies that are now in and about the space?

Bob, that's a great question. Obviously, deserves a really long answer. But when you think about what happened in COVID, I'm not sure that it's accurate to say that telehealth has changed. I think that more accurate description would be accelerated. So when you think about our journey for the last 15 years, we always believe that there are 2 big issues in health care in general, that's fragmentation and the lack of automation. Too many things are done in parallel. There is enormous clinical waste and a lot of things are done by humans that could be done by technology. With growing gap between supply and demand, technology has to fill in for the lack of -- for this growing gap. What happened in COVID is that people were forced to cross the last mile to begin to talk with each other. And when I say people, I don't only mean patients and doctors, I also mean payers and governments. They were ready to pay for it, to enable it, to make it permissible, more accessible and truly supported it. And that created an accelerated time line. What we believed was going to happen in 3 to 5 years happened in 1 year. What happened in Amwell was the realization that our plans need to change as well. And what we plan to do, and we have R&D, like launching our new platform Converge, that we plan to do over big good number of years, we have to do probably in 1 year. And because everybody is ready to think about interoperability in a new way. Interoperability is a very good answer to the issues that I discussed due to fragmentation and lack of automation. And that's exactly what we've done. Another short example of how the pandemic change us as a company relates to the way that we operate. We used to operate from a few discrete offices obviously, everybody worked from home, and we began to experiment about development offshore. And we build this service-oriented the infrastructure that allow us to really have small development programs in different services and suddenly, we're able to recruit talent from around the globe. And that was super successful, and it's something we are likely to continue and do going forward and allows us to be much more agile and much more productive than we ever were.

All right. That was really helpful, Ido. Yes. I guess the conversations I'd imagine during the pandemic, going into the pandemic and during the pandemic are obviously probably quite different than the conversations coming out of the pandemic. So as opposed to looking back, I'd be more interested in hearing about what are your conversations like both with health plans and health systems as we emerge from the pandemic?

You're absolutely right, Bob. I mean that was one of the things that dramatically changed. So essentially, despite the many things that we've done before, the main dialogue before the pandemic was how much do your doctors cost? What is your average wait time? What type of services and disciplines can you offer us so we can be more efficient at what we do? After the pandemic, everybody realized that telehealth promise is not to create an alternative to main pathway of care, but rather to enable it and connect it. So now everybody is focused on how can you take our own network, how can you take our resources and connect them, whether you're on the demand side or the supply side, in a new and efficient way, which is exactly well positioned to what we try to do over the years. So we are now at accelerated time line, where our technology is not going to influence some services that are rendered in parallel to everything else, but rather an enabling technology to change what everybody is doing every day.

That's helpful. You mentioned, Ido, the recent client forum and Converge, obviously, there's a lot of time spent there talking about Converge and educating your clients on it. I maybe thought it would be helpful for investors if you could simplify what exactly does Converge do for the client? What does it improve for your clients?

Sure. Again, trying to keep it brief, Converge is a very, very modern infrastructure that first and foremost, creates one super efficient technology that is the same technology across all the segments that we serve. So the same technology that we use for providers and hospitals is used for employers and payers is used for device companies and so on. And that has enormous value in time where interoperability is so important. I'll give you just 1 example. If payers have getting care about a patient and I'm able to connect both the member with both that just showed up at a large academic medical center, and then take your gaps in care and make it available inside the EMR of the provider, so the provider can close those gaps in care and get paid for closing those gaps in care, that's, in many ways, the holy grail. And these type of things are growing and becoming possible when you have 1 platform. Another very important attribute of Converge is its ability to support the migration from telehealth as a transaction to telehealth as a longitudinal presence in your life pretty much all the time. So when you think about telehealth today, it usually start with a need like a symptom, you go online, you look for a doctor, you go to a subscription , you fill it and you go back. Very often not to connect with the same entity. And as a result, the type of use cases in telehealth are very, very simple. They're around urgent care, primary care and a little bit of behavioral health and so on and so forth. The main value of digital connectivity is in chronic care management, in acute care, in prevention, in many other areas across the care continuum. The ability to focus on what happens before the visit and even after the visit of infrastructure is something that we believe will become more and more important going forward. Going back to the fragmentation, there are a lot of great therapy -- therapeutic area specific programs today, in musculoskeletal, in diabetes, in heart condition and so on. And they work in parallel to the relationship with your doctor and your specialist. The ability to embed those longitudinal program in the same infrastructure that's connected to your EMR, that is connected to the visit you do online and in person is, in our opinion, very, very important. I will just leave you with one more thing, although the list is much longer than that. For the first time in our history, we created a platform that is open. So other people can develop applications and program on our infrastructure. And that allows for 2 things. That allows for an innovator to use our APIs for different things. So if you create a new device, for example, and you want to send a claim to check eligibility to embed your information inside the DMR with APIs that will allow you to do that. More importantly, if you want to offer a new offering to the ecosystem, thousands of hospitals, tens of thousands of employers, a big part of U.S. payers, through our platform to those people, you can do that. And you can do that much faster. By adding -- by opening our platform, we are helping obviously not only innovators, but we are helping the rest of the ecosystem because you expect to see more innovation, and you expect to try more things in time where people realize that the technology ability to impact the outcomes is greater than ever before. So saying it another way, in summary, we have created a platform of -- that could be global, that allows interoperability for all the sectors, to create 1 consistent health care experience. And we expect that infrastructure to grow to really enable more and more use cases over time.

Ido, just a follow-up on that because I think one of the natural questions you'd get from kind of describing Converge in that way is that it almost seems like you're becoming the electronic data warehouse or the data lake or whatever kind of the central repository of information is. What would you say to a health system or a health plan that says, there's other companies that are just focused on aggregating many different streams of data and systems into 1 place that might have expertise at this. Why should this be Amwell that does this for me?

So I want to be very clear. We're not trying to become the repository for everything or the data lake. Other people, as you rightfully suggested, do it well. It's not what we do. We allow connection. We allow communication. We don't try to move the data necessarily. We allow to access it, so we can be better at the transaction or the service that you need to create, realizing that data and services are all over the place. The need is orchestrated for multiple direction. There is a real need to connect to everything, to connect to devices, to connect to EMRs, to connect to payer systems and so on. So these things don't really work together. And connect is very, very complicated. That's what we have been doing for the last 15 years. That's what we are going to continue and do going forward. We actually don't want the data to travel and certainly not be stored with us that's the wrong answer for a long list of reasons, people who not want to share it necessarily. But we want to envelope the health care interaction so you can very easily navigate and get to the services and data that you need in order to really improve the best possible outcome. That is massive . When you think, for example, about EMR companies, we are so proud of our relationship with Cerner, for example, for them to open a video window between an EMR and a patient is so easy. It's not a big deal. And yet, people use Amwell. And the reason they use Amwell is that a lot of the activity happens outside the hospital, happens at the home, is related to gaps in care that the payer and the deployer are creating, connected to lots of devices or other technologies, that is not really available through an EMR. We complement what we do, but we don't compete with them in any stretch of the imagination. And we've been doing it for a really long time. We're able to get a big part of the ecosystem to trust us. And that's an asset by itself, if you will, because a lot of them basically look to each other to complement what they're doing. And that's fairly unique.

That's an important distinction, thank you for that. Yes, I think it sounds fairly intuitive why this offering would be attractive to many of your clients. But I thought I'd see to bring you in how should we think about the financial implications from the uptake of Converge, maybe in the context of revenue growth or acceleration as this offering starts to get rolled out to more of your customers.

Yes, it's going to affect us in 2 ways. And again, this is more of a 2022 and beyond event. It's going to steepen the slope of our revenue growth trajectory, and it's also going to increase our gross margin. So without giving 2022 guidance, those are the 2 areas that it's going to affect on the P&L. The other aspect that supports the revenue growth assumption is the types of conversations we're having with our customers right now. We talked about it on our call a bit, the earnings call. Large customers, both plans and health systems coming out of the pandemic are coming to us with a much more crystallized view of what they want their virtual care strategy to be. And it's a lot broader than we thought. And the beauty of Converge is that them coming to the table wanting to do so much more on the platform and in the virtual space, means that the total spend wallet has increased. And Converge is going to allow us to access and address more of that spend. So those 2 components based on the conversations with our customers since the beginning of the year, A, was part of the reason that we accelerated and have confined the converged development and rollout into this year, but also how our customers and clients, these are the biggest participants in the health care ecosystem in the United States, are viewing virtual care coming out of the pandemic.

So it's financially then, is the right way to think about this -- and I know there was a little bit confusion on this coming out of the client forum, is the right way to think about this is if you're an existing health system or Health plan subscription clients, you get Converge, but then Converge opens the door for you to be able to sell in more of the other offerings and modules. Is that the right way to think about it?

Yes. Also, so here's what's going to happen. You're going to get the Converge version of your use of Amwell today. So if you use telestroke, teleICU, a virtual emergency room or a program for a payer, exactly what you get on a new platform, which we believe is going to be significantly better experience that is much more capable. We believe that the new technology and experience is likely to change existing client behaviors in 3 ways that relates to our ability to generate more revenue. And one, we believe that they're likely to use our platform more often. It's simple, it's super slick, it's so easy to use, very robust, very reliable. It's a wonderful experience. We believe they're going to use it more often. The second element is the ability to inject models and programs is so much easier than before. Can really turn it on much easier. The Google app was a great example. There are many other examples. So you can experiment with new ways to use our interoperability engine to really help grow your business. The third element is realizing most of our clients are really penetrated to a small extent of what they could. It's not uncommon to see a delivery network that has 2 hospitals out of 6 penetrating with Amwell. We believe that the experience they are going to see that has a strong tailwind of what's happening in the market today is likely to drive them further to expand the use of our platform. So frequency of use the scope of use and ubiquity are going to be ways that we believe Converge will help us grow same-store growth. Obviously, as Keith mentioned earlier, the new technology that departed from the reality of having server farms with instance for each client. Into the cloud, into the multi-tenant environment is infinitely more efficient than what we had before. So as we migrate our clients, our gross margins are going to further be improved. Lastly, we believe that the success of our clients is not going to be lost on new logos, and they are going to be the biggest driver for growth going forward. It's an enormously connected community in health care. And we believe that this -- the needs of the market become much more sophisticated so the gaps in the value in our technology will become more meaningful, and that will serve as further driver for our growth in the next few years.

Got it. That's really helpful, thank you.

Great. Ido and Keith, thanks for participating in the session, really helpful insights thus far. Just to take this Converge conversation a little further. On your last earnings call, you talked about potentially benefiting from like an app store concept through Converge, and I was hoping you could elaborate on what that might look like and how that might lead to more revenue from the platform?

Sure. To be clear, going back maybe a little bit, Jack, to what I said earlier, everything I said, are things that we believe are going to happen, but the speed and the actual measurement of what's going to happen is going to be determined in real-life in the market. We're just beginning to deploy, so we don't know much. As we have a few more quarters of actual experience, we can really understand what the platform can actually do. When we think about the app store, the app store will be available towards the end of the year. The app store, unlike its name, is not an app store like the one Apple has, in the sense that in health care, you will require much more attention to make sure that it's compliant, to make sure that cybersecurity is okay. And many other things that are unique to health care. So as we now develop more and more capabilities, we are in dialogue with innovators, to try to find the most attractive pathway for them to leverage our APIs, to leverage our relationships, so they can become more relevant to the marketplace. We believe that those 2 value items are very meaningful to those innovators and demand a good chunk of rev share that should come to us when we offer that acceleration to their business. We are still figuring out how to simplify that. And we are going to learn much more once we work with those innovators and deploy it in '22 and beyond. So in a nutshell, and we think there's going to be an enormous opportunity with apps. We think that the speed and the details are to be determined. We're going to learn a ton as it relates to the app store in 2022. And as we learn and amend it, we think the business model will stabilize, and then we can more comfortably add it to models. It's way too early to do this at this point.

Yes, that definitely makes sense. And obviously, rolling it out to your customers first would be the first step, so it totally makes sense. I wanted to shift gears a little bit and ask about virtual primary care plans. We've been hearing about more demand for virtual primary care plans in general, and it seems like some of the plans that started in 2021 have gotten solid starts and obviously, Amwell has an offering to support these plans. I guess, can this momentum be a meaningful contributor to help plan ACV growth in 2022? And how is Amwell supporting these sorts of plans?

Sure. I would suggest that the word virtual primary care may be the wrong word. And here's what I mean by that. Members expect to interact with the health care system online. That's an attribute of virtual primary care. So when I have an issue, I want to go online. I want the experience to be as accommodative as possible. So there is a layer of technology to help the navigation to whomever I want to speak. The ability to talk to a team that has access to my record that I can see, not for 1 time, but for multiple times, is the foundation for the virtual primary care element that is starting there. But my doctor can refer me also to labs, into imaging, into physical encounters that may include also specialists. So in that way, this experience is not only about primary care, it's really a gateway to the full care continuum. When we think about our entire offering, the virtual primary care capabilities are certainly part of the experience that members and individuals are going to expect going forward, in our opinion. It's not a special product or a unique strategy that people should deploy, it's how most of us are going to experience health care in the future. Now of course, that capability does not really live by itself. What we want to make it work, we want, for example, to engage the consumer at the home. So home care is a very big part, remote patient monitoring, nudges , engagement, ability to use consumer devices like home TV and things of the nature are critical for realizing that type of strategy. So the virtual primary care product that we began to deploy a few months ago, and it's deployed very, very well. In our opinion, both for the member experience, but also for the risk bearer experience in optimization of the payment model are indicative of the component that is important as you think about the full system that we deploy and not necessarily as a [indiscernible].

No. I think that makes a lot of sense and definitely speaks to the differentiation of what Amwell's offering. I guess what sorts of health plans are interested in this level of sophistication, right? Is it more the national carriers? Is it provider-sponsored plans? Is it more regional type of health plans? Just curious where you're seeing that demand today.

Well, obviously, the bigger health plans have a bigger appetite for innovative large technologies. But we are seeing more and more interest also in blue plans and other participants in this type of experience, especially when it connects to the rest of our technology. So your ability to understand the scheduling openings in different academic medical centers as the referral depends on your footprint in those academic medical centers. So the virtual primary care as a stand-alone will not be able to do that unless you have that capability, which we do.

Makes sense. And you mentioned the home. There's some out there that are connecting that longitudinal relationship with physical clinicians in the home. And obviously, that's not a capability that I think is all that easy to come up with and you have AMG to support your clients in their ability to deliver this innovative way of caring for patients. I'm curious, is that something you'd consider adding to AMG? Or are you really focused on the technology aspect that enable that connectivity to the physical world?

So AMG is a national network that is very carefully monitored and well with the quality of the services that are rendered, the type of services, the disciplines and so on and so forth. The experience, wait time and things of the nature. That capability can be relevant for many, many things, helping directly members and consumers at home or even helping providers at what they do. We don't see those things as distinct, we see them as one offering, if you will. What we believe is going to be a very important value point to risk takers like payers is really the ability to improve outcomes by preventing inefficiency that is driven by fragmentation and lack of automation. So if I'm able, for example, to create an infrastructure that will prevent remissions. If I'm creating an infrastructure that will shift a lot of the dialogue with the patient to automated modalities so the time of the doctor is well spent on things that really are relevant and require a doctor interaction, that's very, very helpful. It's even more helpful when you think about therapies. health is a big area of need. And if you can envelope with variable encounter with a lot of automation, that's very, very helpful. At the end of the day, when you look at the entire ecosystem, everyone is beginning to collaborate to create more efficient care. That's the product that we're all trying to create. And we all need each other and we need to avoid duplicity, which exists in enormous amounts across the healthcare ecosystem by first creating connection. And that's our contribution to the story. That's the main differentiator between Amwell and a lot of the players out there.

I know it's not an area that we spend a lot of time on, but just for modeling purposes, we do get this question quite a bit, and that's around the AMG visits. You saw obviously declines year-over-year in 1Q. I think the guidance for the full year kind of calls for volumes to be flat. You still have the 2Q comp, which is obviously against the peak of the pandemic, which obviously, again, helped fuel the AMG visits. So what gets you flat in that space in that -- in the AMG business, [indiscernible] business?

So you know that we just finished the year with COVID. It was dramatically high. So when I look at the year, it's flat after a year like that, I think that on a multiyear process, we are starting a normal year from the best starting point we ever had. When we think about the amount of marketing that our clients and partners are doing to promote telehealth, when we think about the amount of coverage for telehealth, when we think about the types and number of providers available online, they are larger than ever before. We've been modeling visits for a really long time. And we developed certain algorithms that we have a fairly high degree of comfort with. We believe that 2021 is another normal year as we emerge out of COVID. We believe that we're going to see flow, we believe that we're going to see seasonality that we saw in every other year, but not in COVID. So when I look at the multiyear trend, I actually believe that when you have a national medical providers that are available at the very short wait time, in a reasonable price, a good quality. That product is not going anywhere anytime soon. It's going to continue to grow because it's very helpful for a lot of people. That product is going to grow much less fast than the technology that enables your relationship with your doctor, because when you have a choice between your doctor and the doctor online that doesn't know you, doesn't have your access, you will always prefer connecting to your doctor. And of course, with your doctor, you can do many things that are not possible through an AMG experience. That too, by the way, is changing as AMG is layering in some more sophisticated services like virtual primary care, that allows for a recurring relationship and ability to store clinical data between the business.

So Robert, I mean, we actually guide to the number. And coming out of last year, we did 1.6 million AMG visits, and we guided to 1.5 million to 1.7 million, which the midpoint is exactly what we had last year. I think your question, given who you are is how can revenue go up? What's the underlying mechanics and dynamics because if you're guiding to relatively the same number of visits, volume of visits, what's happening? Why is the overall revenue going up? And it's a great question. But before we dive into it, I want to reiterate that, we're a technology company. And visit is our fee-for-service, and our mission statement is to provide the environment, the platform to enable and facilitate specific providers delivering care to their patients or their members. So what's happening within visits is I want to give you a couple of things that we already discussed because it really shows the realization of Converge and the original realization of Ido's vision for the company. So if you think about what happened during the pandemic, there was a massive surge in Q2 and a little bit in the beginning of Q3 of fear. People just needed a doctor immediately. Do I have COVID? What's happening? I have other comorbidities? What does it mean? They did not care about getting their specific doctor. In many cases, they couldn't reach their doctor. A lot of doctors didn't have virtual care capabilities, they now do, but they didn't then. And so there was a massive surge with us and all the other telemedicine companies for rudimentary urgent care on the most basic level, tell me about COVID. What's happened in 2021 coming out of the pandemic is all of that surge -- reminding you that we're guiding to roughly the same number of visits, all of that surge of rudimentary urgent care is being replaced by specialist care. I mean if you look at the migration of the revenue per visit, it was $53 in 2019, $73 last year. And we don't guide to this number, but we thought it was important to convey the underlying dynamics. We said it was going to be in the low 80s, this year already in Q1, we're there. So I mean what we thought was going to be for the average for the entire year already came out in Q1, and it's actually a sad state or a sad data point for the United States because the far, far majority of that is behavioral, okay? So what's happening is all the rudimentary urgent care visits are being replaced with specialist visits. Far greater than 50% of all of our visits are scheduled, which means it's I'm not going out to get a doc in a box, anonymous care, it's really strengthening and cementing that partnership with your said doctor. And then it's also migrating towards specialist care, which is ultimately the vision that Ido has, our AMG visits are supposed to be back up, okay? So it's the specialists that are true backup care, it's not just supposed to be rudimentary urgent care. So as you said, and it's an opportunity to reiterate because we went public in the middle of the pandemic, the distribution of revenue this year, because this, as Ido said, is a more normalized year. So look to 2019. 2019 is a normal year and a more normalized flu season. So if you take Q1 visits and compare that to Q4 visits, it's a 50% increase. If you take Q1 of 2021, which is factual, it's already out there, and look for that same level of increase to Q4, you're going to get pretty close to what we're modeling, okay? That's a normalized flu season. So let's give you more the in between. Q2 is always relatively flat. School is out, summer is here, we have greater than 50% of our business are scheduled. So people have the ability to push those off because kids are coming out, the weather is warmer, people are feeling healthier. I'm going to do those in Q3 and Q4 when flu especially starts to peak. So Q2 is going to be relatively flat. Q3, going back-to-school, you need all these interactions with your doctor for a myriad of reasons. If you have children, you know school is a petri dish. Your kids come home, you're going to get it. So for all these reasons and then the specialist care, you have the ability to schedule your visits, you're going to schedule it in Q3. And then Q4 is really the flu dynamic. So hopefully, that was a lot more like transparency, clarity on the mechanics because this is a much more normalized year that we are forecasting and experiencing very similar to 2019.

That's super helpful, Keith. Thank you.

You know, Bob, maybe it's -- go ahead.

Go ahead.

Just a closing thoughts on this. When you look at our business, 50% of our business roughly is around services a 50% around the technology. As I mentioned earlier, the technology part is likely to grow, we hope and believe faster at relatively to the service part, but the service part is still with us for a while. What I find really interesting when I look at the algorithm, the actual performance in the beginning of the year, is that out, in theory, would have thought that once people are not locked in their home, they're going to use telehealth less because they can see the doctor in person. And what we begin to see is that still the drop in use was almost not there. So the flatness, if you will, really means that lots of new people are continuing to use telehealth even when they don't have to. And that's a very positive indicator, in our opinion, to the adoption rate in the market.

No, that's great. Thank you both for that. I guess, just in a few minutes we have left, I wanted to touch on capital deployment. I know during even the IPO process, Keith, this is an area that you were very focused on. I think since then, we've seen obviously a lot of other assets either combine or get bought, kind of in and around the whole benefit, remote monitoring, however you want to define it. Given that you still have a healthy amount of dry powder, what areas are you most focused on as you see the kind of world around you change and you probably gathered more feedback from your clients on what they really want from you. What areas, without getting obviously too specific into names, but like what areas do you think are most important right now for Amwell to add?

So our strategy did not change since the IPO. We are going to look for acquisitions that make our platform better. We're not necessarily going to look for more market share. We're not going to look for services. We're going to look for technology that make us better at what we do. Areas that are very important to us, the areas of longitudinal care between the visits, as it relates to many therapeutic areas and especially around the [virtual] health, which we think is area of specialty priority and need. We -- there are some good players in this area and some very good technologies. Prices a few months ago were very, very high, and they didn't make much sense. Prices have come down significantly since then. And some of the targets really appreciate our own stock that was really depressed, as you know. And they appreciate the upside potential when we use that as currency. So right now, the valuation of the targets is more attractive than before. And our ability to transact is better than before. And therefore, we believe that we have a reasonable opportunity to demonstrate to you such examples in the not-so-distant future.

That's great. No. I really appreciate that, Ido. And I think we are just about out of time. So I wanted to thank both you and Keith for participating in this. It's a great session. Really helpful overview. And thanks, everybody, on the webcast for joining. I hope everyone enjoys the conference.

Thank you, Bob. Thank you, Jack.