American Well Corporation (AMWL) Earnings Call Transcript & Summary

Great. Well, good afternoon, everyone. My name is Craig Hettenbach. I'm on the health care services team, focusing on health care technology. Very pleased to have with us today Amwell and CEO, Ido Schoenberg, welcome.

Thank you, Craig. Good to be here.

Great. So just before we kick things off, I do need to read the disclosure for investors. You could reach the disclosures at the Morgan Stanley website, morganstanley.com/researchdisclosures. So with that, what's top of mind today right now is very much macro. So we'll definitely dig into the product portfolio and some of the longer strategic initiatives you have underway. But I do want to touch on the macro upfront in terms of the environment. And I would be really curious to see how your customer engagements have evolved as we've gone through this year as there are questions about some potential macro pressures.

Sure. So we deserve the Chinese curse, right? We live in really interesting times. And we see some significant changes, obviously. In the provider segment, it's very obvious that many of our customers are very concerned. They are hurting. They are not sure about the uncertainty that they see in the market. They are worried about staff retention. They are worried about efficiency. They're worried about competition and the overall general economy. When we look at payers, we actually see them faring a little better. The mood is a little bit more a beat. But at the same time, they're worried about increased competition, about transformation. The role of digital is very material to most of them. And they do pay close attention to the entrance of new players, especially Big Tech into the environment.

Got it. And as customers are evaluating products, can you talk about just having a modular offering in terms of how they're planning around things and maybe how that helps in this type of involvement, kind of to get started versus where they might want to end up on with your platform?

Totally. So that is especially relevant for providers. So when you have a hospital that is going through the pain that I just described, the fact that you can, a, start to build your digital care infrastructure for $200,000 to $300,000 a year is very good news. We couldn't do that before. The legacy -- platform cost millions, was very lengthy and complicated to implement. Our new platform is dramatically simpler and totally modular. The modularity also allows you to really buy what you need. So you can really focus on the things that are high and dear and needed early. But people take great comfort from the fact that you can complement whatever you need in the future when you need that. On the flip side, with some of the largest payers, like CVS, that was announced with us recently. The modularity is good on the other side. They want the full spectrum they want pretty much everything under the sun. And also the fact that it's an open platform was very important. So the fact that if we don't have it, it's very easy to integrate other innovations, other products into the same digital backbone, I think was very, very important to them.

Got it. I want to touch on just the hybrid care environment when we think through what's happened through the pandemic, and Amwell plays an important role in terms of telehealth, how you see behaviors and utilization changing kind of through the pandemic? But maybe as importantly, going forward in the next few years, are there areas that are right that you still see for change in terms of utilization?

Yes, you're absolutely right. So essentially, the pandemic was an anomaly, thank God, in many ways. People who were locked in their home, they had no choice. So a lot of telehealth was really videoconferencing, connecting the home to the home of the provider or the office of the provider if the provider happens to be in the office. That's a far cry for more digital care delivery can enable today. But what the pandemic did is create a reality where getting care online became normal, became accepted. And consumers were becoming more and more comfortable. And that really allowed the next chapter in digital care delivery that we are beginning to see today. When people talked about what we do today, they are talking about the combination that is digital first and allow for people to go online and get access to the appropriate physical interventions alongside a slew of digital interventions that go well beyond primary care to the full continuum of care and a healthy degree of automation provided as a package that really is their health care destination. We're not talking about the reality where telehealth is an alternative to the main pathway of care. But digital care delivery is a conduit to actual health care. And that is pretty terrific. We see the trusted brands in hospitals coming across the supply of care, which is very normal and very natural. I believe that the environment that we were in 3 or 4 years ago, where telehealth was this doctor that you never met, that you cannot see in person, knows nothing about you, is really behind us. And we are beginning to see technology truly disrupting health care in a way that is truly here to stay, and it's very scalable.

Got it. So it's good to see that the customers embrace it. At the same time, I feel like telehealth can be a noisy field, right? There are many different providers offering different slices. And so I think what would be helpful for investors in terms of how does Amwell differentiate in terms of the role you play? And how does it compare to different offerings out in the marketplace?

Well, it's becoming so simple to explain what Amwell does, and I'm not going to profess to try to describe others. What we do is simply we are providing a digital glue to allow the different participants in the health care ecosystem to interact. So together, they can focus on what they do best, and create a health care experience that is infinitely more affordable, more accessible, in many ways, more way democratic. We see the future very clearly in a way that health care will be part of where you are all the time. It's not the destination that you go to, but people are going to collect or meet signals from their bodies all the time, that are going to be analyzed continuously and then the most appropriate intervention will be served, whether it's physical, digital or automated or virtual or automated to them. So we are not competing with anyone, we're not trying to be a provider. We're not trying to be a payer. And we're not taking any place of anyone else, but we are focusing on one single program, which is allowing everybody to interact. In the future, I don't see any reason why a provider that works in Optum will not be able to serve a member of Aetna. And I don't see any reason why a nurse practitioner in MinuteClinic will not be the one serving someone in my [ USC ] in the United so long as the system is integrated. So a lot of the way that we think about health care in a way of different focus, different islands that are interconnected is going to go away, and we're going to help that happen.

Got it. And what's your view in terms of where Big Tech fits in, in terms of video offerings and what you see in the marketplace from other tech companies?

Well, we saw a lot of interesting evolution. Big Tech originally, like Big Tech, who are generally very big companies, well maybe a little bit arrogant in the way that they stepped in. We can do it all. We're going to replace everybody else. That's no longer the case. We see some healthy degree of realism in what they do. And they are now focusing on adding the value that they could offer. When you think about a company, like Google, they have many things that they do best. But if you think about the core expertise, it's the ability to decipher through enormous amount of information and present it to the reader in a very clear way. When you think about EMR, don't you think that EMR could really benefit from that type of service. When you think about Amazon, and you think about the way that people engage with Amazon to basically decide between different choices, to shop online, which is the process of deciding, that could be very helpful because when we look at health care, choosing the right thing for us is very hard. When you think about the way that Amazon solved logistics, delivering things to the place that they should be, they could really add a lot of value because a lot of stuff that is moving health care is moving in a suboptimal way. So when I think about Big Tech, I think that Big Tech is going to assume it's right [indiscernible] in bringing what they can bring in a way of technology, but they are likely to give ample room to the traditional players in health care to payers that really understand how to manage risk to providers that are truly rightfully trusted by their patients. And eventually, they're not going to replace them. They're just going to help them work in a way that is infinitely more efficient and better.

Great. I want to dig into Converge. We can focus on some of the wins that are happening now, but I'd love to get some of the perspective in terms of what it took to build a platform like that, in terms of investments and to get it off the ground, and what that means for Amwell over the next number of years?

So I used to have [indiscernible] when we started. That was many years ago. It takes a very long time to really understand the necessary pieces. It's not necessarily even building them. You just need to work very hard. It took us a long time to really understand the different components. A couple of years ago, we made the decision to re-platform. That's not an easy decision. When you re-platform, you risk losing your existing clients, you certainly don't win new ones until you deliver the new platform and yet, we felt that it's really warranted to make sure that the next generation of what needs to be delivered is available to us. So we shared that decision with our clients. We felt that it was only fair to share it with our clients in the world. And now we're at the end of that process. So by the end of this year, which is coming very, very soon, everything that we were set to build will pretty much be there. So our platform available to different players, to innovators, to employers, to payers, to providers, it's all going to be available on the new technology. We also began now to upgrade our installed base. All our simple clients are live in production. We're the [indiscernible] of implementing our complicated large delivery network, and it's going very well with very, very good feedback from -- and you can read about it with Gartner and [indiscernible] and many others. In fact, I think we get the best feedback, we ever got in our history to a product. So that's really exciting. And we're going to begin '23 in a really good shape, where a big chunk of our clients are live. The rest of our clients are committed to go live on the platform. And the offering is highly differentiated and required in many ways, what we are dreaming to create was luckily appropriate, and now the market is coming to us. Because of COVID and because of the changes, we are fortunate to have something that is very much in demand. What's going to be fascinating to see is not only the fact that we are able to deliver the ROI for our customers, but also that our customers can use our platform to begin to trade in exchange services and information with one another, which was very much our vision all along. So instead of thinking about the provider health care experience or this payer's health care experience, we're going to see a national health care experience that is available across -- around the full offering for a single patient. That spells really good news in way of efficiency and way of experience for everyone. Saying it differently, all of us will be able to get much more from a single source that is comprised by very different players that otherwise would have been very, very hard to put together.

Got it. When we think through the transition and customers migrating, is there any differences to node, be it health systems versus payers in terms of what you're expecting?

Well, I think the motivation is very, very different. Providers are migrating to the new platform because they really want to offer a phenomenal experience to their own providers for staff retention. So they can focus on what they do best and not on clerical tasks or things of that nature. They're really focused on savings. They want better workflows that we enable for our technology. They are very worried about competition with their other hospitals that compete with them, and we can offer them lots of tools and capabilities that didn't exist before. So that's really the running motivation. Obviously, payers are coming from a very different place, and they are focused on offering a phenomenal differentiated experience to their clients, to employers in a market that is moving very, very fast.

Got it. So now we have some of the underpinnings of Converge. Let's talk about the proof points. And certainly, [ CVS ] is a relationship that got a lot of attention, gratefully so. Can you talk about just serving a complex organization like that, cutting across managed care, MinuteClinic, PBM business, what does that mean in terms of the capabilities of the Converge? And what does it mean in terms of your other customer engagements in terms of discussions you're having?

So this is going to be one of the flagship examples for what Converge can do because of the complexity that you've just mentioned. And the more complex we become, the better our offering shines. They have PBM, they have retail, they have payer network, membership. I mean, anything that you can think about is there. One of my personal favorite is the access to consumers. People tend to not think about the fact that 300 million Americans are working through the retail stores every year and not even talking about their apps and websites that are very, very busy, which is not common in health care. Most of the health care players, hospitals and payers don't have that level of access to consumers, but they do. So they are now in a very, very good position to enable enormous amount of transformational experience in way of digital care delivery. I think that their choice is giving a lot of comfort to our other large clients, like Anthem and United that they chose well with us, and we can offer them also a lot of value, although they are very different organizations. And the fact that whatever they built on our platform can now be used in order to exchange services and offer new things to their own clients to employers is very encouraging, I think, for them as well. So overall, I think that when you come up with a new platform, one of the biggest concerns of many investors and certainly with clients, is will the platform work and scale? And [ CVS ] going live in January would offer, I think, a great reference point to many of those people that are still on the fence.

Got it. Yes, we had CVS earlier this morning, and that consumer touch point was certainly prevalent in terms of something they're highlighting. Can we talk about maybe just lessons learned, right, in terms of I'm sure as that relationship took hold in terms of things that as you continue to kind of roll out things that will help you to have a successful migration across customers and new customers?

Well, details are critical. So when you think about migration, there is really not effort that is unneeded in order to make sure everything is streamlined. As you may know, Converge is included in your license. So if you have a subscription to Amwell, you'll get Converge. That's not enough. We made sure right now, we invested to make sure that the client really has a wide glove experience so the marketing, the communication, the training, the integration, everything that the customer needs to do is also basically prepared as much as we can on our side, so the effort that is required to go to the last mile is minimal. The other thing that is also important is realizing that people are so busy in focused these days you need to make sure that you articulate the value for the new platform, and you really need to sell an existing customer on the new platform. It's not obvious. When people get a free upgrade, they're first very skeptical and say, what can go wrong? What could be the downside of doing that? Why would I do that today? And it's a full-fledged selling campaign. Thank God, we did that, and a lot of it is behind us, and I'm yet to find a customer who said no to the upgrade. They are coming at different times based on their own agenda, but we have really unanimous consent -- consensus today that people really are excited about what's coming, and we've been very lucky in this way.

Got it. So understandably Converge gets a lot of the attention. But I do want to touch on the Amwell Medical Group, just how that business is performing? And then any thoughts as we kind of head into flu season, kind of what your expectations broadly are for that business?

So we built this network because the existing providers in the community were not available. And we always remember and never forget that our network is an ancillary network. It's designed to help add capacity. It is not designed to replace capacity. We believe that the rightful people that should treat you are your doctor in your community whenever possible. Having said that, we have more than 4,000 providers on our own network, coupled with about 100,000 providers from our clients' network that together create a very large virtual network that could be available whenever people have demand. We are able to promise very short wait times less than 5 minutes in very high-quality. We also leveraged this relationship with those 4,000 providers, so we can offer specialty programs, like virtual primary care. Many people become your doctor when you need them first online, you like them and you can go and see them again in person, and then you can route the traffic to anywhere that is required. So I would suggest that our ability to offer a national network with short wait time of high quality that could create differentiated products is very helpful in selling the technology. What we see in Australia is telling usually, and we do see likelihood of a spike of influenza later in the year. There could be COVID and other things. And tactically, that could create even larger demand for the network. But we are not focused on that. We are really focused on growing our technology business and are going to maintain the network only is an ancillary way to do that.

Understood. I have some more questions to get through, but I do want to ask the audience. If you do have a question, you can raise your hand, and we'll get a mic over to you. As we're waiting on that, I'd love to talk about just kind of the longer-range kind of target model you guys talked about kind of getting breakeven by 2025 and clearly, there's been a heavy period of investment in terms of the investments you've made to now drive the growth. But as a CEO, how you're managing that kind of growth versus investment and the importance to get the profitability.

So we take our plan very seriously. And based on what we see now, there is no reason why that will not happen as scheduled as advertised. We are going to finish the lion's share of our development this year, which means that R&D costs will plummet relatively next year. So that's good news. We also are beginning to see very good signs of renewed growth as we emerge out of the replatforming effort. We also see the market showing strong signs of demand is demonstrated by CVS and others that were not announced to the technologies. So we are fairly optimistic about the growth in '23 and beyond. But having said that, it's important to understand that we are talking about health care. Nothing is going as fast as you would want, and that's a gradual process. The assumptions that drive our path to profitability are very realistic assumptions, and they don't include anything that we don't have very good visibility into it. So we feel quite comfortable reiterating our guidance.

Got it. Okay. As we wrap up, just last question. You're coming up on the 2-year anniversary of the IPO. There's no shortage of cross currents and things to navigate. But what would you say are some of the important milestones you think you've reached, and importantly, the next 12 months, what are some of the things you're going to want to demonstrate to investors?

Well, as I mentioned earlier, we want to make sure that people understand that our platform does not only sound well, it actually works well. We're going to give a lot of proof points from our -- directly from our clients about that way that it operates. We are super encouraged to see what we see right now. We're going to show next year, as I mentioned, a much better utilization of our resources because a lot of the heavy lifting of development will be behind us. We are -- we checked the box from the simple clients. We are checking the box on the complicated providers. Next year will be very much about payers and employers. We're going to migrate a lot of them into Converge. And as we do that, we are also going to show that a lot of third parties are beginning to use our platform as the conduit to the ecosystem that we have created. And that's not only going to be a nice new source of revenue for us. It's also going to be a source of increased value to our customers. Our customers will be able to offer a singular health care experience, with lots of different vendors, with one digital door, one reporting structure and infinite scalability, which we think is a very important pain point for many CIOs these days.

Excellent. Well, I think we'll wrap there. So thank you so much for your time and the discussion.

My pleasure. Thank you, Craig.