American Well Corporation (AMWL) Earnings Call Transcript & Summary

Good afternoon. My name is Allen Lutz. I'm the Digital Health Analyst here at BofA. We're happy to have Amwell here. We have CFO, Bob Shepardson. Thank you for being here, Bob.

Thank you, Allen.

So we were just talking, a lot has changed over the last few years. Could you just give us kind of level set us, give us a quick overview of where Amwell is today and where you guys are going.

We were just talking about this. But just to go high level, COVID changed everything. It pulled forward a lot of what we think ultimately would have happened but it brought the entire market forward. And so from a positive perspective, it really presented a market that didn't exist before for health systems. It also really put a tremendous amount of pressure on profitability there, also on retention, on job satisfaction and especially on the financial side. So their whole business model also saw a ton of change or a ton of pressure. And from a payer perspective, things changed as well. So you really had things turned on their head a bit with COVID. And the desire to kind of sweat assets that had been accumulated leading up to it and leverage others' assets in delivering care differently -- is something that came about as a result of it. And I think consensus around hybrid care being necessary and much sooner is something that really presented. And so we at Amwell, had obviously a very strong market position with a third of the health systems in the country as customers and about 90 million folks covered lives on the payer side. We saw the ability to totally pivot our business away from being what was effectively an urgent care provider into something we thought would take a lot longer to come about, which was a platform provider where we would serve both health systems and payers and create that platform a new. And the IPO was something that facilitated that for us and we've been working really for the last couple of years since then in developing that platform. And we're now at a point after 2 years of being what's effectively been a construction site to focus 100% of our resources on migrating our customer base onto the new platform, ultimately upselling them and signing new customers.

That's great. And when you think about health systems pre-COVID, if a health system didn't have a hybrid care model, maybe it was a small negative. But obviously, with COVID being able to follow the patient, give them access to care where they want it, when they want it at a price point that makes sense to them is something that consumers now sort of demand, whereas prior to COVID, that wasn't the case. As you think about Converge and the way that it can help health systems keep the patient within the health system, what is Converge doing or what are the goals for Converge to help health systems, retain patients and really grow their business and maintain patient satisfaction?

Well, it's -- the health systems are seeing a lot of care migrate out of the hospital. And so being able to follow that patient to whatever venue makes the most sense from an efficiency perspective and whatever modality makes sense, it's not necessarily a physical visit somewhere else. It could be a virtual visit. It could be an automated care visit. And so having that option to really follow that patient and not lose them to somebody that could be offering care in a different venue is critical from a revenue perspective. And so being able to retain and not just retain, but enhance the size of that catchment area is critical. And then on the efficiency side, getting away from the revenue side, being able to allow clinicians to operate at their peak level and being able to automate a lot of what they have historically been doing in an environment where you're losing nurse's hand over fist, for instance, is also something that is increasingly required. So it's really both revenue opportunity that we're facilitating as well as efficiency in terms of how care is delivered. The other thing it allows for as you think about where the puck is moving, I guess, is health systems are increasingly going to need to be providing value-based care. And so any node on Converge can address any other node. And so if you are a health system on Converge and there is a payer that is also on Converge, your ability to work together with that payer in being -- and expanding their network is much enhanced. So that being the switchboard between health systems and payers is something that we think is a huge added benefit from Converge.

Now it seems very early in that, but has there been any of that going on between payers and health systems? And then just can you provide a broader update on the Converge transition? Any type of statistics, I think it was 36% of visits were on Converge in 1Q, which was up nicely from 4Q. Are there any other type of KPIs with Converge you're looking at that are relevant here?

So there's nothing that's showing up in the numbers right now on the benefit of that switchboard aspect of what we offer. We do know that there are -- we're facilitating conversations between a large Multi-State blue and health system just absolutely along those lines. So it's early days. That's one example. We also see the future as one of, if you are either a provider or a health system or a payer that has provider assets that are underutilized. Your ability to market those clinicians beyond your members, but to others members is something that we see a lot of potential for and we're getting buying on. So it is early days, but those conversations are absolutely happening. As it relates to the Converge transition, you've got to write, 36% up from 28%. We -- and just some view on where we expect we're going to be, we will have just about all of our health systems done this year. There is a little bit of functionality that comes on for a very small part of our business, Converge has a product road map and 100% of what's offered on the legacy platforms isn't necessarily available today, but will be. So when we think about what it is commercially that's coming on in the beginning of 2024, it's a very small piece of what our revenue opportunity is, but it's important to some of our health system customers. That is about all that won't be on Converge by the end of the year. So I would say somewhere between 70% and 80% of our traffic from health systems will be done, and we will spend a lot of the second half of the year migrating our payers. The payer traffic, we don't believe will show up until kind of the new selling season in -- or the enrollment season in after the first of the year. So the work we do in migrating a lot of our payer traffic really won't show up by year-end, but it will be ready to go at the turn of the year. So I think we'll be over 50% of our traffic will be on Converge for year-end. And then there will be some big movers that could meaningfully change that if they do flip the switch in 2023, but we know they're going to -- it will be flipped early 2024.

Got it. And one thing I wanted to kind of clarify with Converge. I believe that -- and correct me if I'm wrong, that Converge is modular, and you can kind of tailor the platform to each specific customer. But it's obviously a platform as opposed to something that is sort of one off to each individual customer. But the reason that I bring that up is, if we just look historically with EHRs, the reason that certain EHRs were so successful is because they were deep in the weeds with their specific customers. And when you saw one hospital product, that was really one hospital product. And the ability to disentangle that and rip it out is almost zero. So I guess as you think about Converge, and you're in these large health systems and you're building these programs, and I have a couple here that you do mentioned on the last call, Maternity, ED discharge, chronic disease, he talked about component bundles. How do you think about building these capabilities and how that could further improve the mouse trap?

So where the -- there are circa 60 different components that we think about as the underpinning for Converge and those can be combined in -- I don't know how many -- I'm not a math guy, but -- so put an exclamation point at the end and 60 different combinations. But there is a lot of commonality when you think about a health system that has this kind of patient revenue that's looking to do these types of things. So those combined to power a bunch of different customer solutions, where the customization really comes in is certainly, you can tell us how you want your service offering to be different, but it's really in the user interface, and in -- and how your workflows are set up and how this will integrate into your workflow. So there's an element of really middleware here that your user interface will ride on top of and will integrate into your workflows and your physical assets as well, which could be very different. You could be running a bunch of different carts. They could be our carts, they could be somebody else's carts. They could be other digital programs that are coming in. You could have a bunch of different digital entry points where a payer or a health system wants their patients or members to come in from. So it really is the -- integrating into today, kind of tomorrow's products and services integrated into today's workflows, I think that really differentiates it. But you think about what can be differentiated -- or what can be customized. It's who is coming in, which populations of providers and patients are coming into the platform, kind of a switchboard in that sense. How they're coming in? Is it -- in terms of being a hybrid offering, is it a physical, automated or virtual type interaction that they're having? As I said, we let the customers define the service offering. It used to be buy urgent care from us. Well, that's -- we no longer go to a customer and say, here's what we have. Do you want to buy it? It's much more of a consultative sale, what are you trying to solve for? What do you need to offer? Where do you want to take this? What do you want to do today versus what you want to do in the future? And we design it based on those 60 inputs, those 60 components in designing that service offering. What we don't want to convey is this isn't kind of custom development from ground up for every customer. It's how it integrates into the workflow that is different for every customer, but there's a lot of commonality in different customer sets, so that it is a replicable sale.

Right, right. We've talked a lot about health systems, but you have a couple of large health plan customers. These are very large customers that are at the frontier of that hybrid care model that's still very much evolving. And you made a point to say we're not creating things and then saying here, we're working with our partners to figure out what makes the most sense as we move forward as the models evolve. And obviously, these 2 large customers saw something in the Converge platform in the Amwell story. What did they see and what is -- how would you view success for these large health plan customers? What are you trying to do? What are they trying to do on the health plan side?

They are so bespoke in terms of what their asset bases are and their go to market that -- I think there was nobody else out there that had -- that you couldn't take anything off the shelf and say, here for them. And these are companies that have the wherewithal to develop the kind of technology that they need. And certainly, some of these have a very much -- have a view that this is -- if this is going to underpin what we're doing from a hybrid care digital perspective for the next 5 or 10 years, we need to own it, right? So we're going to do it ourselves. So they canvass the market, found there was really nobody else that could -- there was nothing else available. Some of them tried to build it themselves and failed. I'm not saying any of our customers, but we know of folks that did and so after a lot of diligence and work together in terms of specking this out I think they realized that this -- that what we had been building already for over a year was -- what they needed, and they could mold it into a platform that they could ride for the long term. And the other aspects of it, I would say is we don't compete with them. We're not trying to go out and do our own value-based care or take risk with employers. That's not something that we're in the business of doing. I think we share a common vision of the future in terms of where things are going. The tech that we're -- that we've come up with again, being both sides of the market and being able to activate not just our assets on their -- for their benefit, but their own assets. And then using us as a fallback for as much as they need our service offering after they sweated their assets, I think, was something that was rather unique, something that integrated a lot of these folks have invested a lot of money in other digital assets that they'd like to use. This is a platform that they can plug those into. And at the end of the day, this is our organization complexity has kind of always been our friend. And where we really shine has been figuring out these really complex clients and how to really work on their behalf. So you can think about Elevance, for instance, somebody -- it's our largest customer. They are -- there's somebody that's been working with us for a really long time, and we have a high degree of trust with. CVS is another customer, that's a new-ish customer that, I think, speaks to how we can address a much different part and a much different asset base than somebody like an Elevance has. And they're not the only 2, obviously.

And on the first quarter call, I think Ido mentioned that you're busy with engagements with new and prospective clients. He mentioned a significant new customer win with a leading West Coast System and then a large expansion with a Multi-State Blue Cross plan. So you're winning new business -- if you could kind of summarize where you're differentiated, where clients are coming to you? Is there one specific thing that they're looking for? Is it a multitude of things? Is it -- I guess, what is it?