American Well Corporation (AMWL) Earnings Call Transcript & Summary

Cool. All right. Well, thanks, everyone, for joining this next session at the 19th Annual Needham Tech and Media Conference. I'm Ryan MacDonald, and I lead the firm's digital health research efforts. With me in this session, we've got Amwell CFO, Bob Shepardson. Bob, thanks for joining me today.

Hey, Ryan, Nice to see you. Thanks.

So we've got about 40 minutes for a fireside chat, so we'll kind of run through questions, and I'm sure we have plenty to talk about.

Okay.

Awesome. So Bob, for those who might not be familiar, how about a brief overview of Amwell?

Sure. So Amwell is really one of the pioneers, early -- very early companies into telehealth and an evangelizer for telehealth. It's -- company is almost 2 decades old. And so the vision has always been to deliver better care, better quality care more efficiently. That -- the initial manifestation of that was telehealth, over the phone. And that's evolved to what today is really enabling hybrid care. So virtual, automated and in-person care is what our platform enables. The -- we connect payers, providers, government agencies and consumers. We have a very large footprint in terms of our customer penetration. We got about 2,000 hospitals and around 50 payers in our customer base, and those payers represent about 100 million lives. So COVID kind of just a little bit further, COVID changed the game for us and others. And on the back of that, we went public in September of 2020, and as a result, are very well funded. And we made a decision to replatform our business in 2021, and we're coming out the other side of that now.

Yes. Yes, I wanted to touch on that. So last -- let's call a couple of years here, a been a little bit of a transition as you've migrated on to the Converge platform, which is a more modular and configurable than the prior Amwell platform.

Can you talk about how that new platform is resonating within the market? And are you seeing it unlock opportunities with customers that you previously couldn't see with the old platform?

Yes. So the customer satisfaction metrics that we track are leagues better than what we had on the legacy platforms. So we have very high customer satisfaction. And we've been successful in not just migrating our customer base but also signing new customers with it. Even though it's very recent that we have the platform kind of up and running in a major way. So we successfully migrated our largest customer at the beginning of the year, Elevance. We actually signed CVS prior to the platform being done. And they've been up and running for over a year now. And notably, and I'm sure we'll get into this, but we signed a contract with the Defense Health Agency, actually with Leidos, who is the prime on the contract. But I would say that's kind of the poster child for what have we been able to do, the return on investment, I guess, there with the full 10 million lives that they speak to as well as the circa 40 hospitals and health systems.

A really interesting opportunity there. As we think about the recently reported quarter you just reported, you mentioned a statistic that 68% of visits are now happening on Converge, which when we break it down means that you're almost complete with this platform migration and mostly complete with the health systems. Well, the payer transition is obviously still ongoing. So as we think about where we are in both -- with both end markets today, what's your confidence level that you can be sort of fully complete with the Converge transition by the end of '24 sort of based on where we sit today?

I would love to tell you we'll be done at the end of '24, we won't be. It's not 100% in our control. So we've made great progress at around 70% now. I -- that number will go higher over the course of the year. There are some health systems that really don't have the resources to speak to a migration at this point. And so -- and I think making progress on our payer base, that's very much more within striking distance. But there will be a group of providers at the end of the year that are still on the legacy platform. And look, over the course of 2025, we will figure out a solution that works for us and for them in terms of how to deal with the small tail that we might have outstanding there.

Yes. It always can be a little bit difficult when you're trying to -- I mean, to support 2 different platforms at that point. But the end market has its clear challenges in terms of how tight budgets can be.

Right.

Yes, that makes sense.

Yes. I mean they're unfortunately not operating on our calendar. But I do think that we will find a way. And there are certainly margin benefits, especially at the COGS line of getting this done. There's also R&D dollars that go into supporting the platforms. But we'll get there, I'm sure, over the course of '25 or we'll get to a solution over the course of '25.

Now migrations can create an opportunity for upsells, which obviously is a positive, but replatforming events even with the best platform can create the risk of churn and sort of reevaluation of the platform that they're utilizing. What have the churn dynamics been like as you've gone through the transition?

It's been a headwind, no question. We announced this in 2021 and really started on it in earnest that year. When you're going through it, you've got renewals that come up, and that's where you're most vulnerable as folks really don't know what they're renewing onto. And when and if that might be available. And then you also have upsells that aren't going to really happen during that period of time, and signing new customers who challenge, too. So our numbers on the top line have really been challenged by this. We are kind of coming out, as I said, the other side of this. And all of that churn has been on the legacy platforms. So we're very much encouraged by, again, the performance metrics of the new one, the customer satisfaction that we're seeing and the lack of churn. It's early days, obviously, that we've been up on this, but I feel like as we guided this year, the first quarter was really, I think, a low point for us on the subscription software side. And we expect that to tick up sequentially over the course of this year and the second and the third quarters marginally and have a rather large jump in the fourth quarter with go-lives that are contracted.

Excellent. I mean when a customer churns, and obviously, you said it's really sort of core to just the legacy platform, nothing that you're seeing from Converge. What's maybe not clicking? Is it pricing? Is it they just -- don't see the product vision quite yet? And then have you -- do you see sort of opportunities with -- as you mature with Converge to sort of win those customers back?

We definitely see that opportunity. The buying cycle throws some challenges at you there, right, because folks have signed for new contracts. And in the payer market, it's kind of you're gearing up to a once-a-year sale. So seeing the flow-through of that is to play for. But no, I feel like we're in a very good place. We've done a lot of work looking at pricing, looking at market segmentation, revamping our go-to market. And I feel like based on all the new capabilities that we have with Converge, we're kind of prime to start to certainly see the churn come off and the growth come back into the market.

Yes. That's a good point. So I was going to say part of the revenue, it sounds like has been sort of that restructuring of the go-to-market motion, sales organization to better align the sales force with client needs. What were some of the changes if you go through that you made or what are the main structural changes to the go-to-market? And what are you seeing sort of early in the transition as proof points that it's working?

Well, on that last point, I would say the biggest proof point that things are working is probably the DHA contract because when you look at what they bought there, it's everything we have. So it's Converge platform, it's digital behavioral health and its automated care programs, the full library. So all of that together really resonated for a very large payvider. The selling effort there was long. We had a pilot with -- going back to, I think, the 2018, 2019 time frame with the Navy. So we've been in working with the military for a while, and that kind of took on a new urgency really over the last year. And so it really can turn very quickly and turn into something really meaningful. What we've done from a sales force perspective is a complete revamp. So we used to have an account maintenance -- account management organization and a hunting organization. Now we're combined into a hunter-farming organization, right? So you sell a customer, you own that customer, you're responsible for upselling that customer, you have the relationship. It's a completely different way to go to market for us there. We've done a ton of work on the customer segmentation side where we have a right and really figured out where we have a strong right to win and focused our pipeline-building efforts really on those markets are marketing and really directing our sales folks at those accounts. And we've really said what are the parts of the market that we really shouldn't be in, and so the low end, the kind of the customers that really want cheap video visits and really aren't in a position to do much more than that, either from a size or a financial capacity perspective, we're happy to sell a low-end product to them, but we're not going to be pursuing that market segment. We were kind of going after everything and a sale was a sale was a sale. So that's changed dramatically. And we've really also changed the sales compensation to target much higher margin recurring revenue software sales to the -- and less towards equipment, services, et cetera.

Yes, makes sense. Well, heck, if the DHA win is your first signs of the sales force go-to-market improvement thats...

Pretty good, huh?

I can't wait to see what the second act is going to be. You mentioned sort of the owning of the customer now and owning of the upsell within -- and cross-sell within the new model. Can you just talk about maybe how -- what you're leading with when you're looking at cross-selling and upselling the customers? And how is this maybe informing your expectations for sort of same-store sales growth with customers?

Yes. I mean when you think about our model, we'll go in with -- for a payer, for instance, a platform sale with urgent care for a certain amount of their population. So how do we grow with that customer? We get more of the population. We sell more digital programs into them to sell to their covered lives. So a number of different ways we can grow and then there's the volume aspect, too. So a number of different ways that we can grow with them. The one that we're -- well, we're focused on a lot of different ones, but the one that's resonating a lot for payers right now is virtual primary care. And when you think about how some -- they're just starting to go to market with digital first plans that have free visits, free video visits and with a provider that is your provider. So that's, I think, a really relatively new -- it's not a new product, but it's a new product that's really scaling for the first time in some of these payers businesses and one that's really focused on controlling their spend by providing something that is new and cheap. So that's an area that is a big area of growth. And when you think about what we have to offer there, it's this platform, but we also have 3,500 provider force. So you can use our providers or if you are a payer that has a large installed base of providers of your own, we activate those. And we can route to yours and then overflow to ours, or if you don't have any, then you can just use ours. So we really, I think, have a lot of the assets, all the assets we need to be able to provide that in a way that makes a lot of sense to our customers. On the -- so that's on kind of growing with the payer customers. On the provider side, I would say the -- what we have from an automated care library perspective is something that is very much an upsell-type product, and then beyond that, there's kind of new products like e-nursing, e-sitting that we're providing over our platform that have gotten, of late, a lot of traction.

Yes, absolutely. I'm curious if we separate out DHA, is obviously a big growth driver over the next year and change. And you look at sort of that core business between payers and health systems today, what do you think the balance looks like in terms of net new logo versus existing customer expansions in terms of your growth algorithm?

I would say it's very balanced between the 2. I mean the nice thing about having the footprint that we have into both payers and providers is it's big enough to see a sizable amount of upsell but also not so penetrated that we can't get new logos. And so I would say it's very balanced on that level.

Excellent. So let's shift to the government opportunity because, obviously, it's a big topic. And you've deployed digital behavioral health at the 5 initial sites and now working Converge deployment at the initial sites. So -- and then that will be followed by the automated care programs. So what's the timelines for the initial deployments and any opportunities to accelerate this? Or how set in stone are sort of those set deadlines?

There's a -- I'm on these calls weekly now with the whole group internally, and then I also get on a monthly call with the customer, Leidos and the customer. And it's really amazing to me as a finance guy, just what goes into this. I mean it really is a ton of heavy lifting, okay? And a lot of back and forth in integration between what we do and what the integrator, Leidos, does. And all of the other, there's like 30 participants in the Leidos partnership for Defense Health. And so the amount of coordination is impressive. And what we're doing from -- we're bringing a very commercial mindset to a government environment, which is really well received. They're not used to this level of ability to deliver this way. And so that's terrific to witness. The cadence here -- was early first quarter for digital behavioral health, and then early third quarter, we're going to see the Converge platform. And then early fourth quarter is going to be automated care. So what you'll see in the financials is as we as we deliver on the services to do the implementation, some of those we can recognize revenue on as we go. Others get triggered on go-lives. So we'll see the service and Carepoints line item tick up nicely over the second, third and in the fourth quarter, but we won't see -- given the timing of go-lives, we won't see the subscription software line item really tick up meaningfully until the fourth quarter. And that's what that looks like. Can things change relative to that set of expectations? No question. They've already changed, because when we set out it was originally going to be digital behavioral health, automated care, then Converge. The customer said, "You know what, we really want to get our hospitals going. So can we figure out a way to accelerate the Converge platform." And so we scrambled and together with Leidos, figured out a way to get that delivered a few months ahead and pushed back automated care a little bit. But it's all about getting the customer to the point where they're comfortable going ahead and going to full enterprise. The way that they're positioning this is interesting. It's not about this is a pilot and let's see how it goes, and then we'll make a decision. This is about we want to learn as much as we can from these initial 5 sites, and we picked the 5 sites to really represent -- be representative of our whole footprint. And so that when we do pull the trigger, we're hitting the ground running. So they could make decisions that accelerate pieces of an enterprise expansion, it doesn't have to all be at once for all 3 services. I'm not suggesting that's an outcome that we expect to see. We still fully expect the enterprise to go live in December, at the end -- kind of towards the end of December. But there is the possibility, just as we saw the order change that they want to do things a little bit differently than the contract modification suggests.

So when I imagine that like there's more importance being placed on those 5 initial sites so that -- they can do whatever tinkering they need to do because, again, what these -- I think a lot of -- sometimes it gets overlooked in the investment community is when it's these large government contract opportunities -- yes, it's a 22-month contract right now, but they -- these organizations typically make 5-, 10-year decisions when they're contracting out for it. And so...

That's right.

They don't mind a little bit of tinkering on the front end to make sure it's actually going to be effective on the back end.

No question, and we're very focused on making them very comfortable with that whole process. But yes, the amount of work that's going in on both sides here is substantial. And the LPDH is very focused on making sure this goes flawlessly as there's other ones that obviously could follow. So everybody is equally motivated and doing everything they can to deliver here.