American Well Corporation (AMWL) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the UBS Global Healthcare Conference. I'm Kevin Caliendo, health care IT and distribution analyst. And with us today is the management of Amwell, Ido Schoenberg, Chairman and CEO; Mark Hirschhorn, CFO. Gentlemen, thank you so much for joining us today. I really appreciate you coming out here.

Good morning, Kevin. Thank you for having us.

Why don't we start Ido, why don't you give a little bit of an overview, maybe talk about where Amwell sits, its unique role in the health care tech landscape, currently where we are?

Sure. We live in interesting times, right? People want to go online and interact with the health care. And we enabled the key players in the health care ecosystem to realize the benefits of digitally enabled care, which means that we are helping payers to -- offer the members an ability to go online through a singular delightful experience get care orchestration to growing number of programs, both inpatient and longitudinal outpatient programs, and improve the ROI for themselves and for their sponsor, self-insured employers.

Where do you sit between payers, providers, EHR and the other point solution providers when we think about digital care. It's always been a little bit confusing. There was the pipes. Originally, it was visits and you guys smartly moved away from that. But I think it's still a little bit confusing of where you fit into all this or how do you fit in?

Absolutely. It's a great question. Essentially, payers are responsible for enabling efficient and effective care is the fiduciary duty to their customers, and they are ready to cover that care, but then they are hard-pressed to really achieve efficient and effective care. We help them offer their members this singular experience for a great variety of digitally-enabled care options. We enable them to then offer more and more choices as it relates to this, and improve the ROI in a singular fashion. We are helping clinical program vendors to reduce the customer acquisition cost instead of doing it themselves for a very well-defined, but narrow use case like back pain, we're able to create 1 acquisition cost effort for the consumer through a delightful experience throughout all the variety of whole-person longitudinal programs. Of course, that cost is now distributed by many others. So we are reducing this cost for any single vendor. And we are relying providers -- traditional providers to engage in different digital activities to increase their stickiness, their relationship, their market share with their own patients while offering services well beyond their traditional catchment area.

Got it. Okay. That's helpful. Where are we right now when we think about health care IT spending? It's between -- and I'm talking about from a payer provider perspective, like what are they looking for? What solutions? How -- how are you addressing that? How -- like how has that evolved over time? And when we think about this, we all go back to COVID, and there is this massive rush for everybody to get involved. But where are we now in that sort of get ball game of demand and what solutions are looking for? And how best do you fit into that?

Well, I think there was an element of growing up between COVID and today. There is much greater sophistication and much heightened awareness for risk -- and that's true for all payers, especially payers. And we all know and we all learned recently about some of the recent hardships. So I think that when we talk to our customers, they do on the positive side, they realize the enormous savings of effective care that is offered by digitally enabled care, but they are looking for business models that are much more win-win versus the traditional models. Saying it another way, there is a real desire to move away from fee-for-service and a [indiscernible] SaaS traditional models where you had to assume many things that may or may not have happened to a model where there is a joint sharing of the value as it's being realized, but there is also a clear understanding that there is tremendous amount of value to be realized and a generous opportunity to do that. I want to be very clear. This is not binary. It's a process. Still most of our relationship today with our customers, our fee-for-service, but there is a clear trend, and I will be very surprised this 3 to 5 years from now, the dominant model will not be a fee-for-value or risk-based model.

It will not be.

It will be. Double negative, sorry. I meant that it will be risk driven.

And that's -- in order to derisk, you need to have a digital enablement infrastructure in essence, like without that -- can you -- if you're a provider, can you really do it effectively?

No, of course, not. Essentially, you need to move the playing ground to the cloud because when you're bounded by what's available physically, there are many less options. So you need to engage the consumer digitally, which is really hard. A, you need to have a terrific experience, but you also need to have a very powerful offering in way of promise of something that is very meaningful for these people to go online. Once you have them online, you need to have the connectivity infrastructure to cover the entire care continuum and the ability to create data infrastructure that brings together identities and longitudinal view over the whole person outcome, which, again, is harder than it sounds.

Can providers do this themselves? Or -- I mean, basically do they need to come? Does anybody have the capabilities themselves. And I guess this speaks to sort of your place in this, but what do they need the most in terms of being able to get to that place?

So each player has a lot in what they need to do what they traditionally did. So payers really understand actual risk as much as they can and are managing the process as the best they can. Providers are focused on an inpatient experience or in-practice experience, which is automated with decision support and effective portals and communications that enable connectivity as it relates to the inpatient experience. Different programs do a wonderful job managing your asthma, your lower back pain. But they're inefficient as they engage with consumers and they engage with each other. There is not a lot of parallel opportunity. The missing piece is this digital glue that will bring it all together. So all those entities that are now bound and need to interact, have every way to do that, and that's exactly what we built in the last 2 decades.

Got it. That's helpful. So as we sit here today, do you have all of the products, all of the infrastructure that you need? Do you have all the solutions in-house right now? Is there other things that you think Amwell needs to be the complete and fulfilled provider to the providers, basically be the solution for the providers?

That's a great question. You never have everything you want or you need, that's always true. But we spent 2 decades and over $1 billion building what we believe is the required infrastructure to do what I just said. Our road map is now designed to optimize what we build to ensure it's current and future ready as it relates to what our customers need. So in way of headlines, we will never stop improving the consumer experience. We will never stop improving our data structure in our services, it relates to care orchestration. We will always aim to make it as easy and simple as possible for clinical program vendors to work with us so they can offer more and more options for the sponsors. And we will always never assume that deep integration into EHRs and provide workflow is something we cannot do better. So all those areas are areas that is a continued investment by Amwell. I believe that we are fairly well positioned with where we are, but we don't assume anything for granted, and we're going to continue to invest.

Helpful. Mark, I'm not ignoring you. I want to welcome, by the way. It's nice meeting you in this role.

Thank you.

How long have you been at Amwell now? Just maybe remind everybody for...

Coming up on a month.

Thank you. So it's a month. Maybe take us through what's been stuff that surprised you to the positive? What's been surprising to you on the negative side? When you think about where you sit, why you came, what are the opportunities that you see going forward?

Yes, certainly. The #1 driver for me was based on a 10-year-plus relationship I've had with Ido and Roy and obviously, competing furiously with the company when I was in my previous positions, and I had always been very respectful of what Amwell was building. I believed in the fact that you needed to own certain infrastructure to really enable those primary participants, the payers and the consumers ultimately in achieving some of their health care goals. Owning that infrastructure, not having multiple disparate systems running was something that had to be created down the road. And while I was aligned with companies that were building great marketing tools and offering excellent services and products, there wasn't anything that actually holistically brought them together on one platform. Over the years, I had always been a believer of bringing multiple companies together, those that had the marketing finance, the expertise on the provider side, but then, of course, the underlying foundation, the platform from which everything was going to be built and then some of those efficiencies seen. So the driver for me was seeing an opportunity to come join Ido in what now is, I think, a refocus of the company after years of ensuring that the backbone was built out and then, of course, the demands that we've seen in COVID. Now there is, of course, this I'd say, revitalization of the company focused on its primary elements. And there's a redirection that is going to require a little bit of time, a lot of energy, but in the first month, I've seen a tremendous amount of extremely intelligent and capable colleagues who are aligned with that vision. So I'm looking -- I've already met many of them, but now I'm looking forward to working with them in earnest to achieve some of the objectives that we've shared with both internal constituents as well as some people in the market.

Helpful. That's great. I'm happy for you. In some of your old roles, companies did spend a lot more marketing, you mentioned it yourself.

Certainly.

This isn't necessarily that kind of model. But is there an opportunity in terms of the way the company does spend and how you think about it? And I want to talk about guidance, and I want to talk about cash flow breakeven and all that stuff. But I'm just thinking, as you look and see how the company positions itself within the market, given your experience and knowing all the different kinds of connectivity, are they doing the right things to market themselves to the customers that they have now? Or is that something you see an opportunity in?

I think there's a tremendous opportunity, again, for us to refocus some of our resources on some of those key clients and I'd say some of those key distribution channels. We have certainly opportunity within those channels to create prospects and turn them into clients. But this is not an analog for, let's say, better health, which is owned by Teladoc and a company that I purchased for $4 million, put hundreds of millions of dollars into advertising each year, but also built up a very durable subscription base. That's a consumer-driven model. On our side, the subscription model is one that we're going to dig our heels into. And it's also one that's going to generate returns going forward. The subscription base today is continuing to grow and will be the majority of the company's consolidated revenue going forward. That's what excites me also.

And you think you can do that with a lower -- I mean, the one complaint about BetterHelp, obviously, the CAC is high, right? And how do you -- I mean you have a lot of experience with this. How do you manage that again, different customers, I understand that might be a big part of it, but...

Yes, very different. Very different business because going after the consumer, building the brand, educating the consumers, then reinvesting in that brand to ensure that essentially at whatever cost you need, you maintain your market share is sometimes a very expensive race. It's an extremely different type of investment, a longer-term durable investment in payers and in perhaps some government contractors where the dividends, you can see coming at you from many different angles, not requiring that continued investment.

When you think about these investments, do you think about them in terms of long-term ROIC? Like how do you do the math on this when you say, okay, we're going to do this? What's the algorithm behind it and saying this is the expected return?

Yes. So today, I think we're introducing along with me coming in and Ido and the Board and alignment, everything today, every dollar is equal with regard to how it's going to generate a return. So whether it's a return on our invested capital, if it's going into marketing, if it's going into product, if it's going into building the team, everything has to generate a return. If we can't validate that return, it's not getting funded. So it's a completely different approach than what we had perhaps seen previously.

That's helpful. I know you're not going to be updating guidance today for '25. I mean, I appreciate that. But maybe can you speak to the guidance you provided back in February? I know you weren't here necessarily for that, but obviously, you're cognizant of it. What are your expectations for closing out the year? How should we think about Amwell's growth in the next -- in the coming quarters against the guidance and the like?

Yes. I think the expectations that were set nearly 9 months ago are consistent with the overall theme, 1 being, and of course, the primary theme of reducing the company's losses and getting to cash flow positive in 2026. That is the overarching goal and the objective that is going to be foundational to everything that we look at when creating the 2025 plan. We've made some very good inroads. We've got teams coming into Boston over the next several weeks, and we're uncovering gems. And at the same time, we know of where the challenges exist. We're pursuing, I would focus on the quality of the revenues. And again, the harbinger there is in subscription revenues and the investment opportunities in those areas as opposed to certain other things that, I think, aspects of our revenue that have come together over the past 5 years, even as far as a decade, they may have seemed appropriate at the time. They may have been producing some level of a return, but we've got a higher bar now. So I believe we will get investors reinvigorate it when we focus their attention on the quality of revenues that we'll be generating in 2025, the extremely reduced hardship to our cash balances. I think people recognize and probably reacted accordingly. But when we begin experiencing and validating the return to breakeven and then profitability, I think that will end up generating far more interest.

When you say gems, you use the term gems. Is this in terms of revenue opportunities? Is that what you're referring to? Potential new customers and the like...

Exactly.

So your stock price basically suggests that people don't think that there's a risk to the capitalization, right, that you're trading really below your net cash in terms of enterprise value, which means they're worried about the cash burn. You keep talking about breakeven in 2026. Just sort of take us through what exactly that means from your perspective? Does anything need to change from where the '24 guidance was? You're talking about, I don't want to say rationalizing, but being smarter about some of these things? Does this provide you more confidence in this breakeven number than maybe what you had a month ago when you look at it? Because again, I think this -- in the near term for investors, this is the primary issue, right? And we're nervous about it. Clearly, the stock is reflecting that. Just give us some confidence or take us through in the last month, your confidence in that sort of 2026 breakeven?

Right. So Kevin, I also approach this opportunity as a skeptic. I approach everything as a skeptic. It's just the way I was brought up and the way I've trained and background in accounting, that's what you tend to do. But after being here for a month, I'm far more positive and incredibly motivated to help this company achieve those financial objectives. I would not have joined Ido, who I view as a dear friend, but I would not have joined him if this was a charity concern. This was not something I'm doing out of the sole goodness out of my heart. There is an opportunity here to turn this company into a much more valuable and public now where I believe the public somewhat misunderstands where the company is going and what it's capable of generating. I feel far more confident that I could contribute to what I believe is now going to be a recharacterization and I think the market will reward us. But we have to deliver and we have to execute. And I don't expect anybody to invest in us until we do that.

The subscription revenue and this is what it sounds like you're talking about that this is the big opportunity and the smartest opportunity for the company going forward. When you bring on subscription revenues, are they immediately profitable revenues, meaning is there onboarding costs or, hey, we have the new contract or we just signed this person up, but they may take a year to breakeven. How should we think about subscription revenues in terms of the profitability, whether it's gross profit or operating profit or the like for the business?

Everything brought on under that subscription model, everything incremental is immediately profitable in its first year.

I mean that's a key thing. And I think a lot of people don't understand that.

Yes.

To that end, everyone is keeping very close tabs on what's going on with DHA. Where do you stand today towards the enterprise expansion of DHA? Maybe talk a little bit about the contract too, and what this is. But anybody who knows the stock knows this is a huge opportunity and driver. Maybe give us an update as best -- but first on what the contract is. And then secondly, sort of where we are today versus maybe where we were when we last spoke with you?

I can take.

Sure.

So as you and many people know, this is a very large contract that has 2 parts. The first part is to deploy 4 different Amwell solutions for a cohort of 5 regions within the DHA. This agreement is awarded to our partner, Leidos as the primary, and we are secondary serving them to serve the DHA. The budget for vehicle used for this contract expires in the summer of next year. And it's subject to a renewal of 3 additional years going forward. The plan and expectation is to move from the initial deployment of 5 sites into a global enterprise deployment by the end of this year. So first, where are we with the initial deployment? We talked a while ago about behavioral health, automated behavioral health at the beginning of the year. Then we basically switched to Converge scheduled visits that followed ahead of schedule. And today, I'm proud to publicly acknowledge for the first time on your panel that we now have automated programs. The third element also in production in the 5 regions leaving the second use case type of Converge called on-demand visits, the last element that we still are on schedule to deploy later this year, depending, of course, on the clients' schedule and their own readiness. The most important event, obviously, is to move to enterprise. And this decision is with the client, and we fully expect to see that before the end of the year based on our success so far. The other important event is the renewal of the vehicle in the summer, which, of course, is major. I'm pleased to share public information that the DHA announced its intent to offer that to Leidos a couple of months ago, and there was a period of -- this could have been challenged. That period is behind us. I'm not aware of any other challenger for this contract. And I can also point out that in its official release, DHA named our products as part of this announcement. So we feel very good about the likelihood, but not certainty that we will see that as a multiyear option for us that is mostly fueled also by the impact and success of what we already deployed, which, to be fair, in the government sector is unusual. Things usually take longer. So overall, we are very pleased. Yesterday was Veterans Day, I'm a veteran. I fought with U.S. Marine in another army back in '82 in Lebanon. And I cannot tell you how excited I am to be able to offer value to these amazing people when they need it in the full range. And it's almost symbolic that the first thing we deployed with behavioral health programs that I learned later that actually have saved some soldiers lives as it relates to some hardship they had. So we don't need any further motivation beyond commercial to work day and night to make sure that we really overperform for this very special client.

Well, first, thank you. I didn't know that you were a veteran, so thank you for that. It's amazing. Two, this is exciting, and I wasn't prepared for this. But maybe sort of explain what it means to get to the automated programs like in the process of getting this done? What does that mean? Is this the third inning? Is it the fifth inning? Is this the sixth inning? What exactly does that mean?

So, these are all instruments that are designed to offer better access to care for the men and women in uniform and their families. And like every patient, they have different needs. The needs are not identical. Behavioral health is obvious. People need sessions and technology can make this sessions be much more accessible and less costly than traditional sessions. And that was the most urgent thing that the Department of Defense felt we should deploy and we did. As you may remember, a few years ago, we acquired a company called SilverCloud that serves also the NHS. And this is the same group that is really in charge of offering this type of programs. Converge is an enablement infrastructure that is going to connect every provider in the military health systems with every patient in the military health systems. So it's really a giant switchboard to allow for more service to be available or more care to be available to more people. It's an enablement infrastructure. The last element that came live as the third component is the automated interaction. Think about it as the dialogue with patients that is not with humans, but is based on rules to treat long list of issues, behavioral health and non-behavioral health issues. To be -- to serve as a companion, if someone has asthma or diabetes or any type of ailment, they are able to get much more advice and guidance because this is really based on algorithms and methods that were tested for many years, and that is really a capability that we also acquired by another company called Conversa years ago, courtesy of the U.S. public market. We were able to do all those things and stitch them together in an integrated way that is really providing value.

I think perhaps the baseball analogy doesn't resonate with Ido as well. I mean, he think we're playing soccer, but if you're looking for an indication as to where we believe we are in regards to enterprise and launching, we would recommit to the -- we're weeks away as opposed to many months or quarters away. We're that close because of our previous commitment to getting these sites up and running and what then activates that enterprise definition and roles. So we are far along the way.

Got it. That's helpful. Is this available domestically or globally, meaning is this for veterans all over the world or veterans just in the United States?

So the 5 regions are in the U.S. So, so far, we are here, but the enterprise deployment is global. Thank you for recognizing it. It's truly very, very exciting. As you know, there are no state lines in the military. So any provider or any physician can really help anyone around the world, and it's really exciting. We believe that we're now proving that we can offer a lot of improvement in the level of care and the access to care and the quality of care. And there's no better deserving population to accelerate that option too.

And just remind us, how are we going to understand how this is progressing for you guys from a revenue perspective? Or how are you going to be able to update this. Is it going to be like a quarterly, this is how much revenue we generated from this? Or are there any other mileposts that we can look at when you communicate to investors on this?

Well, the government sector, as you know, is extremely well guarded and regulated. We are very limited in what we can share. However, one of the exciting things about this relationship is that it's only based on technology. There's -- we're not selling any services apart from just deployment, but there are no clinicians of Amwell that directly participate in that. So it's almost entirely softer with the appropriate kind of margin you expect from a software deal. And that goes a long way to really deliver the results that Mark mentioned earlier, which is a much significant improvement in reducing our debt next year that flows directly to the bottom line, and by showing a much higher margin that are happening because the mix of software and services favors software to a great degree, again, totally in line with Mark's remarks earlier.

Helpful. Thank you for that. There's a couple of questions from investors I wanted to ask, a little bit more bigger picture, but how important were the telehealth regulations that were enacted during the pandemic. They're set to expire, I believe, in December. There's been a lot of talk of whether they would be extended or not. When we talk about your business, I don't feel like this necessarily is that important, but just for the broad audience, take us through what those were. Do they matter if they get extended or not? Like how closely are you following this? How important is it for Amwell in '25 and beyond in terms of what happens with this?

So they are very important in at least 2 ways. One, because there was a funding mechanism, many people that wanted were forced to get care online, were able to do that because providers were ready to do that because they got paid in parity at least for their time. And that really removed a very old psychological barrier. Many, many people, doctors and patients did that for the first time. The other really important benefit of those regulations were the recognition that it doesn't matter if the care is done over a video or it's done in person, it's the same doctor that is doing it. Today, years later, it's obvious to us, but it wasn't obvious then. The thinking was that it should be cheaper and less compensated. I think that what we see today is that once there is no pandemic, people still prefer to see the doctor in person for various reasons. And as doctor myself, I would agree that, that's preferred in many ways. The role of digital enablement is not to replace in-office visits with video, although sometimes that's helpful. The role is much greater. It's to allow technology to do what technology does and allow humans to do what they do, sometimes in person and sometimes online. So it's a much, much larger opportunity. Creating unnatural incentives for people to go online versus in person is unnecessary and not justifiable in my opinion. So we -- what we'll see probably the [ pack ] is going to land or where basically parity will exist whether I'm doing it in one modality or another is the provider. However, the rise of AI and automation and many other very exciting technology will augment humans in a way that will translate into dramatic improvement in access to care, in quality of care and reduction of cost.

Okay. I appreciate all that. Now that they're close to potentially expiring, like how important is it for your business going forward?

Thank you for keeping me honest. It's not critical at all, as you rightfully imagine. Because we allow the full spectrum. And let's assume that urgent care video visits will be less profitable to people. And as a result, it will go down. There's no vacuum. People always need care. What will happen is that more automation will probably kick in and other modalities. Since you offer the full gamut, we are completely -- it's completely unimportant for us whether one element will rise versus others.

Helpful. Well, gentlemen, we only have a few seconds left, is there anything else that you'd like to make sure the audience knows that we haven't touched on yet? Is there any other last parting messages?

I think everybody should continue to watch. You asked how it will be evident in our financials and some of the limited things that we share with the market. But our fourth quarter as well as our guidance in February, we'll end up I think providing a lot of guidance to and certainty around the things that we said regarding the increase in subscription revenue and move towards very higher-quality revenue-generating company.

That's fantastic. Gentlemen, thank you so much, and thank you, everybody, for joining us today.

Thank you.

Thank you, Kevin.