American Well Corporation (AMWL) Earnings Call Transcript & Summary

All right, great. Well, welcome. Last day of the conference. So we'll bring it on home, Mark. So I appreciate you being here. We're pleased to have with us COO, Mark Hirschhorn. So welcome.

Thank you, Craig.

Before we get started, I do have to read for important disclosures. You can find them on the Morgan Stanley website, www.morganstanley.com/researchdisclosures. And with that, Mark, I wanted to start on the government side of your business just because I feel like that's kind of the important pivot in terms of where you're seeing a lot of activity and momentum. And perhaps just take us back to the initial kind of DHA, kind of what was required to kind of get to where you are today, and we can build off of that.

Well, I appreciate the opportunity, and thanks again for having me here. The military and the opportunity underscoring where we've pivoted over the past 2 years to principally focus on the government opportunities as well as domestic payers came about as a result of a probably 5-year-old relationship now with the DHA. When they came to us seeking a platform that could enable all of their clinicians to reach any of the service men and women and their families with video compliance and security protocols that have not previously existed, it was a fresh build for us. It was undertaking that we believed we can accomplish in a period of approximately 1.5 years. And along the way, we got to understand and to know the individuals who are involved in that decision-making. Clearly, many people in those government positions have changed, but their focus on enabling care and moving towards an innovative technological solution for all of their services, underscoring the need for the compliance with the MHS GENESIS Oracle-based platform was something that held true throughout. So our first really dipping the toe into that experience was launching with the DHS and covering now approximately 10 million service members. We also were invited in from opportunity that the VA, I think, very timely, of course, after we've now had 2 years of successful service past our initial implementation point, the VA came to us with a very similar need. And I think the validation from their colleagues down the hall led to us having an opportunity to present, to validate some of the ROI and the ability to launch and to rely on a platform that is going to service yet again another cohort of approximately 10 million veterans.

That's great. I do want to build on that. You've also kind of early on partnered with Leidos. So I'm just curious, kind of given their experience in this market are the things you learned from working with a company like that and kind of how you see this market as you go forward in terms of relationships like that versus now you're kind of direct and have exposure with these government agencies?

We're certainly looking forward to being direct, but at the same time, it's somewhat of a bittersweet change. Leidos and some of the other partners were absolutely wonderful. They essentially held our hand throughout this process and guided us towards successful implementation and launch. Project managers have tremendous experience, the tenure of many of the individuals on their team really helped lead us to a successful launch, and I don't believe we would be able to have done that in the timeframe that we did. We would have had the normal growing pains and stomach humbled, and I think we were very fortunate to have had them leading us through this process. Now that we're going direct, we're going through some of the initial challenges, going through contracting and pricing and working on a number of things that we had hoped would have been completed about 1 month or 2 ago, but we're now getting to know people and form relationships. There are people involved who weren't there at the initial launch. So it takes time. Relationship building is going on. Contracting is coming into place. And we hope to be in a place where we could announce a longer-term direct contract over the next several weeks.

Got it. To that point, you had announced on the earnings call kind of that letter of intent. And I'm just curious kind of how competitive that process was. Kind of, it doesn't have to be specific, but just give us a sense in terms of what really appealed to for them in terms of getting a sole source and providing you with that opportunity. Sure.

Well, so the letter of intent is specifically to the VA. So that was 1, that's 1 opportunity that I can tell you the VA had been looking at options for the past 2 years. They went through a diligence process of at least 1 year and then announced to us this year their intent to move forward with us. Also changes in the VA that have now led to them having to go back and essentially review and appoint new individuals to now lead in the contracting process, which they've made it clear to us they would like to have completed prior to the year end.

Got it. And anything on the competitive nature of this in terms of as they kind of evaluated you and potentially others out there in the market?

Well, we certainly know there were competitors because we're constantly being critiqued, or I should say criticized in scope, in optionality around the platform as well as pricing. So it's still, it's still in a very meaningful way being addressed at basic contract levels today. So we're not close to signing in the next several weeks, but we hope to be there in the next couple of months.

Yes. Great. Got you. And you mentioned before having kind of their friends down the hall helps and you have great proof point. So there's that, but anything else you would point to in terms of your capabilities where you feel like you kind of came out on top in this process?

Well, I think we proved that we have the technical wherewithal and we certainly have the support teams behind us because while this is a SAAS type of relationship and a platform implementation that we do frequently for Blues plans and other payers, the level of security, the level of building production and testing style applications for the government to ensure they were ready to launch was something that we had not done in the past. And I don't think that level of discipline and support exists with many of our competitors. We had to step it up. We had to ensure that we were able to move from implementation in a market or 2 to full nationwide and international availability. Again, something that we had not done before, and it took us, you know, beyond 1 year and a half to get that ready.

Got it. And just building on that, you touched on the security. So I think anytime working with a government agency, a very important factor. Anything else you'd point to in terms of differences in these solutions for government versus commercial?

Well, this is a far more robust platform. I would say the government cloud and a number of other requirements because of the fact that we work within the government, the number of individuals that we had to get certified, the fact that everything around our processes is specific to the DHA, we really cordoned off that area of the company and it required significant investment, significant education, and a lot of behavior change.

Got it. All right. Well, exciting momentum for you kind of in this space. I do also want to touch on just kind of commercial and really just starting with kind of what's resonating with your customers in the marketplace you mentioned, kind of more focused.

On payers of late within that business? Yes, the nice thing about really refining our focus is that we speak to the payers more frequently today and almost to a shocking extent we have found that nearly half of those payers are looking to change some aspect of their contractual relationships with either independent standalone third-party providers or those who they have for years now had a legacy relationship with on the virtual care side. There is a, that obviously presents an opportunity for Amwell. The unfortunate part is that most of the individuals that these payers haven't really, you know, optimized their relationships or the products, and they haven't seen the ROI they expected. When it really comes down to it, they haven't seen the level of engagement. Every 1 of these payers is still in that single-digit level of engagement with their members, regardless of the cohort. And numbers like that, were fine when the products were introduced nearly 10 years ago. And the step function that everybody expected and that significant behavior change to shift your trust to digital delivery just hasn't occurred at the pace most expected.

Yes. I mean, you also have, it's been a very volatile backdrop for payers in the last few years with different regulations and kind of some pressures they've been under. So with that, what are some things that you feel like are resonating the most in terms of what you can offer them as they consider some of these modes.

Well, several of the payers that we're in discussion with today have engaged with us because they're disappointed with where their products sit today. They want a channel that can ensure that they can be relevant to their employer clients, to other cohorts of their membership as well. They want to ensure that they can maintain almost a surveillance over those members to ensure that they're using the most appropriate forms of care. We're also introducing a number of our member or a number of our third-party products, whether that be SORD, whether that be a number of cardio-metabolic solutions, they want to see those individuals not just visit those point solutions, but see it all in a very comprehensive way and follow them through that journey. Understand that we can deliver that on the Amwell platform. So we're getting an opportunity to reintroduce ourselves to these payers who may have contracted with us 5 or 10 years ago, but came to us principally for what we had delivered specifically at that time, which was virtual urgent care. We've now matured the virtual primary care, a number of other services as well, but the core rooting has always been in that 24/7 nationwide availability of virtual urgent.

Got it. And you mentioned before on the government side where you've done a lot of work and have expertise versus maybe some of the competitors who arguably would have to catch up. I know if I go back a few years when kind of Converge was rolling out, there's a lot of discussion in the marketplace. You have other alternatives, whether it's Zoom or Microsoft Teams. And so can you maybe just give us an update today on the commercial side what you see in the marketplace through a competitive lens?

Yes, the interesting thing is if you bifurcate the opportunities for Amwell, our SAAS platform is effectively powering now the government solutions. Solutions don't necessarily rely on the Amwell Medical Group. Our clinicians are nationwide providers in backing up or supporting the clinicians who are employed by the federal government. In all other commercial aspects, we rely on AMG either primarily as we do through Elevance and a number of other payers, a number of other Blues payers, they can use our medical group to provide that backstop to their medical group and to their providers. We don't necessarily have to sell technology alone. We can sell technology along with our clinical services or even standalone clinical programs in addition to ensuring that it is all provided over the Amwell platform. The Amwell platform is what had matured out of the initial Converge launch a couple years ago.

Got it. And then just building on, you mentioned payers are going through the motions now in terms of what their vision was, what actually they want to see delivered. How do you think about, if you want to call it white label solutions like Amwell, what they'll use, versus internal development? And again, they have a lot of things going on today in terms of managing their business. And so what are you finding that's resonating most and are there still areas where they'll rely internally?

Well, I think the payers in general had approached us over the years with 1 or 2 common themes. It was either access for clients, clinical programs, or it was helping to bring cost of care down. Today, they're actually introducing what I think is a more relevant concept to them, which is the consumer experience. And they're looking to us to help them channel their members through multiple steps of care coordination and they believe that through the Amwell platform that might be a brand new channel for them to ensure that not only can they hand off in a very seamless way white label behind their name and behind all of their protocols, but they can also be able to do that. Can ensure that those members come in not just for 1 specific need, but can be ensured that they can have digital delivery of multiple services, including those third-party or single point programs, but all being delivered through 1 entry point, being the Amwell platform.

Got it. I'd love to segue just to kind of some of the business mix you touched on before, kind of the SAAS and how that's an important driver of margins. And like you said, you still have AMG to kind of leverage in situations where customers want that but just maybe walk us through kind of where you are in this business mix transition kind of where it stands today and over a multi-year period kind of that mix of business where things could be heading.

Yes, the company really went through a very challenging period 2, 3 years ago when it found itself somewhat of a bespoke development shop, providing both platform services, hardware, and also bespoke therapy and therapeutic solutions for hospitals, for health systems, for payers, and for employers. You can't be everything to everyone, and in healthcare, it's extremely hard finding a center of excellence, 1 alone, but looking for 5 channels is as close to impossible as you could get. So the focus and the discipline that we decided to pivot with 2 years ago, I think has dramatically changed the face of the company. And while we had to part ways with more than half of our colleagues, we were also able to resource the development and the standardization around the platform that is now powering government health solutions and payer health solutions. We certainly had de-emphasized our other channels and again as a result of that, I think we have found our sweet spot and we continue to not only see improvement in our financial picture but we also see greater interest from the payers. I think our message has been resonating because we are more focused and we can pay greater attention to and be more responsive to payer needs. Instead of trailing behind them and trying to be responsive to their needs, we're coming at them today in a joint, in a very, I think, strong way of partnering and providing in a conciliatory tone, though recognizing where their challenges are, and to some degree knowing that we've walked the walk with them for these past several years, but coming up with novel approaches.