American Well Corporation Class A

Good afternoon and welcome to Amwell's third quarter 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. Leading today's call are Ido Schoenberg, Chairman and Chief Executive Officer, and Keith Anderson, Chief Financial Officer. Ido and Keith will offer their prepared remarks, and then they will take your questions. The Amwell press release and webcast link are available on the investor relations section of Amwell's website. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating Amwell's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is posted on our website. Also, please note that certain statements made during this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risk, uncertainties, and other factors that could cause the results for AMWEL to differ materially for those expressed implied in this call. And now I'll turn the call over to Ido Schoenberg, Chairman and CEO of Amwell. Ido?

Good evening, and thank you for joining our first earning call as a public company. I want to use this opportunity to thank our new investor partners for your trust and confidence in Amwell. We are thrilled to see so many world-class groups participate in our IPO. I also want to thank our longtime investor partners for your many years of consistent support and faith in us. Since we last reported on our IPO, we continue to see good momentum as reflected in our third quarter results. Our third quarter revenue of $63 million increased 80% compared to last year's third quarter. The number of active providers on our platform of 62,000 increased 930% compared to last year's count at the end of the third quarter. We had 1.4 million visits during Q3, an increase of 450% as compared with Q3 of 2019. Recognizing that many of you are new to our story, I would like to spend some time talking about our company more generally before we refocus on our recent performance. When Roy and I started Amwell almost a decade and a half ago, it was apparent to us that digital care delivery would transform healthcare. We continue to believe that the fundamental way that care is delivered is materially changing. This is a profound transformation. It will continue to evolve significantly over the next few years. Care is moving home. Digital technologies are ushering a new hybrid model of care, one that combines physical and digital care. With far better information about health status and gaps in care, providers will be able to craft more personalized, continuous, and engaging care plans. New technologies will streamline consumer engagement in healthcare and simplify their interaction with healthcare services, insurers, providers, and other participants. Finally, effective last mile interventions will leverage technology and drive much better clinical and financial outcomes. High quality care will become more affordable and accessible to everyone. Even with all these changes, we are confident that the contribution of trusted traditional players, especially providers and payers, will remain relevant and necessary even a decade from now. Our mission is to help realize this vision by connecting and enabling these key players in healthcare, namely providers, insurers, patients, and innovators, to deliver greater access to more affordable, higher quality care. our contribution is in way of offering connectivity our technology platform enables the key players to interact in a better way we do not and will not compete with our clients and partners or seek to replace them most importantly we will strive to strengthen existing patient provider relationships to allow hybrid online and offline connectivity across the full continuum of care. With our platform, people engage with providers they recognize and trust, covering all their healthcare needs. We make special efforts to cater to providers' needs and count the number of active providers using Amwell as a key performance indicator. As more providers from our community use our platform, we can offer more trusted services across more therapeutic areas in a very scalable way. We believe that our platform is unique and valuable. We plan to further expand and enhance our investment in it to offer our clients the most impactful capabilities. Our clinical and other services are designed to help our clients and partners realize the value of our technology more quickly and easily. As the model of care evolved and increasingly relies on digital connectivity, we expect our revenues from subscriptions to our technology to grow faster than our services. Consequently, we will focus our investments in making our technology even more innovative, valuable, and comprehensive. As we offer more capabilities, we also expect our user and client experience to become simpler and easier in every way. A good example to our commitment is our new AML Now product that we announced this morning and recently introduced in beta version to our existing clients. It is increasingly easy to use and allows providers to very quickly connect with their patients with little or no prior training. We are very encouraged by the strong adoption of the beta version. AmelNow is commercially available today. We also unveiled new CarePoints this morning. CarePoints are last-mile connectivity instruments to our platform. Our new tablet software and the new C500 cards are designed to offer additional very simple and easy ways for providers to engage with our platform and through it across our ecosystem. We believe that ease of use has become even more important during the pandemic. We are receiving pre-orders for the C500 for Q1 delivery. The new tablet software is commercially available today. These new offerings, like the rest of our products, are designed to be part of an integrated spectrum of capabilities so that our clients always have the most appropriate technology for their needs. Indeed, we aim to further expand our offering of one-stop shop for digital connectivity across our entire ecosystem. We take great pride of the huge number of clients and partners that are already using our platform. We will make every effort to continue and deserve their trust. As new ones join, we see clear network effects. The addition of these new players to the integrated ecosystem is adding value not only to them, but also to the rest of the participants. Indeed, a big part of our value is driven by the magnitude of our connected relationships. We attribute our success to our culture. The first pillar is putting our customers first. We will never do anything that stands in the way of great care or the interests of providers, patients, and our entire community of clients and partners that support them. The second pillar is one team. We recently strengthened our team in welcoming Deborah Jackson to our board. With her incredible experience across healthcare, business, and academics, coupled with her impeccable reputation, Ms. Jackson is bound to make important contribution to AMLO. Our team perseverance was tested recently with COVID. Working from home around the clock, Our team performed admirably, allowing both our services and technology to prevail and perform well despite unprecedented demand. Our team sees our mission as a privilege and a fiduciary moral commitment to our community. During COVID, we saw huge growth in active providers. So many discovered and tried telehealth for the first time, and so many loved it. Coupled with dramatic changes in reimbursement, we believe that COVID provided strong tailwind to telehealth adoption and popularity. New CMS coverage that may persist after COVID is especially conducive to Armwell's model of telehealth. While visit volumes are lower than the numbers we've seen in March and April, they're still much higher than before COVID. More importantly, we see clear growth in our clients' readiness to invest in infrastructure to prepare for a new normal. This is well demonstrated in the growth in subscriptions to our platform and orders of care points. The last and final pillar to our culture is deliver awesome. We strive to offer truly helpful innovation that excites and delights our customers. Amol was honored to be named number one in telehealth satisfaction among direct-to-consumer providers by J.D. Power, a great recognition of our effort. Today, only a small fraction of healthcare is leveraging the enormous potential of digital connectivity. As healthcare embraces connectivity, we will offer more collaborative tools. We are building a powerful global technology platform that will enable better, more affordable and convenient care to millions of people. We plan to realize this vision through both organic and inorganic investments. We will strive to make our acquisitions strategically accretive, always with a view to building strong cultural alignment, and adding complementary digital assets that are designed to integrate into one end-to-end cohesive technology-driven offering. The recent nomination of our new CTO, Sir Khan Khutan, demonstrates our commitment to expand and excel our innovative technology investments. Just before the IPO, we announced our partnership with Google Cloud. While we cannot yet share tactical details about our work together, we did start to collaborate. We have much in common with our friends at Google. Our cultures align well. We're both extremely passionate about our mission to improve health care. Google Cloud brings powerful capabilities that will greatly enhance our collaborative offering. It also brings enormous global reach that could accelerate our impact in the United States and abroad. In addition to our core performance, we are especially encouraged by the quality of our customers, partners, and investors. We see their collaboration with us as an important vote of confidence in our unique strategy. We have seen significant increase in the demand to our technology and services this year. And we believe this reflects the confidence that our healthcare ecosystem clients and partners have in our ability to support them now during the pandemic, but more importantly, over the coming highly transformative years. And with that, I would like to turn to Keith to share with you more on our operational and financial performance indicators.

Thanks, Ido, and thank you to everyone for joining us this afternoon. I want to reiterate Ido's comments about how pleased we are with the outcome of the IPO, our third quarter results, and the momentum we're seeing across our business. Given that this is our first public earnings release, I'd like to spend the first couple of minutes to describe our business model so that you can better understand the key trends and drivers of Amwell. In terms of revenue, about 90% of revenue is recurring in nature and is primarily split between subscriptions and visits and supported by services and care points. Our primary customers are health plans and health systems. Additionally, we have a third smaller group of customers whom we call innovators who use our platform in individualized ways to support their respective businesses. These include the likes of Phillips, who offers programs such as sleep therapy, and separately, large metropolitan 911 services who, during the peak of the crisis, used our platform to assist those 911 calls that could be addressed with virtual care. Our health plan and health system contracts are typically three years in length and are structured for subscription expansion. For example, even sales of our CarePoint hardware devices to our health system customers ultimately add to subscription revenue. As health systems buy more software modules to direct more care through the CarePoint by the health system's own doctors, overall subscription revenue increases. This is because our current health system contracts contain volume components and software modules are required to deliver specific care through that specific care point. This type of flywheel also exists on the health plan side. As health plans expand their virtual care services to a higher percentage of their total membership, and as they add services such as behavioral health to their initial urgent care services, our subscription revenue grows. We also expect this dynamic to be accelerated with our virtual primary care products. Now, before diving into our third quarter financial results, I'd like to spend a moment recapping our recent IPO. On September 21st, we completed our IPO by issuing 51.2 million shares at $18 per share. The total proceeds from this transaction, which included $100 million investment from Google, totaled approximately $922 million. We are thrilled with the results as it reflects pricing above the initial range, an upsized offering, and the full exercise of the underwriter's green shoe. We feel that this positive start positioned us well for a successful first quarter in the public market. Turning to our third quarter financial results, I'm happy to report total revenue of $62.6 million, which is an 80% increase from this quarter last year. Our subscription revenue came in at $25.8 million. The 18% increase can be attributed to new customers that we signed in the quarter, our expansion within the health plan populations, and an increase in the volume of platform visits performed by our health system customers' own providers. As our visit volume remains elevated in comparison to pre-COVID-19 levels, we experienced a steep increase in our visit revenue, totaling $28.5 million, up nearly 300% or four times over the previous year. In this quarter alone, 1.4 million visits were performed on our platform, bringing our total visits to over 4 million for the first nine months of this year. This is down 30% sequentially versus the 2 million visits performed on the platform last quarter during the peak of the crisis, but down only 24% for our AMG visits. Of note, we experienced a 23% increase quarter over quarter in AMG specialty visits as we are seeing the impact of COVID on the population's mental health. While this is an unfortunate and concerning health trend, we are glad that we can support our members through our specialty visit capabilities. We continue to experience outside usage of our platform by our customers' own providers, as 73% of all visits performed on the platform were done not by AMG providers, but by health plan and health systems' own providers. This is compared to 38% in the same quarter last year, and it's a trend that we see continuing as healthcare delivery systems move more to hybrid care models, combining physical and virtual care. As we discussed during the IPO, this is a realization of the vision Edo and Roy had when they started the company 15 years ago. Not to compete with healthcare providers, but rather give them the tools and provide a medium to enable virtual care delivery to meet the needs of their patients and more health plan members. Our care points and services revenue of $8.3 million was an increase of 47% in the quarter. While we are pleased with these strong numbers, some of the increase was unexpected as some of our health system customers used their remaining funds from the Federal Family Care COVID Recovery Act to increase their third quarter care points orders. We view this as a pull forward of some services and care points revenue in the Q3 that we are expecting in Q4. Similarly, but on the services side, Two of our larger health plan customers concentrated their marketing spend in the quarter for a targeted campaign to increase awareness of their plan's virtual care benefits in preparation for a potential next phase of COVID-19. These were specific programs that were completed in Q3. Gross margin for the quarter was 32.7% compared to 45.1% last year. This year-over-year decrease was a direct result of revenue mix, as visit revenue represented a higher percentage of total revenue in this quarter versus the same in 2019. R&D spend of $25.3 million represents an increase of 86% year-over-year, but remained relatively flat at 40% of revenue. R&D spend this quarter came in slightly below expectations as we slowed select hiring decisions to allow our new Chief Technology Officer, Sirkan Kutan, to develop his new product and platform functionality plan. While our sales and marketing spend at $13.8 million was an increase of 18% year-over-year, it was a decrease relative to revenue levels from 31% last year to 21%. This was expected due to travel restrictions and industry conference cancellations. DNA experienced a 200% year-over-year increase, totaling $43 million in the quarter. About $30 million of the increase was due to one-time non-cash stock-based comp awards to our executives, that were triggered by our successful IPO, with the balance of the increase being one-time non-recurring IPO expenses. With the IPO now behind us, in Q4 and throughout next year, we see G&A spend normalizing back to the low-mid $20 million range. Adjusted EBITDA loss of $26.2 million compared to a $20.3 million loss last year was primarily due to revenue mix shift to lower margin visits, and additional expenses incurred typical of a public company versus last year when we were private. From a balance sheet perspective, we ended the third quarter with cash and investments of approximately $1.1 billion, which included IPO proceeds of $922 million. Amwell has no outstanding debt. I want to confirm that as a result of our IPO, combining our A, B, and C-class shares, we ended the quarter with 234.2 million shares outstanding. Now I'll review our initial 2020 outlook. With this being our first quarter as a public company, and because of our strong performance this quarter, I want to provide our initial outlook for 2020 to help frame expectations for the fourth quarter. Looking ahead, we expect to see revenue between $235 and $239 million for the year, reflecting a year-over-year growth of 58% at the midpoint of the range and an adjusted EBITDA loss of $105 to $110 million. As we did during our IPO, in an effort to be transparent and given all the moving parts and uncertainty amidst the COVID-19 crisis, I want to provide a few high-level thoughts on framing 2021. Visit forecast remains uncertain. As discussed during our IPO, what we initially saw from the data from the Southern Hemisphere flu season has played out in the beginning of Q4. And thus, we continue to expect lower than normal flu volumes, supporting the theory that COVID-19 social distancing results in fewer flu incidents. Regarding R&D, we expect the increased spend we discussed during the IPO to continue into 2021. and potentially for the entire year and maybe at elevated levels versus those experienced in the latter part of 2020. As a reminder, this additional COVID-related spend discussed during the IPO was driven by foundational changes in sentiment to use digital connectivity as part of mainstream healthcare. We continue to aggressively expand the platform for anticipated future demand and have accelerated new solutions development driven by our customers' demand to broaden requirements to move more care into the cloud. Finally, highlighting that the substantial visit growth we experienced in 2020 while supporting our members during the pandemic has set an artificial heightened comparable revenue base upon which to measure us on a year-over-year basis next year. While many of you have already correctly accounted for the year-over-year trends based on normalized metrics, I simply am pointing this dynamic out due to the heightened comparative base. In closing, I'd like to reiterate how thrilled we are to be able to report such a strong performance for our first quarter as a public company. Going forward, we feel well capitalized for growth and positioned to maintain a leadership position in the telemedicine market. With that, I'll turn the call back over to Ido for his closing remarks.