American Well Corporation Class A

good afternoon and welcome to amwell's first quarter 2021 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 dr edo schoenberg chairman and co-chief executive officer and keith anderson chief financial officer Ito and Keith will offer their prepared remarks and then they will take your question. The AMWEL press release and webcast link are available on the investor relations section of AMWEL's website. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating AMWEL's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation 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 by the Private Security Litigation Reform Act of 1995. such for forward-looking statements are subject to risk, uncertainties, and other factors that could cause the results for AMWEL to differ materially for those expressed or implied in this call. And now I'll turn the call over to Dr. Edo Schoenberg, CEO of AMWEL. Edo?

Good evening, and thank you for joining our first quarter earnings call. We opened the year with $58 million in quarterly revenues. Gross margin was 38% and our active providers grew to over 80,000. We see growing evidence for expansion trajectory of our role as technology platform that enables all types of care. Our source of revenue continues to evolve as contribution from subscriptions grew to 43% of our revenues in Q1 versus 40% in the same quarter last year. Overall visits continue to grow as 1.6 million visits were performed on our platform this quarter versus 725,000 this quarter last year. Visit mix continues to evolve towards more specialty services as revenue per visit expanded from the low 70s for the full year last year to already in the low 80s range this quarter. Scheduled visits continue to significantly expand. We see scheduled visits outpacing on-demand visits as a positive indicator reflecting growing demand to enabling telehealth technology across the care continuum. Our dialogue with our clients and partners in Q1 is reflective of post-pandemic sentiment. There is a renewed interest in telehealth enablement technology with special focus on interoperability, deep integration, and hybrid models of care. Our recent win of a large mid-Atlantic blue is a great example. In addition, we're pleased to see core selectivity with Google Cloud beginning to realize. After the quarter, on April 28, we unveiled our Converge platform to our clients and partners. With over 1,000 clients and partners, it was our most attended forum since inception. Our clients' and prospects' reaction to Converge was extremely positive. One client said, Converge helps us see telehealth not as an alternative to normal care, but as an integrated way to deliver care. Another simply called Converge a game changer. We discussed the key features of Converge on our last call. On this call, I would like to provide you with more details about the expected business impact of our new Amwell platform. As we shared, Converge is designed to automate much of the upgrade process. Clients will receive Converge as part of their current subscription. Each subscriber will receive a configuration of Converge that accommodates their existing scope of subscription to the term of their existing contract. The first wave of upgrades will focus on hospital systems and move quickly to health plans, with initial deployment being executed this month. We expect to convert a significant number of clients this year with a balance over the next 18 months. We feel confident that our investment in Converge will have significant positive multi-year impact on our financial performance starting in 2022. we expect Converge to increase client retention, attraction, addressable market, and upsell opportunities. Converge is designed to also improve our margins and reduce our cost of implementation and support. I would like to share a few examples explaining how we plan to achieve this impact on our business with Converge. Our new super modern architecture is comprised of a single cloud-based technology. This allows for new ways for our ecosystem clients and partners to exchange information and services based on common identifier in a common platform. Expanding for transactional to longitudinal capabilities, means much better support over the full continuum of care and inclusion of automation to drive efficiency and improve outcomes. Our new ability to create streamlined integration with EMRs and many other digital assets reduces our clients' cost of ownership, simplifies deployments, and complements our clients' existing investments. It allows them to maintain full control and ownership of their brand experience, workflows, and relationships. The greatly increased modularity of our platform enable us to offer more variability in our product line. Clients can simply turn on various modules and programs to accommodate their evolving needs. This means better return on investment for our clients as they are able to pay for components they use as they use them. It also gives us better ability to offer best-of-breed components as they become available with significantly lower development and integration costs. The fact that Converge is an open platform designed to host third-party apps means the ability to offer even more flexibility, customizability, and innovation to our clients. A great example was provided by Google Cloud, who created our first third-party app. Powered by sophisticated natural language processing, it offers real-time automated medical grade caption and translation. We trust Google's app could have significant contribution to making care more accessible and impactful to many more people. Apps open a new revenue stream for Armwell, mostly in 2022 and beyond. We plan to share more details on apps and the business model that governs their deployment later this year. Our single context-driven user interface creates one meeting place for all digital care delivery use cases. This, in turn, drives a simple and exhilarating user experience with a much shorter learning curve and faster path to adoption. Converge is positioned to support the rapid adoption of digital connectivity by existing trusted providers, payers, and other ecosystem players. It is designed to scale exponentially while remaining reliable and efficient. Finally, Converge is designed to work globally. With its open architecture, it allows us to expand beyond the United States much faster and more efficiently. We are thrilled by the feedback of our clients and partners and will continue to update you as we deploy Converge across our client base and beyond. We now see a clear market move from buying telehealth clinical services to growingly relying on our most technology and infrastructure to enable the full continuum of digital care delivery in visits and between them. As this trend accelerates while the pandemic subsides, we expect the high-margin contribution of our technology to become significantly more dominant in fueling our growth. And with that, I would like to turn to Keith to share with you more details. Keith?

Thanks, Ido, and thank you, everyone, for joining us on our first quarter call. As Ido highlighted, we believe Q1 demonstrates a foundational level of utilization of digital health performed on our platform. Well, later in my prepared remarks, I will unpack our performance this quarter. I want to first provide some insights in the specific themes and dynamics that customers are citing as compelling differentiation that strategically also lends some insights into key components of our inorganic strategy. Coming out of the pandemic, conversations with current and prospective customers have been much more thoughtful as they are now viewing virtual care as a significant and permanent component of their overall care delivery plan. Customers are coming to the table with more crystallized views on the role they want the Emerald platform to play. Many have expanded their views of telemedicine and are discussing full longitudinal care strategies that require an interoperable platform with virtual care delivery at its core. Providing a platform that enables and facilitates our customers' own doctors to deliver care to their specific patients or members is further differentiating for Amwell as our customers, having now thought out their virtual care strategy, view our business model and structure as one of partnership versus a potential competitor. for example some plan or health system customers with more evolved virtual care strategies are keying in on animals ability to highlight their own chronic condition management or care coordination programs if that is a particularly key strength or differentiator for them they want their core strengths to be acknowledged and incorporated within their virtual care strategy the theme of longitudinal care at the core of converge is also driving our expanded inorganic strategy in the areas of interoperability, care coordination, device agnostic patient monitoring, and the ability for Amwell to provide programs to manage chronic conditions if the health plan or system doesn't have their own strategy. As Iter discussed at our client forum two weeks ago, our recently launched Converge platform demonstrates our nimbleness as a company to acknowledge how quickly our clients have embraced and advanced virtual care as a key component of their overall model. Now, turning to our first quarter results, we reported total revenue of $57.6 million, an increase year over year of 7%, driven mainly by solid subscription growth and also continued expansion of visit revenue. Total subscription revenue in the quarter was $24.6 million, an increase of 13% compared to the first quarter of 2020, but 20% if normalized for the two customers lost due to M&A that we discussed on our last call. The growth is a result of new logos and increased volume of module and program subscriptions. In terms of total visits, 1.6 million visits were conducted this quarter on the annual platform, representing a 100% increase over the 725,000 visits booked on this quarter last year and a take-up from Q4. As Ido mentioned, in this quarter, AMLO passed a significant milestone, having exceeded 10 million total visits performed on the platform since inception, with 5.9 million of that volume in 2020 alone. Equally important is the continued trend of empowering our health plan and health systems' own providers to deliver care virtually, as in the first quarter, now 80% of all visits performed on the platform were conducted by our customers' own providers. This is compared to 50% in the first quarter last year and 75% in Q4. Total visit revenue was $27.8 million this quarter, a 6% sequential increase over Q4, and a 5% increase this quarter last year when COVID volume significantly began ramping up. AMG volume continues to shift to higher-acuity specialty visits, as while total AMG visits decreased approximately 6%, both sequentially and year-over-year, to 340,000, the average price per visit rose to the low $80 range, resulting in continued increase of visit revenue. While we discussed on our last call the expectation of the full year average price per visit to be in the low $80 range, up from $73 last year, the acceleration to this $80 range out of the gate in the first quarter was driven by the significant increase in behavioral health visits. While it is sad that a significant component of the increase is coming from behavioral visits, we are happy, especially in these times, that these folks are getting the care they need and in the manner and medium which they prefer versus not getting care and their conditions getting worse. As we forecasted, our services and care points revenue of $5.2 million was relatively flat year over year. 2020 was an anomaly, I mean, on so many levels, but as it relates to our care point sales, COVID hit in Q1 of last year when we were shipping out carts as fast as we could produce them as health systems were rapidly expanding their emergency room and COVID-related programs to deal with the surge. We experienced another surge at the end of the year in Q4 as systems rushed to spend the remainder of the unprecedented federal grants that contained use-it-or-lose-it-type expiration dates. This pulled some revenue from Q1 into Q4 and created an even more odd distribution of CarePoint's revenue. A more normalized profile for care points is back-end weighted, since the nature of a typical health system budget is approval at year-end, then a progressive ramp-up the following year, and ending in Q4, spending any remaining funds. Gross margin was 38%, an increase of 50 basis points over Q4, and was due to revenue mix shift more weighted to higher margin subscription revenue and efficiency measures implemented on the services side. Challenging margin expansion this quarter was the initiation and migration onto the Converge platform, a dynamic that will continue the remainder of this year. R&D expense in the first quarter was $23 million, representing 40% of total revenues compared to 28% of total revenues in the first quarter of 2020. While we are forecasting an overall increase in R&D spend in 2021 due to the Converge project, Spend was lower this quarter than in Q4 due to the stop and start of the various converged subprojects that involve integration with specific strategic and functional partners. We still expect the overall total R&D spend to be made at the same levels as we discussed on our last earnings call, which was similar on a percentage basis to revenue in Q4 of last year. Sales and marketing spend of $13.7 million is a decrease in $1.4 million sequentially versus Q4 and flat year over year. Spend was lower this quarter mainly due to the timing of marketing campaigns and client services that are expected to occur later this year. Q&A expense in the quarter was in line with our expectations at $21.4 million and lower versus Q3 and Q4 of last year as we are now past our IPO and the related non-recurring expenses. We are reporting an adjusted EBITDA loss of $26.4 million compared to a loss of $35.4 million last quarter and $17.7 million last year. The sequential favorable decrease loss was primarily related to lower R&D and sales and marketing spending that we just discussed, but which we believe will increase over the remainder of the year as converged spending increases and marketing events take place. Regarding our annual guidance, at this point in the year, we are reiterating our previous guidance ranges of $260 to $270 million for revenue, AMG visit volume between $1.5 and $1.7 million, and an adjusted EBITDA loss between $157 and $147 million. Since we IPO-ed in a very atypical year, in terms of a typical revenue distribution over the quarters, steady subscription revenue growth combined with our assumption of returning to a more normalized flu season results in a more back-end weighted quarterly revenue profile, similar to what we saw in 2019. For Q2, we are expecting similar levels of services and care points revenues in Q1, as well as similar visit revenue as we enter the summer. As we look toward the second quarter, I also want to unpack a dynamic within our most important KPI, total active providers. As Ido mentioned, the number of active providers increased again sequentially over Q4, ending the quarter with over 81,000 total active providers delivering care on the AMLO platform. But looking at Q2 last year, it was the peak of the pandemic, and in that single quarter alone, we more than doubled the number of active providers from 24,000 to 57,000, For the remainder of 2020 and through Q1 of this year, we added another 24,000 providers. As detailed in our filings, we define active providers as those providers that deliver care on the platform over the last 12 months. So it is expected next quarter when Q2 2020, the peak of the COVID crisis, rolls off the measurement period, we will experience a lockstep decrease in active provider count as some of these lower activity providers will now be excluded from the 12-month measurement period. So mathematically, we are expecting a reset to levels similar to last quarter, but are then forecasting similar continual growth as we've seen over the last couple of quarters, especially due to the adoption of Converge. In conclusion, we are pleased with another good quarter as we are operating according to plan and believe it represents a solid start to the year. The launch of Converge is the next step in the evolution of our platform, and we look forward to the competitive and operational advantages steepening the slope of our growth and expanding our efficiencies. And I'll turn the call back over to Ido for his closing remarks.

Ido? Thank you, Keith. As the conversion of traditional healthcare into a new model of care accelerates, we could not be more excited about the expansion of our platform and its strategic direction. Going forward, we see the role of Amwell as relevant, unique, and important than ever before. With that, I would like to open the call to questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Again, that is star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have our first question coming from the line of Rika Goldwasser with Morgan Stanley. Your line is open.

Yeah, hi, good evening, and thank you for all the details. You know, investors are very focused on understanding the potential future revenue contribution from Converge. So, Ido, thank you for all the details and kind of explaining the opportunities associated with it. And one of the things you said is that it's going to be sort of an upgrade for current subscribers. So maybe you can help us think through and about how over time that will translate to increased revenue growth. One metric that we look at is the number of modules that health systems buy from Aimwell. Is that a way to think about the opportunity in the near to midterm? Does it sort of expand the average number of modules that a health system would purchase from you?

Hi, Ricky. It's great to hear your voice, and thank you for this important question. Essentially, what happened is exactly what we said is likely to happen. The move from telehealth as a service, initially it's urgent care, then primary care, then specialty care, is now becoming an enablement platform. In order to build the revenue around technology, the first order of business is to build exceptional technology that meets the future needs in addition to the current needs of our clients. The second order of priority is to convert as many of our clients to the new platform. We don't want to create any type of barriers for that conversion because we see enormous amount of upsell opportunity once the ecosystem is on this unified platform. Because of a long list of reasons, I'll just give you the highlight. We believe that with Converge, every client will use the platform more. It's much nicer and easier to use. It offers many more options and so on and so forth. We also believe it's more likely that clients that had certain plans for scale, the membership or the audience for the platform, for a long list of different reasons, are likely to expand it even more with Converge. And then the scope of use, what they're using our platform for, whether it's utilities like programs and modules created by Amwell, And now with new models by third parties, we have an opportunity to really upsell additional value to this ecosystem, let alone the fact that the ecosystem itself could connect and offer to trade services with one another because it's one solid code base with unique identifier. This is why we basically said that while we are focusing on converting most of our client base starting this year, we believe we're going to see a lot of the upside starting in 2022 and beyond.

That's helpful. Thank you. And then as we think about the opportunity associated with Converge to expand long-term margin profile,

Absolutely. So there are actually quite a few things. I'm sure you noticed the competition in urgent care is pretty fierce right now, and the margins as a result are very, very slim. And we expect the same to happen in primary care and even in specialty care online when the service is at the core as an alternative to main path of care. The barrier for entry for those areas is fairly low. And you can see people from Amazon to Cigna to many others entering the field of simple care as replacement around those areas. In order to create an enabling platform that is fully embedded with lots of other platforms, that is covering the full care continuum, it takes a decade and a half, it takes over a billion dollars of institutional investment to create something that enables that. And we are quite sure that as we implement the platform, the subscription fees from contribution of the platform are going to be far more significant to our top line and bottom line than any other source of revenue. The margins in upsell of programs and modules is far higher than the margin over an urgent care visit. And in addition to that, this is a fairly new, or actually very new, very modern platform that is incredibly efficient. So things like the cost of deployment, the cost of hosting and implementation are expected to be much smaller. Some of it would be passed to clients, but some of it would transfer directly into our gross margin.

Thank you very much.

Thank you. We have our next question coming from the line of Robert Jones with Goldman Sachs. Your line is open.

Great. Thanks for taking my questions. This is Jack Rogoff on for Bob. So it looks like cost of service went down on a dollar basis sequentially, despite more specialty mix at AMG and more growth of providers on your platform. And I know you talked about some other factors that led to expanding gross margins, but can you talk about how these two factors impacted gross margins, if at all?

Yeah. So, I mean, gross margin, there were – You know, there was more mixed shift to subscription. You know, when you see, I think, you know, when you saw the press release and the breakdown, you know, subscription made up a greater portion. Margins would have been higher. But we're starting the migration over to, you know, the new converged platform. So that was a headwind to margins. you know, margin increase, gross margin increase was because the increased subscription as a percentage of mix, as well as, you know, some other efficiency factors that, you know, with our partnerships with Google and some other, you know, operational efficiencies. As a headwind was the, you know, or is the initiation of the migration over to the new platform that that headwind is going to continue for the remainder of the year. So we expect margins to be in the same zip code as where they are now, and then, you know, continue to grow, um, you know, after we're fully on the Converge platform.

Got it. Thanks. And then to follow up, I just want to ask about, uh, ProgramOS, which we learned about during the client forum. I guess I'm curious if you foresee your clients mostly customizing in ProgramOS or using a care pathway strategy that's more preset. I'd imagine you have a mix of clients that, you know, have KOLs on staff and others. that would prefer something more turnkey? And then secondarily, do you see this solution being used more by hospitals or health plans?

So the answer is, as you rightly suggested, Jack, is all of the above. We really want to step back and allow the market to do what it needs for different needs. Today, it's fairly rigid. I need to agree with every component of the plan in order to buy it, and then either it works or it doesn't work, but the cost of making changes and implementation is very significant. What we did with the program OS and what we're doing in building it right now is to really allow us, when appropriate, to offer turnkey solutions, but then replace them as needed. And that's the philosophy that you see all through the architecture. A program today is something fairly heavy, but you can think about the program as something very small, as a little intervention that avoids readmission or helps with triage or many other little touch points that could be further customized and optimized. We believe that some of our larger clients are likely to take the advantage of building their own apps and their own programs, while others may want to use those programs themselves or turn to third parties. The end result is that you're going to see an enormous network effect in the way of creativity and span of options for the market. and we are going to really allow every participant, every subscriber to be very dynamic in creating the solutions that are right for them. It, of course, will allow us to, for the first time in our history, to really monetize directly the ecosystem that we've built over a decade and a half by basically rev-sharing those innovations as part of our revenue stream.

Very helpful. Thanks a lot.

Thank you. We have our next question coming from the line of Sean Willen with Piper Sandler. Your line is open.

Hi. Thanks very much. So keeping on the Converge theme, can you just address how it's impacting the sales pipeline, the pace of new bookings, and can you give us an update on expectations of new logo ads this year?

Yeah, so you know what we report and we normally don't report. I can tell you that we had crazy attendance in our client forum, over 1,000 participants. It's not only the number, it's also the quality. We had the best academic medical centers around the country, some of the largest payers, and other very meaningful large corporations. and innovators that participated and already expressed their desire to begin to work with Converge. As I said earlier, our number one goal is not necessarily to immediately get new logos or new clients. We are laser focused on our existing clients and want to make sure that they have a great experience converting to our new platform for reasons that already talked about. We believe that the success that we are beginning to see right now with the first few clients is going to be very helpful in accelerating our growth with the new customers in the United States and beyond. But as I said, we are reiterating our guidance for the year, and we are suggesting the change would be much more palatable in next year and beyond.

I mean, Sean, just to add on that, you know, the customers that we're talking to are coming with a bigger request list. You know, they're coming with more crystallized views on the role that they want, you know, telemedicine to play. And the platform is further differentiating and we're winning business because of this expanded functionality and bigger picture opportunity. So it's already paying off. You know, there's a couple of recent wins that we had because of this differentiation and because of them coming with, you must have this functionality, and we will provide that on the platform. So already we're seeing out of the gate, you know, advantages to, you know, a broader platform that is, you know,

more interoperable and can bring more of what they do into our ecosystem so you know we're already seeing the benefits i would just add this sean i think you and other people on this call were invited and came to our client forum and i think that it's very difficult to translate the bright eyes in the room the reaction the enthusiasm because it really gives our client the freedom to operate in a very new way it's not a little better It's dramatically better than any other technology out there, and we are confident that that would translate into expansion, multidimensional expansion, starting with our existing ecosystem.

That's great. Thanks for that. And can you give us an update on what's going on with the rollout of virtual primary care strategies?

Well, sure. I can tell you that it's a great product, and the results from where it's deployed are better than we expected. The VPC has become an acronym. Many people talk about it, and they mean different things. VPC is, of course, part of Converge as well, and it's going to be folded into the main platform.

Okay, thank you.

Thank you. We have our next question coming from the line of Charles Wright. Whit Cowan, your line is open.

Yeah. Hey, thanks, guys. Appreciate taking the question. You know, Keith, you talked about the per visit revenue getting up to 86, and that was sort of a target you had expected to get to over time. You know, any reason, though, as we think about the full year guide, given the strength of this and how much is coming into more like scheduled visits and specialties, you know, how do we think about maybe upside potentially here in this part of the business? And then can you just go over again when you talked about the providers on the platform this quarter? I kind of missed it a little bit. Can you just remind us why does this number reset necessarily starting next quarter? Thanks.

Sure, Gerald. Thanks for the question. And if it wasn't clear, I'm glad we're going over it again. So, you know, we were $73, $73.5 per visit in all of 2020. Already in this quarter, it shot up in the low 80s. We thought that that was going to be more gradual. The reason is because of behavioral visits. So, you know, we're continuing to see that mix shift, more specialty visits, You know, and the average for the year, you know, we were saying was going to end up being in the low 80s. We're already there, you know, out of the gate within the first quarter. So, you know, can I say that there's further upside on the year? Yeah, maybe. I, you know, we weren't expecting this massive shift in this accelerated fashion, you know, because of the behavioral visits and other specialty visits. You know, does that continue throughout the year? Maybe. I... You know, I'm not going to go there right now, but we were expecting the average for the full year to be in the low 80s. In terms of scheduled visits and specialty, I mean, we're continuing seeing that ramp. You know, scheduled visits, you know, makes up almost three quarters, you know, of our overall visits. So, you know, that's a leading indicator. It's not urgent care. So the vision and the mission statement of being backup care, you know, providing those services, you know, seeing that continued shift to scheduled visits, just shows, you know, the more stickiness, you know, of our platform. Looking at the providers, you know, in Q2, we, you know, we went from 24,000 to 57,000 in one quarter. So we added 33,000 active providers. You know, Q2 last year was the peak of the pandemic. You know, entire hospital systems, you know, entire larger even a part of one state put their doctors on our platform. You know, those doctors were actively delivering care, you know, virtually on the platform. You know, as Q2 rolls off, so the definition of an active provider is over a 12-month period. You know, with Q2 2021, you subtract out Q2 2020. So what you're going to see is you're going to see a decline or a step change decrease in you know, back to around the levels that we saw at the end of Q4, but you're going to see the continued growth that we've seen, you know, throughout the quarters at the end of last year and then, you know, in Q1. So it's just math that as Q2 rolls off last year, you're going to see the step change, but the continued growth, you know, thereafter. Does that help, Cole?

Yeah, so you're saying it's just the way your formula for how you calculate that number is. It's not more than anything.

It's defined as a 12-month period. So when we add Q2 of 2021 and subtract Q2 of 2020, you know, that's where the step change is going to be.

Got it. Let me just ask one more. You mentioned that three quarters of the visits were scheduled visits. Does that mean that those are the visits in support of your health system clients and that the on-demand visits really kind of ties more to your health plan clients? Or if someone's using Live Health Online, you're seeing a lot of people schedule visits through Live Health Online. Thanks.

These are overall. These are both, you know, non-AMG doctors and AMG doctors. So across the board, You know, it's slightly less than three quarters, but, you know, somewhere between the majority and, you know, 75%, you know, are scheduled visits. So I want to receive care virtually from my doctor. I'm scheduling a visit, you know, and then the visit results, and that triggers, you know, the criteria of a scheduled visit.

Charles, maybe to elaborate on this just a little, here's how we think. We really have two businesses. One is very much the business of the past, and it's sort of in decline. The other one is the business of the future, and it's definitely emerging fast and furious. The business of the past is very much telehealth and service. So you see this maturing on its own, moving from urgent care to primary to specialty care. And, of course, the business of the future is telehealth as platform, telehealth as enabling technologies. We have one foot here and the other foot there. So when you have an opportunity to speak with your doctor, it's less likely that you're going to use the open market from your payer or your employer to look for someone else. And we talked about it in great detail many times. Make no mistake, however, there is value to have a network. Even for tele-assets enabling platform, the ability that you can rely on available national network with short wait time is proving to be very, very helpful to all our clients, health plans and health systems. So we believe that the transition is not going to be sudden. It's going to be a multi-year process. But since our bet and our focus is on technology, we really feel that we are much shielded from the obvious decline in competition in the telehealth and service business that is seeing an enormous amount of traffic and newcomers these days.

And, Charles, just to clarify Ido's point, you know, the visit part of our business is not in decline. It's just the subscription business is outpacing the visit portion.

Thank you, Keith. I meant in comparison, and I meant long-term versus long-term trend. And everything is showing up, pointing up. It's just that tech is pointed up much sharper than service. Thank you, Keith.

Great. Thanks.

Thank you. We have our next question coming from the line of Jaylandra Singh with Credit Suisse. Your line is open.

Yeah, thanks. Thanks for taking questions. I was hoping if you could share some more color on recent feedback from hospitals and telehealth post-COVID. Are you coming across many situations where providers are waiting for more clarity on reimbursement post-COVID before making any significant decisions on virtual care platform investments? And beyond reimbursement, I was hoping if you could touch on what health systems are looking for throughout the decision process while they're evaluating these telehealth platform options like yours.

Yeah, so we actually see different types of clients wanting different types of things. Of course, reimbursement is much better than it was, but it's really far from what it can be. And our health system clients are aware of that. Although I can't think of anyone who simply says they're not going to do telehealth. That doesn't exist. Some of them use it in the most simplest way, as the video conferencing platform embedded in their EMRs, while others are building a whole spectrum of services and are really using our platform to the maximum degree, and many are in the middle. We don't believe that we can necessarily control that variability in our clients or the speed of adoption in a significant way. The market will do what it will do. One of the benefits of Converge is the modularity. So you don't need to buy the full spectrum of options today if you're not ready to use them, or you don't think that there is a business-reimbursed model that will make it worth your while. However, many clients, and that's a word that kept coming in again and again, look at Converge now with a future ready. It's a safe bet. I can start with simple modules, and whenever I'm ready to expand, it's very easy to do that in a consistent fashion. consistent and integrated the way and we're not trying to fight this type of a trend. Does that answer your question, Jilander?

Yeah, that does. My follow up on the health plan side of your business, we have seen some consolidation there with one of the large health insurance companies acquiring a telehealth company. any parts on some of these transactions providing some incremental opportunity for you guys as other health plans are not willing to work with the competitor on telehealth vendor and what do you think how do you think about the timeline for these opportunities coming up and how are you guys set up to capture those benefits sure um i think that a the service part of the business that we discussed earlier is seeing a lot of activity and the agenda of each party may be different

Some people want to own a tele-stack form so they can benefit from the PBM revenue stream related to prescription. Others want to use it as a way to get to providers, yet others want to use it as a way to get to consumers and so on and so forth. As I mentioned earlier, there is a big inventory of options, and people want to make sure that they have the best tools and ownership to realize their goals. The business of enabling the technology that we've built is much higher bar to compete. It's very hard to recreate. It took us 15 years and over a billion dollars. And we also did it together with enormous amount of feedback from all the parties. So if you were really good at one area, you really need to get the 360 degrees perspective that we got in creating what we have created. Very tactically, when a big health plan is buying a competitor, although it's so limited to the service part of the business, we should assume that initially, they're not likely to become our client, although we don't definitely give up on that opportunity. On the flip side, however, such a company has different clients that directly compete with the new owner. And we're already seeing some very encouraging signs, for us at least, by going directly to the clients and replacing them with us. We took a strategy, as you know, for all those years that we never, ever compete with our clients and partners. So we are really a safe zone, sort of Switzerland, in this highly competitive environment. And we use that in order to allow everybody to transact with one another in a way that does not intimidate any of the players.

Great. Thanks a lot.

Thank you. We have our next question coming from the line of Eric Carter with Nefron Research. Your line is open.

Thank you. I want to come back to the margin commentary. And, you know, your comment on, you know, we're going to see a decline over time for services, I think you've always said you're not a visited company, and Keith added that that's long-term, but the market's clearly concerned about, competition. And I think that's both volume and margin impact. So we have to really expect that technology is going to fuel growth. Well, then the question becomes, what can you fuel over the next year or two? When we look at subscriptions, how much comes from functionality that you have today versus the open auditions that you seem to be inviting with Converge. So can you give a feel for within the base, current functionality, can that drive enough to drive growth?

Yeah, Eric, maybe you'll agree with me. You know, we're not going to have declining gross margins. You know, gross margins would have been higher in this year alone had it not been for, you know, the initiation of the migration onto the converged platform. You know, we saw it this quarter with the increase in, you know, subscription revenue in terms of mixed shift. You know, the margins that we have for our technology business, the subscription, our technology margins, you know, they're – you know, in the low 60s. The visit revenue, you know, if you look at us and other competitors, you know, they are not technology margins. So, you know, visits right now are 48% of all of revenue. You know, if you go back to when visits were a third of our business, you know, margins were in the mid-50s. So now with other efficiencies that we have with some of our partners moving over to the converged platform, we're going to be able to capitalize on both operational efficiencies and technology efficiencies that are going to get us to those target margin levels quicker. So I'm glad you asked the question because I think maybe you misunderstood me. What's holding back further expansion this year is the migration onto the new platform.

It sounds like you're talking about inflection back in margins, and I'm thinking about the inorganic elements that you mentioned. All of those are enablers of technology. They're not clinical content themselves. Is that what we should take from the inorganic list that you provide?

okay we're switching gears so let me yeah i wanted to give you know inorganic we have a billion dollars of cash on our balance sheet and it's one that you know we do have a very robust targeted inorganic strategy and so wanted to give some more insights into you know now that converges out you know in terms of vetoes explained what the functionality and and what its role is for ml you know wanted to give some insights into areas that that we are focused With Converge, it's much broader, which is great. There's different components to the ROI of migrating over to the Converge platform, and one of those is the broader inorganic strategy we have for businesses and partners that we can put on the platform that will further accelerate growth or accelerate margin expansion.

Eric, with the risk of funding in modest, we are fairly convinced, based on a lot of hard work and dialogue, that we have today by far the leading platform. But we don't assume that that's necessarily safe for many years to come. We need to always invest and improve. Part of the tools that we have is inorganic acquisitions, and the purpose of those acquisitions will be to make us a better platform. We're not going to buy services. We're not going to buy things that relate to the past. We're going to really make sure that we offer the best experience for our clients, for partners, for innovators, so they can basically achieve and create more value with the platform that they have. There is great clarity in who we are, who our DNA is, as a technology enabler.

That's helpful. Thank you.

Thanks, Eric.

Thank you. We have our next question coming from the line of Rabbi Misra with Barenburg Capital. Your line is open.

Hi, good evening. Thanks for taking the question.

So I just wanted to go back to Converge and kind of ask the margin question from another perspective. You know, as you kind of layer on these kind of third margin, third-party app models, can you help us understand how You know, what's the kind of incremental view to gross margin or operating margin that can be delivered here? I think in the past, Keith, you know, you've kind of talked about getting close towards breakeven around 2024, 2025-ish period. Help us think about, you know, what this kind of new stream brings from a profitability perspective. And then second, you know, I think you talked about kind of a partnership with Twilio during the call with Converge. Any kind of insight there in terms of, you know, what that's going to be doing to kind of bring the cost of serving the visit a little bit lower? Thanks. Thanks, Robbie. I mean, we're not changing our EBITDA profitability timeline yet. You know, that is one of the rationales for Converge, but we're not going to change that right now. Ido, I'll let you answer the rest, but I just wanted to take the first part, the easy part.

Thank you, Keith. Look, we know already many things, and we're going to quantify and validate them as we go along, and then, of course, we're going to share our view into the future. There is great clarity already that the new platform drives much better margins. On the cost side, the modularity allowed us to really renegotiate and rebuild all our suppliers and subcontractors in a new way. Twilio is a good example. We simply believe partnership is a strong word. We wanted to select a video engine, and we believe that Twilio is the best. Epic uses them too. So we are like-minded on that front, and we are offering it to our clients. If down the road there'll be a better video engine, we take this out, we put one in, we can do that today with the modular platform that we have. But this is a good example of creating value for our customers. Overall, because of that strategy, we expect the hosting costs to be dramatically less costly and deployment to be much faster because of one simple user interface And many, many other things that we touched upon on our client forum. Much more importantly, because we build it as a real platform, the cost of add-ons is almost insignificant. So when we build and we announce and open up our app store later by the end of the year, and we bring more and more apps in the coming years, the cost of adding them is very small to us, but the value of accessing the network effect in our ecosystem is very considerable to all parties' concerns. So we believe that we're going to see very high margin revenue stream And much greater stickiness. There is a reciprocity between the diversity of options and the stickiness and the value that you bring to your clients. But these are all wins that we don't necessarily participate in. We are basically leveraging other people's innovation in order to create that network effect that we expected.

Great, thanks. And just maybe one last follow-up. Just, you know, going back to the revenue recognized per visit behavioral health, clearly benefiting from a mixed shift there.

Can you maybe give us some commentary on the pricing on some of the other kind of layers in that model? Thank you. We haven't gone to that level. I mean, we have some per transaction that, you know, can get as high as this was in our S1, $800.00. And then we have the lower urgent care price per visit. So the average, we said for the full year, was going to be in the low 80s. It got there pretty quickly in the first quarter. Last year, the average was $73.50.

Operator, do we have our next question?

Thank you. We have our next question coming from the line of David Larson with BTID. Your line is open.

Hi. Can you please talk a little bit about the 20% growth in revenue that would have occurred excluding those two customers that rolled off because of M&A? Where is that growth coming from, especially with regards to new client wins? Are you winning on the health plan side or the hospital side? Or is it coming mainly from incels into existing health plan customers? Are you getting more members? or is it really the visit volumes where you're generating a fee? Any additional color around that growth would be very helpful. Thank you.

It's pretty evenly mixed, Dave, and hello, by all those different areas. I would say the new logos are being a little bit paused because they now have a more evolved, crystallized, expanded view of what they want the platform to be. And they know that this is now not an insignificant decision for their you know, for their organization. So, you know, having the partnership with Cerner is helping on that end. And, you know, we see actually an enlarged opportunity on the health system side. The health plan side is, yes, it's whipping across the member base, you know, and that's where the expansion is there, as well as introducing new modules and programs or programs on the health plan side, given, you know, it's in the beginning of the year. And then in terms of You know, the mix, it's those two large customers that, you know, were turned due to M&A that we talked, you know, one at the IPO and then the other at the plan that acquired a telemedicine company. If you back out, you know, those two customers, you know, you get below 20% growth that I quoted in my prepared remarks.

Okay, great. That's very helpful. And then, just regarding using Amwell as a platform, can you talk a little bit about home care? I was intrigued by your relationship with Tidal Care. Do you have any relationships with home health companies where you could send nurses into the home and deliver a med and offer a complete solution that would effectively compete with Amazon? Thanks.

Yeah, again, we are enabling others. We are not bringing our own solution and then recommending it to the market. That's a very important differentiator between us and other telehealth players. You're absolutely right. Home care is an incredibly important area. And players in the area, some of them are using Amwell, and hopefully many of them will use that Amwell also in the future. What we bring is the integration, because in home care, you need it more than ever. You want to connect to your payer. You want to be in contact with Gaps in Care with your employer. And of course, you want to connect to devices, and you want to connect to different type of providers and so on, and a different type of systems for continuity of care. And the full spectrum of care, home care is all about chronic care. It's not about urgent care or primary care necessarily alone. And we check all those boxes. So we believe that as home care as a trend is going to be much more prevalent, as I certainly believe that, you're going to see those systems definitely connect to the Amol platform and through the platform to the rest of the participants that are very relevant in the home care. Title is a great example of that. So we don't say to our clients, you know, use TITO, although we resell TITO, but we don't necessarily say that's the only device that you should use. But the plan is to really allow you to choose from a great variety of different devices, different programs, and really customize what you need when you need it.

Great. Thanks very much. Appreciate it.

Thank you. We have our next question coming from the line of Donald Hooker with KeyBank. Your line is open.

Great. Good evening. Thank you. Just with regards to the, I guess, the step up in R&D expenses as we go through the year, how do we think about modeling that sort of stepping down potentially in 2022? It sounds like you're doing this program OS with Google Cloud next year. Is that going to keep – can you update us with regards to what R&D expenses might look like longer term?

Sure.

So, yeah. So, everything we said in our client forum is going to be delivered in way of R&D this year. So, all that expense is going to be delivered this year. However, then obviously we expect the R&D cost to normalize. We are a technology company and we may invest in new opportunities as they emerge, but they will be connected to new revenue streams associated with them. Every part of what we discussed on the call and in our client forum is going to materialize in this year's plan, normalizing early next year. Keith, I'm sorry for taking you apart.

No, no, it's the spend that, you know, for the entire year is going to be similar to the percentage of revenue that we experienced in Q4 of last year. And then the program will be complete or the project will be complete, and it's going to go back to a more normalized level in 2022. Okay, got you. And just to be clear, a more normalized level would be, I'm just looking back, is there a particular reference period, I guess, pre-first half of 2020, perhaps? What is a more normalized level? You know, where it was, you know, at the end of 2019. Okay, super. So that's great. And then maybe just one last one for me. I was very intrigued by sort of the natural language, the Google sort of language translation app or whatever you call it. It's very interesting. It does seem like that would open up international opportunities. Can you update us on your ambitions there? Any incremental comments on the obviously large opportunity internationally? So I'd love to hear a couple points on that.

Sure. So your question includes a number of components. You talked about our relationship with Google. I'd like maybe to make a comment there first. We are beginning to see evidence of our partnership with Google becoming incredibly important for Amwell. So the app that Google launched, and we were very thrilled that they were the first official app to launch on AMO, hopefully with many, many more to follow, is a very important app. I'll talk about it in a second. So the technology collaboration is really working, and there is not more where that came from. The sales is beginning to work. We are on the Google Marketplace. We signed all the required agreements, and our sales force is working together, and we actually started to sell in earnest, which is great. The third component is we are beginning to leverage some of the benefits of working with Google Cloud itself, and that has a favorite hosting cost and margin contributions for us as well. So that's really important. So Converge is designed, as I said, as a global platform from the get-go. It's designed to work anywhere. As you probably know, we already have a very successful deployment in Israel on our current platform, which is not Converge. But the whole point of Ammon in general as an enabler is true anywhere. It's not only true in the United States, and we definitely plan to expand. And, of course, the Google relationship is very relevant. But we have other partners like Cerner that operate internationally, not even to mention people like Allianz, Philips, and others that also have global presence. So we are going to leverage our relationship to go beyond the United States. And we believe that our investment will converge, and things like the Google Apps that we described will really help. As you know, we have a JV together with Cleveland Clinic, for example, that has a really broad audience and some international clients. And for clients like that, the ability to have real-time caption and translation in medical grade is a very big deal. We all know what's happening in India these days. And imagine how helpful it would be where providers in countries that are less effective could potentially chip in and help. And not talking about regulations right now, things of that nature, there is a way to go there as well. But in world technology, that's an enablement that is very important. So we definitely plan to be active on all those fronts.

Don, I just want to make sure you got my answer correctly. It's, you know, look to Q4 of 2019 as a percentage of revenue. Obviously, we're not going to go down to the R&D level that we had in 19. We're a bigger company, but on a percentage of revenue basis. On a percentage. You know, that's what we're looking for, you know, next year. Super. Thanks so much. Thanks, Don.

We have our next question coming from the line of Ryan McDonald. We need him. Your line is open.

Hi, good afternoon. Thanks for taking my question.

You know, you talked about in the prepared remarks about the opportunity for monetization of Converge partially through the apps that will be developed on the platform once the marketplace launches. I know you mentioned there's already a few apps already out there, but I guess I'd be curious to understand from the client form what sort of interest you've seen from the development community to build out that potential pipeline of additional apps to come onto the platform and how quickly you think you might be able to start monetizing that. Thanks.

Sure. So the interest is very strong. It came from all over. It came from small companies that were thrilled to find a shortcut to get to market. It came from large established companies that felt that they have value to add, like Google. And it also came from clients, interestingly enough. Many of our larger clients have big shops of innovation. A lot of what they've done could be very relevant and helpful to the rest of our clients. So there are two aspects to apps and programs, the program OS. One is the technology aspect. You can use APIs. You don't need to write yourself codes for real-time eligibility codes or integrate with multiple EMRs or do many other things that we're doing because we already do that and you can use our APIs. The other one, which is equally important, maybe more important, is the ability to interact with the ecosystem that we built. So you are already integrated. It's much easier to add a component than to go retail and try to sell to a CIO yet another service that does something that is fairly new. The general direction of this is that there is value in both the technology that we provide to innovators and the access that we provide to an ecosystem that took us many years and lots of resources to build. And as I said in my remarks, we're going to give you more details about the way that we are going to enable it financial business standpoint later in the year it's also based on dialogue that we are having with different innovators and with ecosystem clients so we can form a a view on something that is very comprehensible very simple to to understand for for everybody and very reproducible and that's fairly new to us we're learning okay

Excellent. And as a follow-up for Keith, you had mentioned, I think, to one of the previous questions on new logos, a bit of pause there based on some crystallized sort of vision of what they wanted to do. Were you seeing any instances of potential pent-up demand as customers were waiting or prospective customers were waiting for the launch of Converge?

And any chance that that gets released as we look at, you know, through the radar here? Thanks.

Yes, I mean, we won a large mid-Atlantic blue, you know, that was a competitive takeaway because of, you know, the functionality of our platform and the partnership, you know, aspects of our business. So they were waiting, you know, they knew that we were rolling this out, and, you know, that was a great win.

You know, our clients are genuinely excited. And they can do now many more things that they were waiting to do. I would not call it a pause. I would call it just taking a serious look at what's possible and planning a deployment program that was just unthinkable before. So overall, I think that we're going to be able to offer Converge to many larger audiences going forward. But when you put in front of a kid with lots of toys on the table, there is an element of choice that takes a little longer to realize.

Understood. Thank you for taking my questions.

Thanks, Ryan.

Thank you. We have our next question coming from the line of Glenn Santangelo with Guggenheim. Your line is open.

Yeah, thanks, and good evening. Thanks for taking the question. Hey, Keith, I just wanted to follow up on something you said in your prepared remarks, and I apologize to make you repeat it, but I thought you were giving us some commentary with respect to 2Q.

I know we talked about the different providers, but did you make some comments about with respect to the revenues in QQ that may look somewhat similar to Q1, or did I mishear that?

No, I was saying that we're going to have a more normalized, you know, revenue profile. So when I think about visits, you know, when you go into the summer, you know, Q2 is normally, you know, somewhat, I guess, flat to Q1. At least that's what we're expecting. you know, services and care points really starts ramping up toward the end of the year. You have less, you know, marketing in Q2. You have the care points being to, you know, starting to, because the capital budgets of the system is starting to be bought, you know, both of those are more back-end weighted. You know, the subscription growth is going to be, you know, continued growth. Right. So when I think about the full-year outlook here, We see that sort of inflection coming in 3Q, and if I heard you correctly, you're saying that's really driven by, you know, the services and the care points starting to kick in. Am I understanding that correctly? And the subscription. So, you know, we're going to have nice growth again, you know, next quarter on that line, but it's – you know i guess more of the stuff coming out of converge more of the modules and programs you know um on being purchased in the expansion within the member bases you know of the plans getting getting even more detailed okay thanks a lot thanks glenn we have our last question coming from the line of david grossman with skiffle their line is open Thank you. You know, most of my questions have been answered, but I wonder if I could just go back to, you know, some of the structural questions about the converged revenue model. When you convert an existing client to converge, does that naturally create a lift in revenue for that client, or does the incremental revenue come from selling incremental modules? And if, in fact, it is selling incremental modules, Can you help scope for us just how many of those modules are really available today for those clients to drive that increment?

Yeah, so basically, as I mentioned, we want to make sure it's an upgrade. You get it. If you're a client of Amel, you get an upgrade to your current platform with Converge, and we try to make it as streamlined as possible. Of course, our clients are all over the place in the way of scope. Some are using very small parts of the functionality, while others are using a big part of it. The average client has lots of room to grow in many areas. So, typical health systems have lots of modules that they didn't buy, that are more likely to buy on Converge because of the reasons that we already discussed. Many health plans are using certain programs that have new programs that they can do on Converge and are likely to buy them. As I mentioned also, because the change in user experience and in many aspects, we expect them to use it more frequently and we expect to use it with more people with bigger audiences. So there are aspects of frequency and volume. There are aspects of scope of use that are likely to drive the revenue growth from our existing clients. Later in 2022, as I mentioned, a lot of that will come not from Amwell, but will come from parties like Google and others that are already developing really interesting solutions on our platform.

I mean, that's one thing. To expand upon that answer even more, you know, we had to justify the elevated R&D spend, you know, for Converge this year. And so, you know, I view it from being CFO and ROI perspective. So, I mean, there's three components that I broke it down when we were explaining it internally into leadership. You know, there's the revenue side, you know, where we do believe it's going to accelerate and steepen the slope of our revenue growth. because, you know, A, they're going to be buying more models and programs, but we're also going to have access to more of the wallet, you know, and the wallet is also going to expand, you know, because we're going to be doing more on the platform. It expands margins. I think we've already talked enough about that, but, you know, it also is opening up a broader inorganic strategy. You know, some of the things we're looking at because of the functionality, because of, You know, the different ways of delivering care virtually, you know, we're looking at some targets that on the previous platform I don't think it would have made as much sense. Now it's actually pretty exciting on the Converge platform. So those are the three ways I look at Converge and, you know, justifying the elevated spend this year. Right. So, thanks. That's actually very helpful insight. So, Keith, so if you think about that, and I think by your own admission, you've got a more heavily back-end weighted year, some of that kill points and some of the other elements you talked about, but also more, you know, kind of modules being purchased under Converge. So, I assume your clients are sharing some of their plans with you, and you know what you have in developments. So how much visibility do you have at this point, you know, on the back half of the year, if you could at least share some of the, you know, whatever visibility you do have? I mean, like we said in our prepared remarks, and we tried to get some insights into the selling season, into the pipeline, you know, they're coming to the table with bigger opportunities, you know, that get us even more excited because, you know, we can take a greater share of that wallet. So while we have the volume of logos, you know, in the pipeline that we are mapping out for the rest of the year, you know, you can see a greater opportunity. You know, the large mid-Atlantic blue that we won that Ido mentioned in his prepared remarks, you know, by having this new platform, we're going to be able to access a greater portion of that wallet, you know, deliver more functionality, more modules and programs or programs, you know, to that customer. So, we're very excited about what we're seeing, you know, because we're seeing the opportunity expand beyond just, you know, the addition of logos. So we are looking for you to see, you know, expanded average contract values, you know, and a portion of our growth coming from that as well as, you know, just the simple addition of logos.

Great. Thanks very much. Thanks, David.

Thank you. There are no more questions on the queue. I will now turn the call back over to the speakers for additional comments.

Well, thank you, everyone, for joining. I know that many of you spent a lot of time with us at the client forum and also discussing our progress. There is a lot to chew on. It's a big change. It's an exciting change. And we are very glad that our vision of many years is coming into fruition. So we look forward to continue the dialogue with you and keep you updated with our progress.

This concludes today's conference call. Thank you for participating. You may now disconnect.