American Well Corporation Class A

Good day and thank you for standing by. Welcome to the AMWEL Second Quarter 2021 Earnings 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. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Ito Schoenberg, Chairman and CEO of Amel. Thank you. Please go ahead.

Good evening and thank you for joining our earnings call. On our call this evening, I will discuss our 2Q performance and share full year trends, including our 2021 guidance. I will then cover our strategic trajectory as reflected in our recent performance and acquisitions. Finally, I will turn to Keith. to give you more color on our financials, and then we will both open the call for Q&A. The second quarter remains consistent with our plan, with $60 million in revenues. Fifty-five percent came from our technology business and 45 from visits. We were excited to count over 70,000 active providers, significantly higher than we expected, considering 2020 COVID-related one-and-done adjustments. Following the typical seasonal pattern, as we ended the school year and headed into the summer, 1.3 million visits were performed on AMWEL platform in Q2 of 2021, versus 1.6 million the previous quarter. Clients continue to significantly leverage the AMWEL platform to deliver care to their patients, and 75% of all visits this quarter were performed by our clients' own providers. I'm pleased to report that Amwell drove a 600 basis point gross margin improvements to 44%. This was accomplished through a favorable shift to more higher margin technology revenues and a set of efficiency contributors that started to realize, including our migration to Google Cloud, Amwell Medical Group technology improvements, and initial deployments of Amwell Now on Converge. These efficiencies also improved our EBITDA loss to $23 million for the quarter. Our software subscriptions, CarePoint, and technology-related business continue to operate at or better than originally expected. However, the recent emergence of the Delta variant has introduced some uncertainty to our second-half visits outlook. To cover all these demand scenarios, we want to account for a new potential second half possibility in which the Delta variant preventive measures, including masking and social distancing, could significantly reduce the flu season while not adding to actual COVID-related demand. To cover such potential variant-related development, we are adjusting our full year range to 252 to 262 million. Given the earlier discussed efficiencies, we're improving our organic EBITDA guidance by $12 million to negative $154 to $146 million, which on a gap basis includes the $10 million EBITDA burden from the Conversa and SilverCloud acquisitions and the related deferred revenues write-offs. In Q2, we began to deploy Converge in hospitals and delivery networks. 38 Amwell Now clients are already live on Converge, powering 1,300 providers on our new platform. Patient satisfaction rates are high. Clients are seeing significant performance improvement over our legacy platform. For example, video connection speeds on mobile devices are twice as fast on Converge. In another example, a Midwest hospital is using Converge for both ambulatory and inpatient care, and providers are giving high marks for the reliability and simplicity of the new platform. They highlight the intuitive user experience, pre-visit tech checks, and real-time troubleshooting for connectivity issues, all of which they say has enabled patients and providers to focus on care rather than technology. In the second quarter, we also expanded our work with our strategic partners. For example, our products are now sold in the Google Marketplace. Google and Amwell sales teams are co-selling in key accounts. And Google Cloud technologies are built into Converge and will bolster automation, user experience, analytics, and insight. We also accelerated our work with Cerner. a partnership that continues to gain momentum and has led to significant number of new clients choosing Amwell and two strategic Cerner client renewals. These clients span the spectrum from public health systems to academic medical centers to regional centers of excellence across the country. More strategically, we see telehealth transitioning from a digital alternative for an office visit into an independent arm of care delivery. The long-term impact of COVID on telehealth is driven not only by patient uptake, but more so by the volume of physicians who adopted it and will continue to use it. With digital care becoming mainstream, it is possible to expect a technology-assisted presence of healthcare around patients. Such constant presence And companionship cannot be achieved with only clinicians. It can only be achieved at scale using intelligent automation. For this companionship to be adopted as valuable, it must strengthen the cohesion between physical and virtual care, tying into real clinicians of various skill sets as the need arises. There was no such convergence in the market until today. No single integrated platform combining automated conversational companionship, virtual care, and physical care. This is changing with Amwell Converge platform and our recent acquisitions. We are assimilating the components needed for joining digital companionship, live telehealth, and AI know-how with Amwell vast ecosystem of payers and providers to offer an affordable longitudinal healthcare experience. Two weeks ago, we announced two strategic acquisitions. Our 320 million total investment was made via a combination of stock and cash. Both SilverCloud and Conversa feature incredible teams that share our values, culture, and mission. They are both outstanding, high-growth, high-margin technology companies. Both companies are loved by their clients with net retention of nearly 100% and with over 140% annual same-store revenues growth rate. Like us, their purpose is to further enable and not replace existing provider-patient relationships, And like us, they power healthcare's largest, most trusted players. It is easy to understand how Conversa and SilverCloud will directly improve and expand the value and differentiation of our most converged platform. As we already shared, we expect these assets to grow over 100% next year, adding approximately $30 million to our subscription technology business. Conversa brings capabilities to create, run, and manage automated longitudinal programs in Converge. The result is data-driven, highly efficient, always-on, fully integrated navigation and engagement experience. In addition to improving the patient experience and outcome, the Conversa technology can greatly enhance access and utilization of other Converge assets, including SilverCloud. Conversa is trusted by many leaders, including Northwell, UNC Health, and UCSF. We expect to fully embed Conversa in our platform by the end of this year. SilverCloud delivers a range of digital cognitive behavioral health programs that are evidence-based and clinically validated. These programs have shown results equivalent to face-to-face care for patients with diagnosable mental health conditions. Used globally by more than 300 organizations, including Kaiser Permanente, Optum, Providence Health, and over 80% of UK's National Health Service mental health services, Amur will leverage SilverCloud Health's award-winning platform and more than 17 years of clinical research to enrich our own behavioral health offering, as well as to develop new digital specialty care programs. SilverCloud also allows our clients and partners to enhance their own provider services, modules, and programs. Finally, it opens a new base for Armwell with trusted relationships in the UK and Ireland. Both companies enable significant care improvements through automation. Combined, we are now able to offer our clients and partners a single, unique platform that enables hybrid care covering physical, virtual, and automated services. Our open marketplace for apps and programs will allow health innovators to deploy deeply integrated health technology that could improve outcomes across the full continuum of care. We are well positioned to maximize the impact of providers by supporting them continuously before, during, and after the visits, expanding their reach and impact through technology. The result will probably be one of the most advanced and comprehensive digital care delivery enablement platforms to date. It will connect vast array of providers, payers, employers, and innovators as existing and new clients and partners growingly rely on it for powering bigger parts of their business. As we begin to think beyond 2021, we feel that we are better positioned to further improve margins and EBITDA. The growing demand for a high margin, scalable, and highly differentiated technology is fueling this change. With that, I would like to turn to Keith to give you more color on our financial performance.

Thanks, Ido, and thank you, everyone, for joining us on our second quarter call. Well, later in my prepared remarks, I'll unpack our performance this quarter. I want to first provide some insights into the two acquisitions we announced simultaneously two weeks ago. If you recall, we discussed on our first quarter earnings call that the theme of longitudinal care, while a core functional tenant of the Converge platform, is also driving our inorganic strategy in the areas of care coordination, interoperability, device agnostic patient monitoring, and the ability for Anwell to provide programs to manage chronic conditions if the health plan or health system customer does not have their own program. Acquiring these two companies simultaneously was intentional, as Conversa is focused on automation and care coordination, while SilverCloud then delivers lower acuity, CBT-based behavioral health tools to address the situations identified by Conversa. While both of these companies have been wildly successful in their own right, the combination of both of them at the same time on the Converge platform opens up many opportunities for Annwell to further deliver on our core mission, to provide the environment, the platform, and the tools for our customers' own providers to deliver care to their patients or members. While Conversa is mainly automation technology that will broaden Converge's functionality, SilverCloud is a behavioral health tool that, when appropriate, inserts the customer's own providers to treat their patients. Kaiser and their use of SilverCloud is a fantastic example of this dynamic. What is most important about SilverCloud and Conversa is that it highlights the differences of Amwell versus other virtual care companies as we are partnering with the provider and coordinators of care versus competing against them. This enablement theme and function is competitively differentiating and has been a key to our success in the selling season. In terms of financial impact, we acquired SilverCloud for $210 million and Conversa for $110 million, with both transactions paid for with a similar mix of approximately 50-50 cash and stock. Both transactions have additional earnouts based on operational and 2022 GAAP revenue milestones, that upon achievement will be paid for in AMWEL stock. In aggregate, and if operating on a standalone basis, the companies are expected to achieve $15 million in revenue in 2021 and over $30 million in 2022. On a GAAP basis and in terms of contribution to AMWEL, due to significant deferred revenue balances, we expect little to no contribution to our 2021 revenue, but approximately $30 million in 2022. While the deferred revenue write-down is a headwind to 2021 revenue, on a GAAP basis, we still recognize all of the expenses, which are significant, as both companies were building up the infrastructure to support their 100% growth rate. So on a GAAP basis for 2021, we'll absorb an additional $10 million in EBITDA loss related to these acquisitions. Both companies in aggregate are forecasted to achieve 70% gross margins in 2022. 75% of SilverCloud's revenue comes from the UK from notable customers such as the NHS. From a customer-based perspective, the majority of revenue from both companies comes from health systems, which was important to us and typically achieved over 140% net revenue retention. We closed Conversa yesterday and are expecting to close SilverCloud by the end of the month. Now, turning to our second quarter results, we reported total revenue of $60.2 million, an increase of 5% over last quarter, driven mainly by expansion of our technology subscription business. Total subscription revenue in the quarter was $26.8 million, a 9% increase over last quarter, and about a 15% increase compared to the second quarter of last year, if normalized for the two customers lost due to M&A that we previously discussed. The growth is a result of expanded health plan programs and health system modules. While we report average contract values on an annual basis, it's notable that average contract value is now around $700,000 for health plans versus $600,000 in 2020 due to the rapid expansion of programs being conducted through our platform. Total visits conducted this quarter on the annual platform was 1.3 million, and AMG performed 325,000 of these visits. Reiterating what Ido said, in spite of a Q2 and Q3 typical summer slowdown on urgent care visits, which was exacerbated by people experiencing a much-needed COVID passing euphoria, our clients continue to deliver significant care on the platform, and 75% of visits were delivered by our customers and providers. Total visit revenue is $27.5 million this quarter, which is the same level as Q1, despite the summer dynamic. Unpacking the mix, AMG volume continues to shift to higher acuity specialty visits, with the average price per visit rising now to $85 per visit range from the low $80 range in Q1 and $73 per visit on average in 2020. Similar to the first quarter, this increase was also driven by the increase in behavioral health visits, especially higher acuity psychiatry delivered virtually to patients mainly in the hospital. While the number of AMG visits decreased slightly, revenue remained flat as the mixed percentage continued to shift to higher revenue specialty visits versus simple urgent care. As we guided last quarter, services and care points revenue increased to $5.9 million from $5.2 million, and it's on plan as health systems begin to execute their capital plans in earnest in Q2. Gross margin increased over 600 basis points to 44% of revenue versus 38% last quarter. This was partially due to revenue mix shift more weighted to subscription revenue, but also efficiency measures implemented on the services side. Specifically, the efficiency aspects of our partnership with Google being realized, economies of scale and technology process improvements within our AMG business, and early aspects of margin expansion as we begin to migrate clients over onto Converge. Note that in Q3 and Q4, we expect margins to slightly dip versus this quarter as we begin to migrate some of our more complex customers onto Converge, and this will take additional resources to ensure the migration is seamless. But what we are seeing in the business and what we have done operationally and with technology confirms our ability to meet our IPO target margins in the mid-50% range. And with continued mix shift over time, eventually even higher margins, as our subscription business, our core business, is currently operating at above 60% gross margin. But again, that'll take time as AMG business currently represent half of our business. Moving to OpEx, we've also achieved similar efficiencies within company operations. R&D expense in the second quarter was $22.4 million, representing 37% of total revenue, which compared to 40% of revenue in the first quarter for a favorable $600,000. We achieved these efficiencies through better leveraging our strategic partners in the development of Converge and also offshoring some aspects of engineering that we originally thought we'd keep in-house. These changes have been reflected in our favorable adjustments where we revised and narrowed EBITDA guidance that we will discuss later in the call. Sales and marketing spend of $14.8 million is an increase of $1.1 million sequentially versus Q1, but was mainly due to our client forum. Q&A expense in the quarter increased $2.8 million, mainly due to one-time legal and M&A expenses that have been excluded from our adjusted EBITDA calculations. We are reporting an adjusted EBITDA loss of $23.7 million compared to a loss of $26.4 million last quarter. The majority of sequential favorable increase was due to our gross margin expansion, but also successful operational and technology efficiency measures in our operations. We expect R&D and sales and marketing spending to increase over the remainder of the year as converged spending increases and marketing events take place, but at a lower cost versus our original guidance, and thus the favorable revision to adjusted EBITDA. We ended the quarter with $975 million in cash. In terms of active providers, we closed Q2 with 71,000 active providers delivering care on the platform, of which 4,000 were AMG providers. as we touched on in q1 the number of active providers in q2 and the next quarter will decline as those doctors which we added solely to handle the covid spike during the peak of last year will roll off in q2 and q3 and we'll also added a number of providers to the platform when we were doing 40 000 visits in a single day but good for everyone this is now passed and we do not need this level of amg doctors on the platform Since then, we have added more specialists as our visit mix is migrating to that of higher revenue part of our business, and our customers' doctors are delivering more care through their own providers. Regarding our annual guidance, as either discussed, we are now reflecting the impact of how we believe the new Delta COVID variant will affect the flu season. While no one has a crystal ball with COVID and now especially with the Delta variant, our revised guidance range reflects a moderated flu season on the high end and a low flu season on the low end of guidance versus a normal flu season, which we originally assumed when we provided guidance in March. We are confirming original guidance for our technology subscription business as it is operating at or above plan and are also confirming our original guidance for our services and care points business. There is potential for upside in the care points business given the recent CMS announcements regarding grants for health systems. We will update you more on this dynamic on our Q3 call. For visits, we are narrowing and lowering our visit forecast to a range of 1.4 to 1.5 million visits from our original range of 1.5 to 1.7 million visits. This translates to a revised total overall revenue guidance of 252 to 262 million. I want to give you the math for your model so that you can isolate the adjustments solely within your visits line. The top end of our original guidance range was 270 million, and this represented approximately 1.6 million visits. The difference between the top end of the visit ranges, 1.6 declining to 1.5 million visits, is 100,000 visits. And at $80 average revenue per visit equates to a change in about $8 million of total revenue. Thus, we're lowering the top end of our range $8 million, from $270 million to $262 million. A low flu season in our forecast model equates to approximately 1.4 million visits, a further 100,000-visit decrease. So again, using the same math, we are setting the lower end of our revised range at $252 million. In terms of the two M&A transactions contribution to our 2021 results, on a GAAP basis, they're adding little to nothing to our revenue due to the significant deferred revenue write-offs, but will burden EBITDA by $10 million, mainly due to the significant ramp-up of operational expenses in anticipation of supporting their 100% growth in 2022. So in terms of EBITDA, we are favorably increasing and narrowing our organic EBITDA range by 12 million and netted together against the 10 million of EBITDA burden caused by the two M&A deals equals a range of 154 million to 146 million EBITDA loss on a GAAP basis. Said differently, on an organic basis, our revised EBITDA range would be 144 to 136 million EBITDA loss, but on a GAAP basis, combined with the two M&A deals, is 154 to 146 million dollar loss. Next quarter's subscription revenue will be flat to slightly up as specific new logo implementations will hit starting in Q4. Services and care points will sequentially increase double digits each quarter as hospitals continue to execute on their capital spend, and we execute marketing campaigns for those systems and plans. With visits, since we're halfway through the third quarter, we can say that we are seeing specialty visits continue to grow, less so with urgent care visits. In terms of distribution of visit revenue, assume high single digits over Q2 with a balanced majority of growth coming in Q4. As Ido discussed, gross margins are expected to temporarily decline next quarter and in Q4, as we have begun to migrate some more complex clients onto the Converge platform, which will temporarily burden gross margins. In conclusion, we are pleased with another good quarter, especially noting the positive results we are seeing in our gross margins and operational spend. We're pleased to announce our two acquisitions two weeks ago and yesterday closing the Converge acquisitions. We continue to evaluate opportunities to enhance the overall functionality of Converge to deliver full longitudinal and coordinated care and have ample funds to execute on our inorganic strategy. We are happy with the progress of our Converge development and rollout and especially the competitive and operational advantages we are seeing steepen the slope of our growth opportunities and expanding our efficiencies. I'll now turn the call back over to Ida for his closing remarks.