American Well Corporation Class A

My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the MLQ2 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your touchtone keypad. If you'd like to withdraw your question, press star one once again. We ask that you please limit yourself to one question. I would now like to hand the call over to Sue Dooley, Head of Investor Relations at Amwell. You may begin.

Hello, everyone. Welcome to Amwell's conference call to discuss our second quarter of 2023. This is Sue Dooley of Amwell Investor Relations. Joining me today are Amwell's Chairman and CEO, Dr. Ido Schonberg, and Bob Shepardson, our CFO. Earlier today, we distributed a press release detailing our announcements. This release is posted on our website at investors.aml.com and is also available from normal news sources. This conference call is being webcast live on the IR page of our website where a replay will be archived. Before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the course of this call, we'll make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in our failings with the SEC and actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. With that, I would like to turn the call over to Ido.

Thank you, Sue, and hello, everyone. The second quarter of 2023 was another solid quarter for our company. With most of Converge development behind us, we made progress as we continue migrating health systems and payer migrations are underway. I'm also pleased to announce we added to our list of strategic clients on Converge, further validating our approach to the market. We are also putting important pieces in place as we work to reaccelerate our bookings momentum. I would like to go into some more details on the highlights of Q2 before discussing what we are seeing in the markets. Then, Bob will cover our financial results. During Q2, we maintained a steady pace of client migrations. Visits on Converge rose to 43% of total visits in Q2, up from 36% last quarter. We also successfully executed on the migration of Intermountain Health. a major driver of this metric during Q2. A few other examples of these successful migrations and implementations include Northern Arizona Health and Cahuera Health in California. I'm proud of our teams who continue to drive successful migrations, and I'm pleased to report that Converge continues to deliver superb levels of availability and value for our clients. I'm also very happy to announce that the highlight of Q2 was the successful launch of a new and very large strategic payer client on Converge. We are proud to be the engine powering their approach to hybrid care. This payer aspired to deliver best-in-class technical success rates for their provider visits. Upon go-live, the client scaled rapidly and their technical success metrics soared. This is a specially valuable example for us because this client demonstrates the power and value of a connective infrastructure platform independent of the traditional urgent care products purchased by payers. In fact, Converge has already delivered efficiencies by propelling a meaningful reduction in the load on the client's own support call center. In addition, meaningful savings are anticipated with our connected platform across the organization, which allows for more accurate and efficient cost share algorithms, better member experience, and back-end process for the strategic clients. We are honored this innovative and leading pair has chosen us as their partner as they adopt a broad spectrum of our capabilities and look to solve important operational priorities in the evolution to true hybrid care delivery and set new standards for the industry. Continuing with GoLives, we had an exciting expansion deployment of our solution aimed at alleviating the nursing shortage at St. Bernard, Virtual nursing is an emerging capability enabled by our solution, which represents a meaningful opportunity for us. With virtual nursing, care teams leverage our TV kits, devices, and our software to monitor multiple rooms, efficiently handle alerts, escalate for fall prevention, and improve the overall patient and care team experience. San Bernard is currently live with virtual nursing rooms across the organization. with a plan to expand to additional hospital facilities and incorporate additional variety of capabilities, including virtual rounding, specialty services, and pharmacy consults. Now I'd like to speak for a moment about our bookings-related activity as we pursue the hybrid care enablement opportunity in front of us. Q2 was a very active quarter for us as we continue to ramp our enterprise solution selling methodology. Dakota was busy with sales engagement across the payer and provider universe, while we also worked to expand our footprint within our existing client base. Our sales team is sowing the seeds to reap the benefits of our new platform. Here are a few examples of our success this quarter. We had a collaborative and creative win with a new client, Wood County Hospital in Ohio. Wood County will post QR codes across their facility and across nearby Bowling Green University campus. These will seamlessly connect staff, patients, and students to automated programs and care teams in times of need for behavioral health services. Demonstrating the potential that exists within our installed base of clients with a sizable expansion win of our behavioral health services, extending our partnership with one of the largest hospital systems in the Southwest. This hospital system manages 16 hospitals and multiple healthcare facilities throughout the state of Oklahoma, setting a great example for others in the region. Finally, we also achieve traction in our efforts to grow our customer footprint in automated virtual care programs. Penn State and Carilion Health are electing to extend the benefit of our automated care programs across their organization. In the past, we've spoken about the powerful benefits of our ED discharge program and our lifesaving pregnancy chats. It's exciting to see these programs apply to a growing number of use cases. For example, in Q2, Penn State expanded to include six more instances of these valuable programs. I'm pleased with how our relationships with these truly innovative organizations are growing beyond trusted telehealth provider to key strategic hybrid care enablement partner. Before discussing the market for our solution, I want to share a couple of successes from our international efforts. Our track record for delivering measurable results is powering partnerships that extend our reach. We leverage our track record across the NHS in the UK to Ireland's HSC, the National Health Service of Ireland. The HSC will roll out access to our digital behavioral health programs nationwide. We also established a new partnership with Discovery Health in South Africa, and we had an important renewal in Australia with Honeysuckle Health. The demonstrated success of our digital behavioral health programs are a big component of these wins. While our sales efforts are focused in the U.S., we are planting the seeds for international expansion with flagship partners, starting in English-speaking countries and leveraging our established presence in Europe and in Israel. We think these wins extend our total addressable market and further validate the large opportunity we are addressing. Now I'd like to take a moment to comment on the environment and our focus on driving growth. Out in the field, my sales conversation and interactions with healthcare leaders continue to underscore their priorities. The strain on budgets in healthcare is real. Improving margins, solving staffing shortages, establishing new sources of revenue, and improving patient experience and outcomes consistently rise to the top of their lists. These priorities require healthcare leaders to rigorously prioritize spending. Increasingly, a key to that involves leveraging technology by evolving to a digital-first approach to hybrid care. In this environment, demonstrated outcomes are essential, and this provides a long-term tailwind for us. These conversations about Converge are leading to more involved, more strategic investigations of how Converge can enhance patient and provider experience and improve operational efficiency. We are finding this new elevated dialogue can also take additional time in the sales process and in some instances influence the timing of bookings commitments. Because of this, our booking performance in H1 was somewhat muted versus our expectations and will impact our full-year results. While these conversations can, in some cases, extend the sales process, they are at the core of our platform approach, and we view them as positive for our business over the long run. As we quickly gain experience selling Converge, and proof points and use cases accumulate, we expect our sales cycles can shorten and become more streamlined. The shift to Converge platform requires changes to a selling approach from a point solution focus sale to an ROI based solution driven methodology, which we believe will result in long term partnerships and high customer value and retention. As we enter the second half, our go to market teams are developing experience rapidly in a very focus on mastering this transformation. The transformation to ROI-based enterprise selling involves upskilling, training, and rapid ramp of marketing programs to position our solution and grow our pipeline. These efforts are well underway. We are also accelerating selling initiatives for our high ROI automated programs and virtual nursing. These solutions are in high demand and help our clients efficiently scale in a labor-constrained environment. In this regard, I'm pleased to say that a highlight of Q2 was the addition of the new leader of our growth organization, Kathy Weiler. We are excited to have Kathy's experience with powerful organizational transformation as we align our team around an ROI-based selling methodology. Kathy brings with her important capabilities and insights from years at United Health Group, Optum, Blue Cross Bushido Massachusetts, and Fidelity. To conclude this discussion of our go-to-market, we are making the necessary moves to ensure our place at the table, transforming our selling approach in order to establish our solution as a must-have in any environment. We are winning the most strategic players in healthcare. We remain steady in our confidence in the business over the long term, bolstered by our strategic customers, successful migrations, and case examples. Meanwhile, the industry is taking notice of our solution, and I want to share a few examples. Demonstrating Amul's robust offering in the digital behavioral health space, in May, Amul ranked highest In Avia's Marketplace's Top Digital Behavioral Health Companies report, the report speaks to how our automated programs help health systems alleviate strains on teams. It describes our ability to empower cost-effective, proactive, accessible care to underserved populations and hesitant patients. It also praises Amol Psychiatric Care's comprehensive and evidence-based digital mental health content. In June, our automated programs were recognized. The Journal of Diabetes Science and Technology published an article on the efficacy of diabetes education chatbot pilot. Authored by a client, MedStar Health, the article highlights how our program drove an increase in self-care confidence for patients and a 13% reduction of A1C, higher than the control group. Continuing with success stories, our popular webinar series, Doing Well, featured a compelling example from El Camino Health. This innovative health system chose Amel for its on-demand virtual care platform in 2019. They launched automated programs shortly after that, and they were our first client migrated to Converge. El Camino has big plans to be at the forefront of digital care, and they are a great example of a land and expense story for us. In a highlight of his webinar, El Camino reported that 92% of patients said respiratory automated chats made them feel more confident managing their health. Before wrapping up, I want to comment briefly on the current dialogue around artificial intelligence and its implications in healthcare and for Armwell. We believe this conversation is lifting awareness and acceptance for hybrid care overall and will be a tailwind for our growth. AI-related technologies are advancing quickly. Converge is built to allow for integration of AI with trusted providers, both in person and virtual. We enable the future-ready engine to connect and empower healthcare organizations and innovators as healthcare adapts to an artificial intelligence world. We believe Amwell is uniquely positioned to accelerate AI adoption and value creation. This is because both native and third-party applications of AI can be embedded in and associated with Converge thus enabling trusted, existing healthcare connections. An example of this is a patient who has regular interactions with their doctor via a platform and will begin to benefit from AI-powered follow-ups on behalf of their doctor between live visits. At Amwell, we believe AI and hybrid care will amplify our hybrid care platform, which is designed to extend and augment rather than replace care teams and drive improvements in patient and staff experience, as well as operational efficiency and outcomes. However, as we evolve to hybrid care and integrate with automated programs, it is crucial that we ensure patient and provider confidence in these tools. I think that tonight we've given some examples that demonstrate we are doing that today. In closing, hybrid care is rapidly becoming the main highway forward, but the journey is complex. Clients looking to address technological fragmentation and move beyond a build-it-yourself approach are seeing the light. We are adapting our selling methodology rapidly. With our unique combination of technology, services, and client experience, we believe Amwell is ideally suited to be the one-stop shop where our clients can access the benefits of the digital care transformation. With that as context, I would like to turn the call over to Bob to review our Q2 financials, some key metrics, and our guidance. Bob?

Thank you, Ido, and hello, everyone. Overall, we are encouraged by progress in our business with important customer validation of our new platform, many successful migrations, and strong customer feedback. I do want to take a moment to comment that many of our metrics and results are being impacted to a degree by churn of customers on our legacy platform that we previously anticipated. With that as context, I'll start with a review of our operating metrics, then turn to financial results for the second quarter and our revised guidance for the year. We ended the second quarter with 106,000 active providers, representing growth of 5% compared to a year ago. This represents a 2% decline from last quarter, as during re-platforming efforts, temporary declines can occur. We continue to view active providers as an important indicator of the sustained value our clients see in our platform, and we anticipate that our number of active providers will continue to increase as we migrate existing and implement new clients onto our Converge platform. Total visits were approximately 1.5 million in the second quarter, down 4%, over last year. Scheduled visits represented 69% of total visits in line with our experience over the last few years. We believe total visits declined year over year due to a combination of factors. First, we saw some impact of declines on the legacy platform. And second, we believe we are returning to a more typical seasonality and visit volume, which was less prominent during the pandemic. We continue to make steady progress successfully migrating our clients to the new platform. In Q2, successful migrations drove visits on Converge for the quarter to 43%, up from 36% in the first quarter of 23. As we look toward the remainder of this year, we intend to complete migrations for the majority of our provider customers, and this should drive visits on Converge to over 50% by year end. And as Ido said, payer migrations have begun. Given payer visits are tied to the enrollment cycle at year end, We expect to see payer-related visits transition to Converge next year. And now onto our financial results. Total revenue was $62 million for the quarter, down slightly from a year ago and also from last quarter. Subscription revenue was $28 million in the second quarter, slightly down from the first quarter, reflecting churn associated with our legacy platforms. Customer experience on Converge is excellent, and we expect this revenue headwind to lessen as we successfully migrate the balance of our customers onto Converge in the quarters to come. Moving to visits, in the second quarter, AMG visit revenue trended 6% lower than last year and was $28 million. AMG visits declined 3% versus the second quarter of 22, with average revenue per visit $3 lower at $77 due primarily to a higher urgent care visit mix. Based on our experience so far this year, we believe 2023 visits are looking more in line with historical seasonal patterns than the period between 2020 and 2022. Our services and care points revenue was $6.3 million for the quarter, which represents an increase of $3.6 million from last quarter driven primarily by professional services revenue we earned as we implemented strategic clients onto Converge. These revenues are lumpy from quarter to quarter due to customer buying patterns for care points, as well as the timing of professional services that precede deployments. As we have discussed on prior calls, professional services revenue highlight the strategic long-term nature of our client relationships and the ROI they see in deploying our platform. They are also a leading indicator of the long-term increase in activity we expect to see on Converge. Turning to profitability, our second quarter gross profit margin declined to 38.8% from 39.5% last quarter and 43.4% last year. Gross margin was negatively impacted this quarter by lower subscription revenue versus the prior periods and higher clinician onboarding costs in advance of new clients reaching run rate volumes in our Amwell psychiatric care business. Turning to operating expenses, R&D expense was flat versus last quarter at $25.8 million and was $32.9 million after adjusting for $7.1 million of capitalized software costs. As we have discussed, we believe that the fourth quarter of 2022 represented our peak R&D spend And given our progress in delivering Converge, we expect that R&D spend will decline in the second half of this year, ending the year down mid-20% compared to Q4's peak. We also expect the capitalization of software costs to be minimal in the second half of this year. Sales and marketing spend declined 5%, and G&A expense was flat this quarter compared to last quarter. We expect SG&A to decline approximately 10% in the second half versus the first half of 2023, primarily due to lower stock-based compensation expense. Adjusted EBITDA for the quarter was negative $45.3 million flat to last quarter. Also, we recorded a non-cash goodwill impairment as a result of the decline in our market capitalization as compared to the carrying value of our equity as of June 30, 2023. We estimated the fair value of our equity based on our market cap and a related control premium. As a result of this interim quantitative impairment assessment, we recorded a $27 million non-cash goodwill impairment charge. Transitioning to the balance sheet, we ended the quarter with $459 million of cash in marketable securities. We have a substantial cash position, which provides the resources to fund this temporary period of investing, as well as flexibility to pursue strategic opportunities that are aligned with our financial and strategic goals. Turning now to our outlook, we are updating our 2023 financial guidance based on some near-term dynamics we are facing relating to our ongoing replatforming. In subscriptions, we are transitioning the structure of our growth organization and expanding our dialogue with partners and clients to fit our new and different opportunity set with Converge. The ramp up and optimization of this process had some temporary impact on the timing of new sales and existing client expansion in the first half. In visits, we had some churn and implementation delays in the second quarter that will impact our animal psychiatric care business in the second half. As we build our APC business beyond our traditional geographies, we find implementation durations that are slightly extended as we hire and work with our clients to acquire the necessary licensing and credentialing for APC's clinicians to deliver services in these states. Given these changes, we are revising our guidance for annual revenues to a range of $257 to $263 million. To provide additional color for the second half, we expect subscription revenue will be mid-single digits percent higher than in the first half. For visit revenue, we are tightening our paid visits estimate for the year to a range of one spot 525 million to one spot 575 million visits and expect revenue per visit will be approximately the same as it was in 2022. We further expect our adjusted EBITDA for the year to be in the range of negative 165 to negative $160 million. Although we are facing some near-term headwinds associated with replatforming, we remain confident in the elements of our long-term model and our path to cash flow breakeven bolstered by the following elements. We have clear visibility to steadily normalizing our R&D spend with much of converged development behind us. Our solution is providing best-in-class reliability and performance and is resonating in the market with our clients. We are applying our learnings in the market rapidly. We believe we are taking the steps to accelerate our deal velocity and drive our overall efficiency win bookings with existing and new customers, and grow our high margin subscription software revenue. With Converge commercial in the market, our sales transformation well underway, and a more informed view of our longer term cost structure, we estimate we can reach profitability at a level of circa $400 million, significantly lower than our early 2022 estimate of $500 million. Thank you for listening. With that, I'd like to turn the call back to Ido for some closing remarks. Ido?

Thank you, Bob. With Q2 behind us, we are focused on execution in Q3 and beyond. As we think about the next few quarters, while our growth may be temporarily moderated in the near term, we are taking the right step to secure long-term success. Looking ahead, we will continue to work to build our market momentum, execute well in our sales transformation, and drive expansions and new customer wins while continuing with successful client migrations. It's still early days for our industry as we evolve towards hybrid care delivery. We are driven every day to enable our clients to evolve their approach to hybrid care as we pursue our mission and achieve the potential of our long-term model. With that, we are ready to conclude our formal remarks. Thank you for listening today. Operator, we are ready to open the line for questions. Thank you.

Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And ask that everyone please limit yourself to one question. We'll pause for just a moment. We'll take our first question from Craig Hettenbach with Morgan Stanley. Your line is now open.

Yes, thank you. First question for Bob on your last comments there about bringing the break-even revenue down to $400 million. In addition to things that you're going to do on the R&D side that will roll off, can you just maybe talk about some of the levers that you have to reach that break-even mark?

Thanks, Craig. Happy to. So with about approaching 50% of visits on Converge at this point, We've got real-world experience versus our early 22 assumptions behind the path to profitability framework that we put out at that time. We know more, we have better data, and the product is highly successful. The buckets of savings relative to them are really around R&D, as you highlighted, but also product delivery and sales efficiency. We've got a lot of conviction around lower levels of around run rate R&D, and do see potential for absolute declines in SG&A between, you know, from today's levels. And those efficiencies are really driven by better sales efficiency.

Got it. And then just to follow up, when we think about the replatforming and some of the push out and bookings this year, you talked about kind of a shift in the sales focus to the new sale here. Any thoughts there in terms of proof points into the back half of this year or early next year, what you'll be looking to kind of underpin an acceleration that you eventually expect in bookings?

Sure. You know, I think a couple of things there, Craig. One, you'll hear us, I think, talk a lot about, probably in the Q&A today, but also in some of the prepared remarks, the importance of migrations. And so as we are able to migrate our existing clients onto the Converge platform, a lot of good things happen. One, the headwinds from churn significantly abate because churn is really all related to the legacy platforms and dissatisfaction historically with how those performed and clients not wanting to wait around. As we get those clients migrated, and we've done, I think, a really good job on the health system side, and as Zito talked about, health plans are now underway. We'll be in a position to, you know, early next year, probably show some really nice numbers around that. That allows us, again, to have a lot lower headwinds on the churn side, but also a much broader addressable market to upsell. And so the second half, I think one of the most important things we can do is continue aggressively in migrating the balance of our health system customers and our largest health plan customers as well. So that I think is probably the most important thing we can do. The other things that Edo can probably add to along our go-to-market transformation. And that's well underway. We feel really good about the progress we've made there. And so that, we expect, will have a very positive impact in the second half versus the first half on bringing in some of these shorter cycle bookings. But I don't know if you want to add to that.

Well, I think you covered it, Bob. I would just suggest that the growth organization transformation is very, very significant. In the past couple of years, we really focused on imagining the best hybrid care enablement platform we could imagine and then went ahead and focused on disruptive innovation. As we look into now in the next couple of years, it's all about profitable delivery. And as Bob mentioned, while we have data that allows us to be very confident about reducing and concluding a very large R&D expense, we are now focused on touching the other parts of the organization. The growth organization transformation includes such as really every part of the org, including new positioning, packaging, pricing, and messaging. We did a very big effort in the past few months of upskilling our client-facing teams. We did some great hires starting from the top. New training for everyone to move from point service solution to an ROI-driven solution sales. The dialogue with our channel partners and clients has changed dramatically. It's not much broader, more strategic. And we look to a new level of rigor as we build reproducible an efficient engine to send and extend Converge with a goal to improve sale efficiency, deal velocity, and deal size while focusing on profitability, mostly by improving the mix and contribution of the subscription. So continuing the migration and concluding the growth organization transformation coupled with the accumulation of very powerful validations and proof points are all going to be the hallmark of what you can expect between now and the end of the year. And we fully see ourselves starting the new year from a completely different standpoint.

Got it. Thank you.

Next, we'll go to Ryan McDonald with Needham & Company. Your line is now open.

Hey, thanks for taking the question. This is Matt Shea on for Ryan. Wanted to start off with some of the churn commentary and try and unpack that a little bit. Are you guys still seeing this churn contained to kind of the lower end of the market with some of your small business clients? Or has that bubbled up to any of your larger clients? And relative to kind of expectations, is churn in line with what you had been expecting or Has there been any changes that resulted in maybe some lower subscription expectations in the back half of the year?

So a few data points, Matt. One, all our strategics are with us, and we added a couple, as you know, from our recent announcement. In addition to that, the low-end turn that we saw was exclusive to Legacy. And we may have seen also some mid-level churn as we approach the last innings of the migration. It's important to note that there is zero churn in Converge. In fact, there is renewed commitment by so many of our customers existing and new to Converge. With our announcement this evening, we are looking to cover most of the covered lives. I mean, a big part of the covered lives in the United States is committed to converge. Bob, I don't know if you have anything to add.

Yeah, Matt, I would say the churn is coming in and around the levels that we expected in our guidance. There really isn't a meaningful change there, so it's not a churn-driven re-guide here as much as just delays around some quicker twitch revenues that we had anticipated coming in and those are pushed out a bit. So while churn is a word that probably comes through a lot in our prepared remarks, the level of revenue impact from that

is in and around the levels that uh that we had anticipated okay that's helpful appreciate that and then maybe digging in on some of the go-to-market changes picking up on craig's question i was interested to hear you guys mention pricing as something that's part of the part of the changes in the growth organization so understanding that existing clients are getting the new converge platform for free i'm curious with your newer clients and some of this new pricing initiative that you have, if you're able to raise the price relative to what the legacy platform was and whether you're seeing pricing power at that offering and that clients are kind of understanding that higher price relative to the greater value that Converge is driving. Thanks.

Yeah, it's a good question, Matt. So in essence, Converge is very, very different from our legacy solutions. uh it's different in its impact and its value and therefore it deserves a different look as it relates to pricing in addition to that converge is modular so while you can do pretty much everything you've done with a legacy platform with converge there are many many new things you can do in converge that was not were not possible before in the market today people are very value focused and oriented, and our new architecture allows us to allow people to buy what they need today, but still being future-proof as it relates to and able to grow with us as their needs evolve over time. The fact that we have some stats or observations that relate to the new platform in way of customer feedback and other things, which I'm happy to elaborate on, We actually believe that our pricing power has grown significantly. Just to give you a few observations that could be interesting, the system availability is really the highest possible we can ever aspire to. Very unusual when you don't . The consumer ratings and even more importantly, the provider ratings are at record levels. They are super high also in absolute numbers. the support tickets per interaction are extremely low, much, much lower than our legacy platform. That really reflects the robustness and simplicity of the new platform. And the NPS is skyrocketing. It's much, much higher. It's actually our highest ever. And in our opinion, based on what we know, it's much higher than where the competition is. There are lots of green shoots. There are lots of proof points coming from all directions. Converge is a platform that can impact organizations in so many ways. And all that is adding to our perception to existing and new clients that also relate to your question as to pricing power. I would just end by saying that when you see the size of ecosystem that is already committed to Converge, that too is a very important buying factor and strength source for us. The largest, most sophisticated organizations are choosing Converge. That means that if you are, for example, a provider or an innovator and you want to interact through them or with them, you need to do that through Converge.

and that of course is strengthening our position next we'll go to jack wallace with guggenheim securities your line is now open hey thanks for taking my questions just want to drill in a little bit more on the new business environment and maybe ask the questions from a different angle you know with About 50% of volumes getting to be on the Converge platform by the end of the year. Migrations were taking place earlier in the year, being completed earlier in the year for the early adopters. Are you seeing any changes in the lag time between migration to then considering incremental use cases, modules, expansions, etc.? ? you know, in that timeline that wouldn't necessarily be related to, say, market dynamics or budget pressures, but more related to their experience with the platform and understanding of its incremental capabilities. Thank you.

Sure. So it's important to note that the rollout of Converge was unequal, asymmetrical, right? We started with a low-end Converge, Then we went to providers in the lower end of providers and so on and so forth. And now we are reaching the point where we are basically covering everyone, including the payers. And that is influencing the same story growth and experience. Having said that, I gave today in my prepared remark quite a few examples of expansions. We see a lot of those. We think that things that increase efficiency in this climate are very, very popular. Things that change the ratio between providers and the number of patients that they can address. So less humans and more automation. Longitudinal programs. Virtual nursing is very popular in way of examples. Behavioral health seems to be very much in high demand. So all those things top the list in the way of expansion opportunity. We also begin to see changes in tier size. So volumes are growing very nicely with the convergence probably relates to the experience and the fact that it's more easily and deeply integrated. with existing workflow. We think all these trends are going to increase quite significantly over the next few quarters as more and larger clients are migrating in a much higher scale.

That's really helpful. Thank you. Is there any pushback on some of the price increases? What I mean by that is during the you know, the elevated dialogue process, the, you know, the demonstration of value. Is there a pushback in price or is it really, you know, there's, as customers are looking at the incremental capabilities and considering them, is price a secondary factor and it's really a, hey, what kind of value can you demonstrate? And you're sure we'll consider paying a little bit more for it, but we're really curious about the fuller extent of the platform.

So we are certainly in a price conscious environment. People are very careful as it relates to expenditure. And they really want to make sure that they invest in things that have a clear ROI that is not so distanced and is very, very likely. The modularity of Converge allows us to allow our clients to take measure risk. as they choose the components that they believe are most middle-moving for them, get confident, prove the ROI, and then expand. We couldn't really do that before. We try to price every component of Converge realistically in a way that is fair and in line with general market reality. Unlike others, we have lots of components to choose from. So while we are competitive and realistic as it relates to every standalone solution, we are unique in our ability to offer end-to-end one-stop shop experience for customers that are all integrated into one code base. A lot of our buyers are now CIOs that are charged with integration, the fact that you have a singular reproducible experience that is designed to integrate with a lot of moving pieces is a hallmark and strength that we bring to the table that is saving and creating a lot of efficiency for our customers, and we think that's not really a loss of them. So on the one hand, we have very robust, very comprehensive offering for very large strategic customers. On the other hand, we have very focused, dedicated, fairly priced options for people that want to keep their toe in the water and are very risk-averse. And we are getting them to adopt our technology quite quickly and grow from there in a reliable fashion.

That's helpful. Thank you.

Okay. Thank you. Next we'll go to Jalindra Singh with Truist Securities. Your line is now open.

Hi, this is Jenny. I'm for Jalindra, Jenny Chow. Can you speak about more specifically the customer renewal trends you have been seeing from both the health system side and health plan side as these contracts are coming up for renewal? How are those conversations evolving? Are you seeing some of your customers willing to restructure the contract in some ways, or is it still more or less status quo on the approach?

So, thank you, Jenny.

We've seen quite a few renewals. The most prominent one we announced in our last earning call is it relates to Elevance. That was a giant vote of confidence, and we are so proud. that they committed to converge. There are many other examples, quite a few of them I mentioned in this call and in previous calls. As I mentioned earlier, when you upgrade, when you migrate to converge within your term, you don't pay an additional extra, but when you want more functionality, you do. And when we renew the contract, we are moving people to the new contract structure. The pricing in way of apples to apples is very similar. However, there is a very big opportunity to expand and choose other components. There is much more flexibility and elasticity that is offered for customers today, really also as it relates to the previous call. So we believe that we are positioned generally in the market in a similar place that we were positioned before in way of a headline, but we are able to offer much more flexibility and options for customers, both on the downside or on the upside, depending on their level of appetite and risk.

Thank you, Adam. Thank you.

Okay. Next we'll go to Sam Bernstein with Wells Fargo Securities. Your line is now open.

Hi, thanks for taking my questions. And I guess I'd like to ask, if I recall correctly, I think historically non-AMG visit volumes were a component within subscription revenue. Is that still the case post-migration onto Converge? And to the extent that it is, with visit volumes moderating, has that been a headwind to subscription revenue growth? Thanks.

So, that's a very interesting question, Simon. Thank you for bringing it up.

So, essentially, the general structure where you have a component of fixed non-AMG visits included in your provider subscription is maintained. Also, into Converge, when you pierce it, obviously, you pay more. The utilization pattern, however, has changed dramatically. You are absolutely right to note that post-COVID, obviously, the market has seen a decline in telehealth in general. However, Converge is much broader than telehealth with a healthy dose of automation and many other types of interactions. But even more importantly, the pattern of utilization that we saw during COVID and even before was related to telehealth as an alternative to the main pathway of care. So when you look at the patterns, our best times were the weekends and holidays. The pattern with Converge is entirely 180 degrees reverse. Our best times are weekdays. We see plunges in weekends and the holidays, which demonstrates the fact that Converge has become part of the day job, part of the main pathway of care for our provider organizations. And in fact, when you count interaction, we'd see an overall bigger touch of patients, although it's not always done through traditional video visits. There are many other modalities, asynchronous communication, automated care, and many other examples that can be used with a full hybrid care enablement platform. Even physical care enablement is a component of what we offer today. I would suggest, in summary, that our role as an enabling of a digital first experience has become much more meaningful. If it was somewhat of a sideshow before, a convenient alternative to care, it's becoming very quickly the main pathway, the main way that people interact with healthcare. And of course, it covers the full spectrum, not only urgent care, but anything from prevention all the way to catastrophic care, including chronic illness management, not only video visits, but also asynchronous care, automated care, and physical care that are all enabled by our platform. And the overall magnitude of the traffic is increasing, and we fully expect it to continue to increase over the next few years. Got it. Thank you.

Next, we'll go to Glenn Santangelo with Jefferies. Your line is now open.

Yeah, thanks and good evening. Hey, I just wanted to ask about the transition timeline. I think in the past you said that you'd hope to have, you know, all the health systems, you know, transitioned over by the end of 23 and that the payers would mostly convert in 24. Is that timeline still the right way to think about it? And should we assume that you won't be able to sunset the legacy platform and realize those gross margin savings until the last person is transitioned or last customer rather?

Yes and no. So to the first part, yes to the first part and no to the last part.

The first part is pretty accurate. I mean, we fully expect the lion's share of our provider customers to be on Converge by the end of the year. Of course, there could be some outliers, but as a trend, you're right. We also have a few payers live. The one that we announced tonight with no name and, of course, CVS, which has a payer component to it, is already live in production. We have some pairs already live, but we will have a serious uptick of pairs in the first half even of next year. So we fully expect to have the lion's share of our customers as planned on Converge by the end of 24. If we have some laggers, that could happen, but we try to minimize that. The more customers on Converge, it's not binaries. We have enormous savings and efficiency gains as we deploy more of our customers. Of course, the day where the last customer will stop using Converge will be a very happy day and a very efficient day for us. But we are definitely incurring efficiency and velocity and upside with every client that we convert. Bob, I don't know if you have anything to add.

Yeah, Glenn, I would just say you're right. I mean, we really, until we either have everybody migrated or make a decision that we're going to go ahead and just sunset them with a small amount of revenue left, we will not see the cost benefits of those platforms coming off. But we can be in a proactive position We can, in a proactive way, make a decision to do that based on whatever revenue level there is relative to the cost savings that we'd see from doing it. And the timing that you articulated, I think, as Ido said, is pretty close.

Okay, thanks for the comments.

Okay, next we'll go to Charles Rhee with TD Cowan. Your line is now open.

Yeah, thanks. I want to go back to you talked about some churn, you know, nothing out of the ordinary, but tied to this idea of kind of retraining the sales force, you know, to think of it as an ROI platform versus point solutions. Is some of the churn going on because, you know, they're not necessarily recognizing the value prop of moving on to Converge? And, you know, how long do you think this sort of retraining of the the sales force will take where you'll start to see, you know, sort of that opportunity to sort of correct itself. And do you think that might, you know, to an earlier question, it improves sort of the retention of your existing clients?

Sure. So, hi, Charles. A few comments.

First, the CERN legacy happens in every re-platforming. I've done three re-platformings in my history, and they all look pretty similar. We announced a few years ago that we are going to re-platform. Some clients don't care to wait that long. They are unsure what the result would be, and they don't necessarily like new platforms. These are some reasons. I'm sure there are others as well. So we saw some turn there. there's no question that as we deploy Converge and we have more proof points, that changes quite significantly. There's no question that as we transition our sales force, which is very much underway, we're getting much better at articulating the value, working with the client to realize their own business goals and ROI, and doing it with much shorter cycle and much more efficiently. So I want to be very clear. We are well on our way to this process, but we are not done. We are getting better all the time. We definitely believe that within a quarter or two, this efficiency will plateau. There will be a diminishing return. So we are certainly not expecting this to last much, much longer. But the fact that we have so many clients happy and deployed and in production means is enormously valuable for the learning and for the communication that our client-facing team, not only sales, but also account management and even deployment experts and solution experts are able to communicate.

Got it. That's really helpful. One other question I want to touch on, I don't think you touched on this yet, was is around behavioral health, and obviously there's this great demand for access to behavioral health, and particularly through virtual. It's not, in a sense, the way you guys are positioning the market as a platform, but is this a capability that you would think of as an added service to your health system customers, or both, actually, given the scarcity in some regions of qualified therapists? How are you sort of approaching this you know, sort of opportunity that's kind of certainly right now in high demand?

That's a very good question, Charles.

So essentially, we don't see the world anymore as segregated between providers and payers. Essentially, providers and payers are partnering to improve the efficiency and quality of the care. Behavioral health does not only influence behavioral health, but of course influences every other aspect of our health, including chronic illness management, for example. So while you're right to note that our behavioral health solutions are very popular with payers like the NHS in the UK, and we recently announced the government of Ireland is another client, the other very large examples, the need to improve access to behavioral health is very relevant also for many provider customers. To give an example, when you have a very busy year and you don't have a psychiatrist, the ability to beam a psychiatrist and release a bed is very, very helpful for delivery systems. There are many other examples. So essentially and strategically, the big promise of Converge is the single code base. that is uniting all the players, most importantly, pairs and providers, so they can partner to focus on solving really complicated problems like longitudinal behavioral health management in a way that is really allowing a much better distribution between very expensive humans and an envelope of automation.

Got it. And I guess, you know, to that point, you know, can you talk about maybe SilverCloud? I don't think you've touched on that lately. Talk about sort of the uptake and, you know, how well that's being received in the market now since you've had it at this point.

Well, absolutely. Well, we don't talk about SilverCloud anymore. We really talk about Converge as one platform. An important component of Converge is legacy SilverCloud. I guess quite a few examples, even today, as it relates to some really powerful and innovative ways that the legacy Silver Cloud component, which is now part of the Converge offering, is behaving. Maybe just one nice one that people may have missed is Wood County. The fact that you have all around the campus QR codes, and whenever you have a demand for anything, you just point your phone. and immediately you are connected to a slew of behavioral health solutions, makes access to behavioral health so much more streamlined, so much easier. There is a reason why large governmental organizations are choosing Legacy Silver Cloud, and the data is very compelling. I mean, the NHS, came out with stats that are showing that they were able, with legacy Silver Clouds, to change the ratio between behavioral health specialists and consumers six times over. And now we have this capability as part of the Converge offering. So imagine a patient on a juvenile diabetes probe that is in need of behavioral health services. We can really look at the whole person

and share those resources very easily in an integrated sense. Okay, next we'll go to Alan Lutz with Bank of America.

Your line is now open.

Thanks for taking the questions. Ido, so to fully use Converge and get the ROI, workflows need to change. You know, you're talking about hybrid care. You mentioned single code base. and providing longitudinal behavioral health or longitudinal care, that's a lot different than just the basic telemedicine offerings that were being talked about 24, 36 months ago. Are there more people at these health systems, more stakeholders that you need to convince as opposed to just putting in the base product that we were talking about three years ago? Is that what is taking place? longer time period because you need more buy-in across the health system. And I guess as we think about that specifically, is there any way to frame what percent, if any, of your customers sort of have that full ROI-based view at this current point in time, just trying to get a sense of where your customer base is versus where you are? Thanks.

So, Alan, this is Almost not a question. This is a very important observation, and you're absolutely right. The market now is night and day different than it was only two or three years ago. The stakeholders are different because this is a production platform. It's something that you use for everyday service to serve your customers and your ecosystems. So pretty much a lot of the leadership is involved. It is a technology solution. So the technology is very vocal. The CMIO, the CIO of the organization is always involved in this, but it's something that touches all the C-suite of the organization because it has savings element to it, it has differentiation, it has growth element to it, it has a staff retention element to it, it has cost saving in way of claims and things of that nature connected to it. So we find that our customers are very educated today. We find that there are RFT processes that are very structured, that in touch many people, and that does influence the processes. It's not necessarily a negative. We think we have a good match to the new app, and we think that our match is highly differentiated versus other offers, especially as we deploy Converge in a very large scale. Having said all that, a lot of the effort I discuss in the transition of our growth organization is our effort to greatly simplify this journey for ourselves and for our customers, and to really understand patterns of ROI and business ask of our customers so we can check the box much more quickly, build a modular approach that fits a reoccurring cohort with typical segments that are happening again and again so we can make it much simpler and shorter for customers to hit the ground running with our solution. It's not only technology, it's also best practices and other modalities that really create a wide-glove experience for customers that really accelerate their time for ROI, which is the best way to create ambassadorship and endorsement and deal velocity and momentum in the market for us with this new product.

That concludes today's question and answer session. Dr. Schoenberg, I'll turn the call back over to you for any additional or closing remarks.

Well, thank you, everyone, for joining. We had a lot to share. As you can tell, we are very excited about our future, and we really appreciate your support and confidence in Amwell and Converge as we went through this enormous transformation, and we look to be very excited about the future ahead. Thank you so much.

This concludes today's conference call. You may now disconnect.