American Well - Earnings Call - Q3 2020

Transcript

Speaker 0

Good afternoon and welcome to AmWell's Third Quarter twenty twenty Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. Leading today's call are Ito Schoenberg, Chairman and Chief Executive Officer and Keith Anderson, Chief Financial Officer.

Ito and Keith will offer their prepared remarks and then they will take your questions. The Amwell press release and webcast link are available on the Investor Relations section of Amwell's website. Please note that we will be discussing certain non GAAP financial measures that we believe are important in evaluating AmWell's performance. Details on the relationship between these non GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is posted on our website. Also, note that certain statements made during this call will be forward looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such forward looking statements are subject to risks, uncertainties and other factors that could cause the results for Amwell to differ materially for those expressed implied in this call. And now I'll turn the call over to Ito Schoenberg, Chairman and CEO of Dunwell. Ito?

Speaker 1

Good evening and thank you for joining our first earnings call as a public company. I want to use this opportunity to thank our new investor partners for your trust and confidence in Ambro. We are thrilled to see so many world class groups participate in our IPO. I also want to thank our long time investor partners for your many years of consistent support and faith in us. Since we last reported on our IPO, we continue to see good momentum as reflected in our third quarter results.

Our third quarter revenue of $63,000,000 increased 80% compared to last year's third quarter. The number of active providers on our platform of 62,000 increased 930% compared to last year's count at the end of the third quarter. We had 1,400,000 visits during Q3, an increase of 450% as compared with 2019. Recognizing that many of you are new to our story, I would like to spend some time talking about our company more generally before we refocus on our recent performance. When Roy and I started Onwell almost a decade and a half ago, it was apparent to us that digital care delivery would transform healthcare.

We continue to believe that the fundamental way that care is delivered is materially changing. This is a profound transformation. It will continue to evolve significantly over the next few years. Care is moving home. Digital technologies are assuring a new hybrid model of care, one that combines physical and digital care.

With far better information about health status and gaps in care providers will be able to craft more personalized, continuous and engaging care plans. New technologies will streamline consumer engagement in healthcare and simplify their interaction with healthcare services, insurers, providers and other participants. Finally, effective last mile interventions will leverage technology and drive much better clinical and financial outcomes. High quality care will become more affordable and accessible to everyone. Even with all these changes, we are confident that the contribution of trusted traditional players, especially providers and payers will remain relevant and necessary even a decade from now.

Our mission is to help realize this vision by connecting and enabling these key players in healthcare namely providers, insurers, patients and innovators to deliver greater access to more affordable higher quality care. Our contribution is in way of offering connectivity. Our technology platform enables the key players to interact in a better way. We do not and will not compete with our clients and partners or seek to replace them. Most importantly, we will strive to strengthen existing patient provider relationships to allow hybrid online and offline connectivity across the full continuum of care.

With our platform, people engage with providers they recognize and trust covering all their healthcare needs. We make special efforts to cater to providers' needs and count the number of active providers using Onmel as a key performance indicator. As more providers from our community use our platform, we can offer more trusted services across more therapeutic areas in a very scalable way. We believe that our platform is unique and valuable. We plan to further expand and enhance our investment in it to offer our clients the most impactful capabilities.

Our clinical and other services are designed to help our clients and partners realize the value of our technology more quickly and easily. As the model of care evolves and increasingly relies on digital connectivity, we expect our revenues from subscriptions to our technology to grow faster than our services. Consequently, we will focus our investments in making our technology even more innovative, valuable and comprehensive. As we offer more capabilities, we also expect our user and client experience to become simpler and easier in every way. A good example to our commitment is our new AnnualNow product that we announced this morning and recently introduced in beta version to our existing clients.

It is increasingly easy to use and allows providers to very quickly connect with their patients with little or no prior training. We are very encouraged by the strong adoption of the beta version. Amel now is commercially available today. We also unveiled new CarePoints this morning. CarePoints are last mile connectivity instruments to our platform.

Our new tablet software and the new C500 cards are designed to offer additional very simple and easy ways for providers to engage with our platform and through it across our ecosystem. We believe that ease of use has become even more important during the pandemic. We are receiving pre orders for the C500 for Q1 delivery. The new tablet software is commercially available today. These new offerings like the rest of our products are designed to be part of an integrated spectrum of capabilities so that our clients always have the most appropriate technology for their needs.

Indeed, we aim to further expand our offering of one stop shop for digital connectivity across our entire ecosystem. We take great pride of the huge number of clients and partners that are already using our platform. We will make every effort to continue and deserve their trust. As new one joins, we see clear network effect. The addition of these new players to the integrated ecosystem is adding value not only to them, but also to the rest of the participants.

Indeed, a big part of our value is driven by the magnitude of our connected relationships. We attribute our success to our culture. The first pillar is putting our customers first. We will never do anything that stands in the way of great care or the interests of providers, patients and our entire community of clients and partners that support them. The second pillar is one team.

We recently strengthened our team in welcoming Deborah Jackson to our board. With her incredible experience across healthcare, business and academics coupled with her in capable reputation, Ms. Jackson is bound to make important contribution to Amneal. Our team perseverance was tested recently with COVID. Working from home around the clock, our team performed admirably allowing both our services and technology to prevail and perform well despite unprecedented demand.

Our team seems our mission is a privilege and a fiduciary more commitment to our community. During COVID, we saw huge growth in active providers. So many discovered and tried telehealth for the first time and so many loved it. Coupled with dramatic changes in reimbursement, we believe that COVID provided strong tailwind to telehealth adoption and popularity. New CMS coverage that may persist after COVID is especially conducive to Amwell's model of telehealth.

While visit volumes are lower than the numbers we've seen in March and April, they're still much higher than before COVID. More importantly, we see clear growth in our clients' readiness to invest in infrastructure to prepare for a new normal. This is well demonstrated in the growth in subscriptions to our platform in orders of CarePoints. The last and final pillar to our culture is deliverance. We strive to offer truly helpful innovation that excites and delights our customers.

Amul was honored to be named number one in telehealth satisfaction among direct to consumer providers by J. D. Power, a great recognition

Speaker 2

of our

Speaker 1

efforts. Today, only a small fraction of healthcare is leveraging the enormous potential of digital connectivity. As healthcare embraces connectivity, we will offer more collaborative tools. We are building a powerful global technology platform that will enable better, more affordable and convenient care to millions of people. We plan to realize this vision through both organic and inorganic investments.

We will strive to make our acquisitions strategically accretive always with a view to building strong culture alignment and adding complementary digital assets that are designed to integrate into one end to end cohesive technology driven offering. The recent nomination of our new CTO, Sir Khan Kutten demonstrates our commitment to expand and excel our innovative technology investments. Just before the IPO, we announced our partnership with Google Cloud. While we cannot yet share tactical details about our work together, we did start to collaborate. We have much in common with our friends at Google.

Our cultures align well. We're both extremely passionate about our mission to improve health care. Google Cloud brings powerful capabilities that will greatly enhance our collaborative offering. It also brings enormous global reach that could accelerate our impact in The United States and abroad. In addition to our core performance, we are especially encouraged by the quality of our customers, partners and investors.

We see their collaboration with us as an important vote of confidence in our unique strategy. We have seen significant increase in the demand to our technology and services this year. And we believe this reflects the confidence that our healthcare ecosystem clients and partners have in our ability to support them now during the pandemic, but more importantly over the coming highly transformative years. And with that, I would like to turn to Keith to share with you more on our operational and financial performance indicators.

Speaker 2

Thanks, Ito, and thank you to everyone for joining us this afternoon. I want to reiterate Ito's comments about how pleased we are with the outcome of the IPO, our third quarter results and the momentum we're seeing across our business. Given that this is our first public earnings release, I'd like to spend the first couple of minutes to describe our business model so that you can better understand the key trends and drivers of AmWel. In terms of revenue, about 90% of revenue is recurring in nature and is primarily split between subscriptions and visits and supported by services and care points. Our primary customers are health plans and health systems.

Additionally, we have a third smaller group of customers whom we call innovators who use our platform in individualized ways to support their respective businesses. These include the likes of Philips who offers programs such as sleep therapy and separately large metropolitan nine eleven services who, during the peak of the crisis, use our platform to assist those 911 calls that could be addressed with virtual care. Our health plan and health system contracts are typically three years in length and are structured for subscription expansion. For example, even sales of our CarePoint hardware devices for our health system customers ultimately add to subscription revenue. As health systems buy more software modules to direct more care through the care points by the health systems own doctors, overall subscription revenue increases.

This is because our current health system contracts contain volume components and software modules are required to deliver specific care through that care point. This type of flywheel also exists on the health plan side. As health plans expand their virtual care services to a higher percentage of their total membership, and as they add services such as behavioral health to their initial urgent care services, our subscription revenue grows. We also expect this dynamic to be accelerated with our virtual primary care products. Now before diving into our third quarter financial results, I'd like to spend a moment recapping our recent IPO.

On September 21, we completed our IPO by issuing 51,200,000.0 shares at $18 per share. The total proceeds from this transaction, which included a $100,000,000 investment from Google, totaled approximately $922,000,000 We are thrilled with the results as it reflects pricing above the initial range, an upsized offering and the full exercise of the underwriter's green shoe. We feel that this positive start positions us well for a successful first quarter in the public market. Turning to our third quarter financial results, I'm happy to report total revenue of $62,600,000 which is an 80% increase from this quarter last year. Our subscription revenue came in at $25,800,000 The 18% increase can be attributed to new customers that we signed in the quarter, our expansion within the health plan populations and an increase in the volume of platform visits performed by our health system customers' own providers.

As our visit volume remains elevated in comparison to pre COVID-nineteen levels, we experienced a steep increase in our visit revenue totaling 28,500,000.0, up nearly 300% or four times over the previous year. In this quarter alone, 1,400,000 visits were performed on our platform bringing our total visits to over 4,000,000 for the first nine months of this year. This is down 30% sequentially versus the 2,000,000 visits performed on the platform last quarter during the peak of the crisis, but down only 24 for our AMG visits. Of note, we experienced a 23% increase quarter over quarter in AMG specialty visits as we are seeing the impact of COVID on the population's mental health. While this is an unfortunate and concerning health trend, we are glad that we can support our members through our specialty visit capabilities.

We continue to experience outside usage of our platform by our customers' own providers at 73% of all visits performed on the platform were done not by AMG providers, but by health plan and health systems' own providers. This is compared to 38% in the same quarter last year and is a trend that we see continuing as healthcare delivery systems move more to hybrid care models, combining physical and virtual care. As we discussed during the IPO, this is a realization of a vision Ito and Roy had when they started the company fifteen years ago. Not to compete with healthcare providers, but rather give them the tools and provide a medium to enable virtual care delivery to meet the needs of their patients and more health plan members. Our care points and services revenue of $8,300,000 was an increase of 47% in the quarter.

While we are pleased with these strong numbers, some of the increase was unexpected as some of our health system customers use their remaining funds from the Federal Family Care COVID Recovery Act to increase their third quarter CarePoints orders. We view this as a pull forward of some services and CarePoints revenue into Q3 that we are expecting in Q4. Similarly, but on the services side, two of our larger health plan customers concentrated their marketing spend in the quarter for a targeted campaign to increase awareness of their plans virtual care benefits in preparation for a potential next phase of COVID-nineteen. These were specific programs that were completed in Q3. Gross margin for the quarter was 32.7% compared to 45.1% last year.

This year over year decrease was a direct result of revenue mix as visit revenue represented a higher percentage of total revenue in this quarter versus the same in 2019. R and D spend of $25,300,000 represents an increase of 86% year over year, but remained relatively flat at 40% of revenue. R and D spend this quarter came in slightly below expectations as we slowed select hiring decisions to allow our new Chief Technology Officer, Sir Khan Kutan to develop his new product and platform functionality plan. While our sales and marketing spend of $13,800,000 was an increase of 18% year over year, It was a decrease relative to revenue levels from 31% last year to 21%. This was expected due to travel restrictions and industry conference cancellations.

G and A experienced a 200 year over year increase totaling $43,000,000 in the quarter. About $30,000,000 of the increase was due to onetime noncash stock based comp awards to our executives that were triggered by our successful IPO, with the balance of the increase being onetime nonrecurring IPO expenses. With the IPO now behind us, in Q4 and throughout next year, we see G and A spend normalizing back to the low mid $20,000,000 range. Adjusted EBITDA loss of 26,200,000.0 compared to a 20,300,000.0 loss last year was primarily due to revenue mix shift to lower margin visits and additional expenses incurred typical of a public company versus last year when we were private. From a balance sheet perspective, we ended the third quarter with cash and investments of approximately $1,100,000,000 which included IPO proceeds of $922,000,000 Amwell has no outstanding debt.

I want to confirm that as a result of our IPO, combining our A, B and C class shares, we ended the quarter with 234,200,000.0 shares outstanding. Now I'll review our initial twenty twenty outlook. But this being our first quarter as a public company and because of our strong performance this quarter, I want to provide our initial outlook for 2020 to help frame expectations for the fourth quarter. Looking ahead, we expect to see revenue between $2.35 and $239,000,000 for the year, reflecting a year over year growth of 58% at the midpoint of the range and an adjusted EBITDA loss of 105 to 110,000,000. As we did during our IPO, an effort to be transparent and given all the moving parts and uncertainty amidst the COVID nineteen crisis, I wanna provide a few high level thoughts on framing 2021.

Visit forecast remains uncertain. As discussed during our IPO, what we initially saw from the data from the Southern Hemisphere flu season has played out in the beginning of q four. And thus, we continue to expect lower than normal flu volumes supporting the theory that COVID nineteen social distancing results in fewer flu incidents. Regarding R and D, we expect the increased spend we discussed during the IPO to continue into 2021 and potentially for the entire year and maybe at elevated levels versus those experienced in the latter part of 2020. As a reminder, this conditional COVID related spend discussed during the IPO was driven by foundational changes in sentiment to use digital connectivity as part of mainstream healthcare.

We continue to aggressively expand the platform for anticipated future demand and have accelerated new solutions development driven by our customers' demand to broaden requirements to move more care into the cloud. Finally, highlighting that the substantial visit growth we experienced in 2020 while supporting our members during the pandemic has set an artificial heightened comparable revenue base upon which to measure us on a year over year basis next year. While many of you have already correctly accounted for the year over year trends based on normalized metrics, simply in pointing this dynamic out due to the heightened comparative base. In closing, I'd like to reiterate how thrilled we are to be able to report such a strong performance for our first quarter as a public company. Going forward, we feel well capitalized for growth and positioned to maintain a leadership position in the telemedicine market.

With that, I'll turn the call back over to Ito for his closing remarks.

Speaker 1

Thank you, Keith. Before turning the call over to your questions, I would like to take this time to thank our investors, new and old for your trust and faith in us and in our mission. I would also like to use this opportunity to thank the amazing One Amwell team for putting our customers and community first, especially during the past few months and delivering awesome. You should be very proud as Roy and I are in the incredible work you're all doing. Digital care delivery is already transforming healthcare.

We believe this is only the beginning. There is still much work to do and a huge opportunity to dramatically improve clinical and financial outcomes. I'm confident that Amol is well positioned to contribute significantly to our community and leverage these strong tailwinds to create much value also to our shareholders. I look forward to meeting you all when it is possible again and to keeping you up to date with our progress. We will now open the call to questions.

Operator?

Speaker 0

Your first question is from Ricky Goldwasser of Morgan Stanley.

Speaker 3

Yes, hi. Good evening and congratulations for the first quarter out of the gate. Couple of questions here. First of all, when we think about the implied guidance for the fourth quarter, there's some acceleration in sequential revenue decline. So if we exclude the pull forward of demand and the special programs, what would sequential decline be in the fourth quarter versus the third?

And what are you assuming in terms of COVID impact to fourth quarter utilization?

Speaker 2

Thanks, Ricky. It's Keith. I I mean, simply put, we we haven't factored COVID into, you know, q four visits. And with visits being, you know, at the peak of of the crisis, almost 50% of our revenue, you know, there's there's a potential that, you know, that that revenue could increase. There was some pull forward of CarePoint's revenue, as I said, you know, during my part of the call, you know.

But overall, we we haven't factored what we're seeing right now, you know, in some hot spot areas in terms of visit increases. I mean, overall, we feel really good about the business. All the other areas are performing as planned as we laid out and discussed during the IPO. So it's just a matter of where we see or where we originally forecasted the visits when we went public two months ago.

Speaker 3

Okay. And then talked about the accelerating new solutions to meet the clients' demand. Can you talk a little bit about what type of demand and what type of modules you're seeing from your prospective clients? And what models are you selling to existing clients that are looking, to add in what they already have?

Speaker 4

I'm sorry, Ricky. Can you hear me now?

Speaker 3

We can hear you now. Great.

Speaker 4

So I it's good to hear your voice, and thank you for, your questions and your support. In essence, we had a really interesting year. I'm sure all of us did. During COVID, our clients were laser focused on on literally surviving physically, operationally, and financially. Our average deployment time of four months was reduced to sometimes to two weeks, and we just push systems so we can really fight and survive the crisis.

As the crisis somehow subside, although we're not really sure for how long and for how much, our clients actually realize the huge value of telehealth in a way that was surprisingly violent. Just to give you some numbers, you may have seen a recent survey that showed that if last year 8% of consumers have been using telehealth, This year it's 22. And if providers have been using telehealth, 22 of them have been used percent have been using telehealth last year. This year, 80% of providers have been using telehealth and over ninety percent of them said that they are going to continue and use it after COVID. When you look at the mix between AMG and non AMG, that also changed very dramatically.

It were seventy three percent of our visits are currently non AMG. And that means many, many things. Obviously many of these people are specialists, usually trusted providers with full access to the record that can see patients in person and really cover the full continuum of care. So I would suggest that what we've seen is nothing short of historical change in the readiness to accept digital connectivity as legitimate main pathway of care. That's a big difference between the use of telehealth as a call center for acute care or urgent care, but something that is used really all over the place for infinite numbers of modality.

In the same way that EMRs at the beginning were very, very simple, telehealth and became something much, much bigger. Complex care is moving home and with it enormous needs of our clients. The needs really are across the entire model of care from accessing much more information that you need to collect from remote patient monitoring and many other resources to better analytics, to new care plans that need to be chartered, taking advantage of this new information, new ways to engage consumers, new ways to connect with providers in a way that is fully integrated with payers and delivering on last night. The list is is very long, and it's coming from really all over the place from our clients that all of a sudden this year through the tailing of COVID are ready to make the leap and make the jump to we completely change their business the way, that they do a business. As such, we decided that we need to accommodate this enormous demand by accelerating a lot of our development development in all those areas.

Of course, when I say that, some of this development will be done by partners and we should Google and others. And we are definitely going to be as inclusive as we can trying to not do anything that is already done by someone else, but rather integrate these capabilities. Some of which may be nonorganic in case there is another group that is doing it better than us or has some serious advantage. And some of it, as Keith mentioned, will be done by further expand again accelerating development plans that we had thinking about the future that really realized much far faster than anyone could have predicted.

Speaker 3

So just one one quick follow-up on that. When we think about the new products that you introduced, Emerald now and kind of like the tablet, the SharePoint tablet, I think about it as market expansion also into kind of like the primary care market. So are we thinking about this correctly? And then can you maybe kind of help us think of how you're quantifying that incremental market opportunity in in addition to that market opportunity that you identified on the IPO?

Speaker 4

Sure. So in essence, we are trying to really match and listen very carefully to our clients and try to create things that are very helpful for them in this very new normal and new time. The AmulNow product that you just mentioned is answering a need that is very, very simple. Many of the delivery network trust are struggling also financially. They don't have the capital or operational resources to integrate a very large system very quickly and they need something that is still HIPAA compliant, secure, ready to go and fully future ready to integrate into more sophisticated elaborated requirements that they may have.

While at the initial part of the crisis that we're using commercial tools, that we all know and use as consumers, these tools prove to be very problematic in number of ways that I just mentioned. And therefore there was a need for this very, very simple product that doesn't cost very much. It can deploy very, very quickly to simply connect providers to a patient. Others that does not replace the need for robust platforms that do many, many other things that are not a part of

Speaker 5

the

Speaker 4

scope of the AmulNow feature that is totally a starting point that allows you to wire and bring many more providers into the mix in a fraction of the time. The tablet software is another example. In many cases, have lots of tablets in your and you may not have the time or the resources to buy or acquire dedicated devices, but you still need fleet management and you still need a lot of capabilities that we can offer through this new software. So you can realize connectivity very quickly and very effectively for your organization. So when we look at it, we don't see that as a new market, but rather is diversification of our offering to allow our different customers to use the right tool at the right time, knowing that when they need to use different capabilities and different tools, they have that option through a single infrastructure.

Of course, the fact that we are ramping up so many providers, it's pretty staggering if you think about it. We went from 4,000 active providers to 58,000 within a year, And that doesn't seem to stop any anytime soon. So that capabilities, all those services are not only relevant to our health systems client, it's very relevant to the greater ecosystem, namely employers, payers, even government that could benefit from it. So when we think about new tools that fit the needs of providers, we don't only think narrowly on providers, but rather we think about the entire community who is leveraging this single platform.

Speaker 0

Thank you. And next question is from Robert Jones of Goldman Sachs.

Speaker 6

Great. Thanks for the questions and congrats on the first earnings call here. I guess maybe just to go back, Keith, to some of the comments you made around behavioral. Obviously, that's a rapidly growing and important area in the telespace. Could you talk a little bit just to the clinical capabilities and professionals you feel like you have there today?

Do you feel like you have the infrastructure to meet, not only the demand today, but as we look out over the next several quarters, just given how coveted this physician group is?

Speaker 2

So I mean, there's if you recall, we bought a company called Align Telehealth back in 2019. And that was focused on the highest security of the behavioral sector, you know, telepsychiatry within the four walls, you know, of the hospital as well as, you know, once people are discharged. You know, we also have, you know, psychiatrists and therapists that, you know, sit within our specialty care visits, and they make up the far majority, you know, of the visits there. You know, q two was a peak across the board for all the visits. You know, q three, you know, I would say after the first month really started to, you know, to taper off as you saw of the overall visit.

But surprisingly, and I guess, know, it's just a state of the mental health of the general population. You know, we saw and are seeing it continue, you know, spikes in both, you know, the specialty care, mainly the behavioral, you know, as well as, you know, the telepsychiatry visits coming back. Now specifically on the telepsychiatry, you know, a lot of the emergency rooms were shut to anything but, you know, very high emergency COVID related patients or acute like car accidents or heart attacks or whatnot. They've since opened for emergency psychiatric situations. We're starting to see those come back as well.

But coming off the peak of Q2, we are seeing just an overall decline in the visits from the peak.

Speaker 6

That makes sense. And I think, Keith, if I want to go back just for a point of clarification. On what the non AMG visits did sequentially, I was just curious if you could maybe weigh back in on that. I thought on our math, we

Speaker 7

would have thought they would have

Speaker 6

been up sequentially. Believe you said they were down sequentially. But then I guess more importantly beyond the numbers, any insight you can share on the type of visits you're seeing relative to what you've seen year to date? I'm thinking just in the context of new use cases versus more visits versus potentially more visits per provider. Just any context there would be helpful.

Speaker 2

I mean, Ito touched on this dramatically in his opening remarks. We are not a call center. So when you look at what's happening within the platform visits, the non AMG visits, we're seeing a nice steady increase in the scheduled visits, which means that specific doctors are increasing the level of care that they're delivering to their specific patients virtually. And that's the name of the game for our company. That's the vision that Ido and Roy had when they took the company public.

And we're seeing, yes, it took a pandemic to convince some of the physicians and some of the patients. But we're seeing those trends continue. And that's really what we're all about. So, you know, while you see obviously during the peak of the pandemic, you know, a lot more interactions with people, you know, worried about having COVID, you know, not able to get care in other places. We are seeing the overall volumes decline.

But we are seeing, if you unpack those numbers, increases in the areas that are confirming and showing continued embracement of receiving care virtually.

Speaker 4

Robert, I would like to maybe compliment that COVID is an anomaly. When people are locked in their home, they have to talk to a doctor whether it's ideal or not. COVID in our opinion was really an accelerator of showing many providers that they can effectively communicate with their patients and indeed the lion's share of visits today are between existing providers and their patients. And these are non AMG visits that are compensated for our subscription revenue from those health systems. When people think about telehealth, they typically think about free use cases.

It's really urgent care, behavioral health and some kind of provider to provide their connectivity capability.

Speaker 2

Of course, there are a

Speaker 4

few more, but that's the lion's share of the market. In our case, we literally are talking about hundreds of use cases. There are really too many to mention. There are so many ways that our platform is supporting different utilities and it's our client forum and many other forms that we convene, you can read and see much more of those use case. Essentially, we're that mainstream healthcare is now using digital connectivity and mainstream healthcare covers the fully everything.

We are not selling the clinical service. I mean, essentially we are sending the connectivity into the clinical service and enveloping it with everything that is required in order to support it clinically, financially, and operationally. And that's a fundamental change, between us and many of the traditional telehealth companies.

Speaker 6

No. I appreciate that. Thanks, Sito and Keith.

Speaker 8

Thanks, Bob.

Speaker 0

The next question is from Sean Wieland of Piper Sandler.

Speaker 2

Hi, thanks. And let me ask congrats on your IPO on your first call here. So you started at the top saying number of providers is the KPI that we want to watch. Can you just go into a little more detail on your ability to drive that? How do you drive the number of providers and the level of visibility you have on that into Q4 and 2021?

Speaker 4

Hi, Sean. Again, good to hear your voice and thank you for asking very important questions. It's not easy. It's not easy to onboard providers and retain providers. There are many obvious things and many, many less obvious things that one needs to do in order to support their providers.

The first thing, and I'm not sure about exact exactly if it's the right order of things, but they're all very, very important things, is integration into workflow. You really need to make sure that the digital connectivity is as simple and as integrated as possible. The work that we do with the like of Cerner, Epic and many others, but especially Cerner because they've been, I think, doing enormous amounts of investment together with us is demonstrative of that type of effort. The second element is to offer enough transparency and integration of the digital visits so it's covered, so it's reimbursed. There are many things we don't control like a CMS reimbursement in some cases or even commercial payers reimbursement for different CPT codes.

What we do control is the ease of use of collecting co pays, submitting claims and things of that nature. And that's very, very helpful. So far, I think these things are pretty obvious to people. There are many other things that are less obvious because if you stop here, that would be kind of generic. We believe that as providers shift into risk and in general, also are very motivated to really improve the care they give to the patient and doing it in the most efficient way, there are so many other things we can do to help them.

If they can get compensated for keeping their patients in their home, whether it's post surgery or in the community with my own patient, our ability to integrate into remote data monitoring devices or things of that nature, analyze the information and present it in a smart way is a very important example of service that we believe is important for providers. If we can get the attention of their patients with different engagement tools, that's another way of helping the providers. If we allow them to use automation in some ways to create a care plan that they feel good about and integrated in, we don't really believe in DM in the silo that is parallel to the main path of care, but rather an integrated effort between providers and automation that is really focused on achieving a single goal. That's a very, very, very helpful. So in way of a trend, I'm talking about really two things.

I'm talking about the ability to move telehealth from transaction to reoccurring capabilities. Some of them are automated, some of them are physical. I mean, we can help doctors spend only the appropriate physical time with their patients and allowing other communication modalities to prevail, that's very helpful for everyone in many many ways. And the other element is inclusion. If our system, our platform is is an island and it doesn't allow many participants to be present in a very dynamic way, we are missing out on a lot of contribution.

And it doesn't really matter if it's a medical device or a new natural language processing or translation capability or post discharge a follow-up with the patients with reminders of things of that nature. So what you should expect from us is really to listen very carefully to the list of requirements of how providers are looking to manage their patients and get paid for managing their patients successfully in the future. And how can we allow them to integrate those capabilities into an interface that is familiar, is simple, intuitive for them. So I know I said a mouthful and as you can tell, I can talk for a little longer too, but that's what we're building. That's how we plan to continue and earn the hearts and minds of providers.

We have 150 delivery networks that are using our platform today. We have some really interesting dialogue with them. We listen very carefully to what they need. With Amware now and other products, we're going down market now to organizations that are smaller and more narrow in their agenda, but just as important in the community. So getting to the provider is one thing.

And I think that your question really alludes to the bigger question, which is how can you make it sticky? How can you add value all the time to those providers so they remain engaged and operate and provide the care that they normally care through our platform? And I think that we need to earn this right every day and we definitely have big plans on how to do that.

Speaker 2

So, Sean, when you get the queue or when you when you read through the queue, you're gonna be able to see, you know, it breaks apart the overall increase in active providers. I mean, the lion's share is coming from, you know, the customers' own providers, the plans and the hospital systems. And then if you further, we don't go into this detail in the queue, but it's more leaning towards the specialists, the higher acuity doctors wanting to have this functionality to be able to further deliver care. So if you look at the increase in the AMG doctors, we slightly increased it. It's mainly, I think, Bob asked earlier, we're adding more and more specialists.

We're seeing huge spikes in that part of our business rather than simple urgent care doctors. It's the non AMG that we're really monitoring and seeing the expansions in the areas that get us really excited. The AmWellNow product, as Ito said, know, is really gonna bring into the fold those doctors who are on the peripheral, you know, into delivering care virtually with a much simpler product that, you know, is still on the platform, but, you know, it's a it's a Zoom like product. That's all very helpful. A lot to unpack.

I will leave it there. Thanks for your time. Thanks, Sean. Thank you, Sean.

Speaker 0

Your next question is from Kevin Calendo of UBS.

Speaker 8

Hi. Thanks for taking my call, guys. Hopefully, this one will be a little bit simpler. We we were hoping to get a breakdown of subscription revenues between the health system and the health plan. Sort of, I guess, thinking about going forward, how that mix might might change for you guys in terms of subscriptions as we look towards 2021.

And you said earlier providers, up to 80% of them are now using telehealth. Is is that a fully penetrated market? Is there still opportunities where people just aren't, you know, up to speed on their telehealth offering?

Speaker 4

So while we're not prepared maybe to break down the numbers on your first part of the call, I'll be thrilled to maybe start answering the second part. When you the the role of telehealth and digital connectivity is enormous. It's not a binary thing. It's not a transaction. It's the beginning of connectivity with patients that has really a giant canvas of opportunity.

The fact that 80% of providers in The United States this year were exposed for the first time to telehealth is very exciting. I have to assume though that that transaction was relatively simple per design. They were locked in their home or patients were locked in their home and they just connected it with very simple modality or video or even phone, maybe in some cases. But it did open the floodgate in having many, many providers realize that that's an opportunity. The connectivity which is not only counted in visits and that's a really important thing to realize.

We are not a visit company. We're also not trying to sell visits or sell clinical services but we are rather creating connectivity among the players in order to interact in a new way which we think has enormous promise. Therefore, we see that first step is only that. We believe that the value that could be generated by connectivity is not only great clinically, we're also saying that it will generate a lot of value to different participants. And as a result also will allow us to monetize the value that we generate with the different participants.

To help maybe quantify somehow, when you onboard the provider, you are creating a virtual network. The ability of interacting with this provider is not only important to the provider or the patient, it's also very important to the employer. It's also very important to the payer in some cases to the government, to the risk bearers and many others that participate in this process. So we will be laser. However, if you disconnect this provider, a lot of this goodness is not possible.

Long story short, this is the starting point and certainly not an endpoint to what's possible with onboarding new providers to the platform.

Speaker 2

And, Kevin, I can't let the first part of your question totally go. You know, we are we are, you know, things are playing out as expected, you know, from the IPO, except a couple of the, you know, aspects of business that we discussed, you know, earlier on. You know, the newer products that we are rolling out, really are bringing, and we discussed this also during the IPO, the health plan subscription parts of the revenue versus the even mix between visits subscriptions on the plans. It's really, as we discussed the flywheel, it's really starting to increase and bring more of the subscription part of the business over to the plan side.

Speaker 8

Okay. That's really helpful, guys. Thanks so much.

Speaker 2

Thanks, Kevin.

Speaker 5

Thank you, Kevin.

Speaker 0

The next question is from Jalandra Singh of Credit Suisse.

Speaker 7

Yes, thanks and congrats on the first quarter as a public company. Apologies if I missed this, but did you give outlook for AMG visits or total visits for the fourth quarter?

Speaker 2

No, we didn't. I mean, we as you know, we're going to provide that on annual guidance. But given what we're seeing across the country and unfortunately, some extreme hotspots in certain areas of The U. S, it's the most volatile aspect of our business. And that's why we did not guide for that for the rest of the year.

Speaker 7

Okay. That's fair. But then you also made a statement that the current consensus seems to be reflecting your view about a less flu visit or some headwinds on visit next year. Is it fair to say that your views about the visit in 2021 has not necessarily changed over the past two to three months?

Speaker 2

Jill, Andrew, I'm we're gonna give guidance, you know, in February for next year. I mean, we're still monitoring it. We wanna see how the flu season plays out. We wanna see you know, we are seeing some some big spikes in certain areas of the country. You know, it's just premature to say what we're what we're gonna see next year.

I mean, we weren't expecting. We're hoping these spikes didn't happen for the greater population, but we are seeing them. So I'm just going to reserve that until we get full year guidance.

Speaker 4

Fair point. Fair point.

Speaker 7

And then on the gross margin of 32.7% in the quarter, you had impact from low margin AMG visits during COVID. How should we think about the gross margin sequential trend in fourth quarter? And when we think about your long term gross margin target of 50%, can you talk about the drivers to get there? What could be the potential sort of upside to your to your target there?

Speaker 2

Yeah. So as we discussed on the IPO, our specialty visits, I mean, there's there's, you know, massive economies of scale. You know? I mean, for the specialists, they are more expensive. And and to be able to make sure, I mean, we have to hit our SLAs, you know, and return the calls under five minutes.

So, you know, for all the states that, you know, we offer specialist care, you have to have a certain number of specialists on there to make sure that you you you know, meet those SLAs. So there's massive economies of scale. They're more expensive providers. Once we further expand that business and made us excited seeing the ability to support those specialists as it's those behavioral business in the quarter, the spikings that we're seeing, that will accelerate the margins in that area. The other aspect of gross margins for this quarter is we said that there was an acceleration for CarePoint, given the COVID recovery funds.

Those are lower margin business as well as there were two programs, two very targeted marketing programs by two large health plans. That is lower margin business as well. In terms of Q4, we are expecting the gross margins in that quarter or in this quarter that we thought at the time of the IPO. There's some aspects when there are hosting expenses that come in q four as well as some other, you know, aspects of our business that happened in this last quarter of the year. So you will always have, you know, all things being equal, a lower margin quarter versus the other remaining three quarters.

Speaker 4

All right. Thanks. Maybe more generally on this. If you think about our business, there is what I call the business of the past somehow in

Speaker 8

the business of the future.

Speaker 4

When you look into the past, for additional telehealth is we're going to hire a bunch of doctors and going to try to sell them for a margin to sell visits. When you look into the future, doctors and other participants are going to use our platform in order to interact with each other in a new way. If the proportion of the call center like businesses diminishes versus the proportion of technology enablement, obviously, like any type of technology, the margins are very, very different. And you can see the shift that is not going to happen overnight. It's still very important to offer

But over time, as more and more providers in the community assume their role in connecting with their own patients and other patients that trust their brand, you're going to see improvement in margins. So that's one element. The second element is care itself is going to rely less on people and more on automation. So if patient care today really includes almost holistically an interaction with a person that is very, very expensive and not necessarily accessible. A lot of the interaction will leverage all the goodness of AI and analytics and many other tools that are going to make the human time much less than the automated time much more.

But that does not discount the value of the automation. There could be enormous amount of intellectual property from clinical innovation that is still very valuable, but very, very high margin as you deploy it. And as a result, you can democratize health care. You can offer great care to many more people. But as you do that, you do that very efficiently.

So in the next few years, you should definitely expect our margins to evolve over time. Nothing in health care is overnight, but that's the trajectory that we are going as a technology company. And that's very maybe confusing to some that are used to look at telehealth as a service company. We are a technology company and we're going to see more and more of that in the next few years.

Speaker 2

I'm looking back at my notes from the IPO. This is an area that, you know, I know you were focused on. You know, if you think about the flywheel on the health plan side, you know, and with the new products that are coming out and the evolution of virtual primary care, you're eventually going to see those visits revenues, lower margin revenues transfer into subscription revenues like we're seeing on the health system side. So it's like we talked about at the IPO, more of the new products coming out on the plan side, transferring that visit revenue, lower margin visit revenue, fee for service into subscription revenue. And then on the health system side, you know, just the continuation of what they're doing there and the increase in what gets, you know, our company so excited, monitoring the non AMG providers, our customers' providers.

Speaker 7

Perfect. Thanks.

Speaker 2

Thanks, Yolanda.

Speaker 0

And your next question is from Charles Rhye of Cowen.

Speaker 5

Yes. Thanks for taking the questions and congratulations as well on the first quarter out here. I wanted to follow-up on a couple of points that has come up here. One, you guys mentioned that a lot of the affiliated visits reported here were actually scheduled. And Keith, don't know if you guys gave the percentage, but is there a percent that you can kind of tell us of how many of those visits were actually scheduled versus sort of on demand?

And then secondly, if we think about that going forward and obviously we have a lot of physicians on the platform today, but if we think about sort of the higher performing physicians, particularly in the specialists, what is there a way for you guys to know what percent of their total, you know, sort of daily volume is is virtual versus physical? Is is there any way to kind of get a sense of how much of the practice is shifting to virtual for for those who are taking the most advantage of it?

Speaker 4

Hi, Charles. Again, good to hear your voice. Good to to have you with us. We we we are new to the public market and we really try to focus on certain KPIs that are clearly helpful for everybody to really understand our progress year over year. And we're making a conscious effort not to break down too many things that may be providing some pieces of information that over time are not showing the full picture.

So with your permission, I will confine myself to give you a more directional answers. I would say that what's very, very clear is that once people emerge through the main cracks of COVID sometime in September into now, and in last few months, they are now having many discussions with us about the new normal, about how to implement the infrastructure for connectivity that is per design hybrid. The popularity of a virtual primary care that we worked on for the last few years and other elements that we created is pretty conducive or indicative to this trend. How fast will it go? I'm not entirely sure.

I think it will be faster than we hoped before. That's for sure. Because of the readiness of all the players, including the payers to cover and participate in those hybrid modality. Scheduled visits require many things that we are developing. It requires, for example, very good consumer engagement and ways to interact with those available schedules, deep integration into EMR and many other things.

I would say directionally that you're going to see a continued trend of non AMG providers using our platform more often with greater and greater proportion of people that are doing it on a scheduled basis as more and more specialty care is becoming available on our platform. The likelihood of finding my oncologist or ophthalmologist on demand is literally nonexistent. Of course, you need to do a scheduling, but the story is not only in those transactions, the story is how to virtualize the full care team and how to automate as much of their goals as possible. The time spent with them is effective as possible.

Speaker 2

Charles, I mean, it's something that we monitor internally and really, you know, it conveys to us the success of our products, you know, in terms of, you know, the pandemic delivering care virtually. Was it forced upon people? Yes. Is it is it continuing? Is it now a concrete, you know, part of the health care delivery medium?

Absolutely. And that's one of the things. Scheduled visits means patients are embracing it. Physicians are telling their patients we can do this virtually. It's just an internal benchmark or litmus test as we come out of the pandemic.

So it's not insignificant, but it's just something we don't want to report publicly.

Speaker 5

Yes. No, that I appreciate that and I understand that. And just to follow-up, going back to the fourth quarter guide here, is it right to think that the sequential decline is really tied to the visit revenue? Because I'd imagine subscription revenue generally speaking shouldn't move Is around like that fair?

Speaker 2

Yes, of course.

Speaker 5

Okay. Because you because you mentioned that there was some, spend from a managed care client, for some programs. Is that sit separately or that would have been that would be the subscription revenue, but that does not necessarily repeat? Just one No.

Speaker 2

The marketing they were marketing programs. So you'll see that in the care points and services. You know, there are some of the older health system contracts that have, you know, immediate recognition of their increased volume. So those fees are like a toll on the platform. We take a toll.

The new contracts are like the cell phone plan that we discussed during the IPO. There was some component of that in Q3 that we don't project that. We don't forecast those toll expenses because they're the old contracts. But I guess directionally, it's showing what's happening for our health system customers. There was a lot more unexpected volume that they were delivering care virtually and there was some of the increase in subscription.

Speaker 5

Thanks. If I could just ask one more, you mentioned, right, the ability to schedule visits require sort of deep integration into the health systems, you know, EMR, etcetera. You know, earlier in the pandemic, clearly you noted that physicians in an attempt to connect with their patients were just using, you know, anything available. Are you hearing from them from your health system clients then as they look to drive great integration for telehealth into their daily workflow, getting their physicians off of those other platforms and back onto Amol or to whoever they're using?

Speaker 4

Yes. Absolutely. Obviously, I cannot speak for all our clients. There are many of them. But I would say that the initial fluctuation that you saw with with very, very simple video conferencing tools and so on made sense when there was a war, when there was no other choice.

But very quickly showed some very serious deficiencies in number of critical areas. I mentioned the security and and the and and and regulations and and but many other things as well. Some of our clients actually prohibit the use of those tools anymore and are moving older doctors to to different elements of our platform. The AmOneNow product is extremely helpful because it gives you the feel of those very, very simple connectivity tools, but getting you all the benefits of ability to interact with the platform that is infinitely a healthcare platform, which is much more reliable. I believe that I still believe that the simple connectivity tools were helpful.

I'm not going to be enough for the new normal for long list of reasons. There many, are many things that are missing. And we are glad to see many, many of our clients feel that way too. I would, for example, share that about 40 of our clients already adopted the beta version of Abweld Now, which was pretty surprising. We didn't expect that much of a welcome also because it's really much better replacement to non healthcare tools that are used by many providers.

Speaker 5

Great, thank you.

Speaker 0

And we have time for one last question. We have a question from Ravi Misra of Berenberg Capital Markets.

Speaker 8

Thanks taking the question. Look forward to being part of many more of these in the future. So just on the AMG, paid visit kind of mix shift, you know, you're talking about higher utilization of specialty care. Trying to figure out just how sticky should we assume that that ASP is in the following quarter. And let's, you know, I'm trying to understand also, you're saying you're not kind of factoring in much of a bolus from the kind of COVID mix shift here.

But say there were to be one, how should we think about what lines of your revenue model would be impacted here? I mean, would this be kind of a mix, a negative mix driver on your revenue per visit for AMG? Or should we kind of assume that non AMG would take care of most of that and lead to, you know, more subscription revenue? And then maybe I could put my second question right up front. You know, just on the Google partnership, just any more details beyond kind of, you know, you're talking a little bit more about enhanced offerings or accelerated footprint in The US and OUS.

Any other kind of information you could provide there

Speaker 2

would be great. Thank you.

Speaker 4

Sure. So you're absolutely right to assume that look. Our focus is driven by all the other indicators that are performing just as well or even better than during the time of our IPO. As the new company in the public sector, we really didn't want to include any forecast that relates to COVID surge only because there is really no way to know how much this is going to happen. In our opinion, is as good as others.

You are absolutely right to assume that if you're going to see COVID share, which is possible or even probable according to some, you're going to see a surge in visits if only to judge based on what we experienced on the few months from now. Very simply put when people are locked in their home or when people are very anxious or obviously concerned or could be even sick, the access to telehealth is often used and we've seen it many times. So when they're likely to use every tool in their arsenal, but the most popular tool would be going to the service, the benefit they receive from their employers and their payers and hitting those services, which means that they're going to hit on our AMG revenues. And you're going to see a very big spike in those revenues around the respiratory, urgent care, things of the nature that are related to COVID like situation. That's the immediate spike that you're going to see.

There are secondary longer term impacts of such potential surge. As a result, more people will be forced to encounter telehealth, some of them for the first time, even more doctors are going to do more telehealth, whether they like it or not, ready or not. And they're going to discover the benefits of that. And as a result, we believe that the level of urgency, the level of acceptance of investment in telehealth connectivity platform is going to be further accelerate. It's not really broken.

I don't think we need it. I think the trend is very, very clear already based on what we all went through in the last few months. So I don't think the company actually requires such a surge in these people. Of course, we pray and hope that that will will never happen. There is nothing good, but that's what it's going to do in q four in case we're going to see that search.

As it relates to Google, as I mentioned in my opening remarks, I really can't get into tactics, I'm happy to give you a high level description of the two main benefits that we see in this relationship. Relationship. The first area of benefit is really product enhancements. And even today, Google announced their innovation that relates to natural language processing, the ability to almost understand a clinical text and as a result offer much better decision support to different participants, especially patients and providers. That's a great example.

They have some other developments in AI, in consumer engagement, in device data collection, in cloud capabilities and really many, many other things that are beyond the time that we have on the call. You should assume that our technology teams are already working together very, very well to really understand this long list of assets and see how their incorporation into our offering could benefit our ecosystem. And we've only been at it for a couple of months, but I can assure you that we are thrilled by the what we found by the synergies by and we work really, really well together. And you should definitely expect those things to show up in the market when we are done. The second element is the fact that Google is a global company.

It really touches every place on earth. We believe that unlike the service business of Telehealth, which is very location driven, the technology driven as we proved in Israel, for example, is really true almost anywhere. When you want to connect a group of patients with a group of providers, that's universal appeal. That's an unmet need that is true anywhere. With Google reach, we definitely plan to work together to bring our capabilities to any place on earth.

And with tools that are increasingly simple like the Amol Now product that we announced this morning, we can do that in a way that requires much less barriers to be implemented by offering a lot of value. And we're going to continue to look at the same KPIs both here and abroad, which is we really want to get to as many providers as possible as quickly as possible so they can make themselves available to as many people as possible and then layer on as much support to those services so we can really improve financial and clinical outcomes.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.