Q1 2021 American Well Corp Earnings Call
Good afternoon, and welcome to M well first quarter 2021 conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded.
Leading today's call are Doctor Ito Schoenberger, Chairman and showed co Chief Executive Officer, and Keith Anderson Chief.
Financial Officer.
Ido and Keith will offer their prepared remarks, and then they will take your questions.
D M will press release and webcast link are available on the Investor Relations section of <unk> website.
Please note that we will be discussing certain non-GAAP financial measures that will believe are important in evaluating them well performance.
Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is posted on our website.
Also please note that certain statements made during this call will be forward looking statements.
As defined by the private Security Litigation Reform Act of 90 95.
Such forward looking statement on some.
Object of risk uncertainties, and other factors that could cause the results for them well to differ materially from those expressed or implied in this call.
And now I'll turn the call over to Doctor INO Schoenberg C O M M well you do.
Good evening and thank you for joining our first quarter earnings call.
We opened the year with $58 million quarterly revenues gross margin was 38% and erected providers grew to over 80000.
We see growing evidence for expansion trajectory of our role as technology platform that enabled all types of care.
Our social revenue continues to evolve.
Contribution from subscriptions grew to 43% of our revenues in Q1 versus 40% in the same quarter last year.
Overall visits continued to grow is one 6 million visits were performed on our platform. This quarter versus 725000. This quarter last year visit mix continues to evolve towards more specialty services is revenue per visit expanded from the low seventy's for the full year last year two already in.
The low Eighty's range this quarter.
Scheduled visits continue to significantly expand with scheduled visits outpacing on demand visits is a positive indicator, reflecting growing demand to enabling telehealth technology across the care continuum, our dialogue with our clients and partners in Q1 is reflective of.
Post pandemic sentiment there is a renewed interest in telehealth enablement technology with special focus on interoperability deep integration and hybrid models of care. Our recent win of a large mid Atlantic Blue is a great example in addition, we're on.
Pleased to see cross sell activity with Google cloud beginning to realize after the quarter on April 28, we unveiled our converged platform to our clients and partners with.
With over 1000 clients and partners. It was on most attended forum since inception.
Clients and prospects reaction to converge was extremely positive one client said converge helps us see telehealth not as an alternative to normal care, but this is an integrated way to deliver care.
Another simply called converge a game changer, we discussed the key features of converge on our last call.
On this call I would like to provide you with more details about the expecting business impact of our new AMOLED cash form.
As we shared converge is designed to automate much of the upgrade process.
Clients will receive converge is part of their current subscription each subscriber will receive a configuration will converge that accommodates their existing scope of subscription to the term of their existing contract. The first wave of upgrades will focus on hospital systems and move quicker.
<unk> two health plans with initial deployment being executed this month, we expect to convert a significant number of clients. This year with a balance over the next 18 months, we feel confident that our investment in converge will have significant positive multiyear impact on our financial performance.
Foreman's starting in 'twenty 'twenty two.
We expect to converge to increase client retention attraction addressable market and upsell opportunities.
Converge is designed to also improve our margins and reduce our cost of implementation and support.
I would like to share a few examples explaining how we plan to achieve this impact on our business with converge.
Our new Super Modern architecture is comprised of a single cloud based technology.
This allows for new ways for our ecosystem clients and partners to exchange information and services based on comb on identifier in a common platform.
Expanded for transactional to longitudinal capabilities means much better support of the full continuum of care and inclusion global automation to drive efficiency and improve outcomes.
Our new ability to create streamlined integration with EMR ours, and many other digital assets reduces our clients Kosovo no sheep simplifies deployments and complements our clients' existing investments.
It allows them to maintain full control and ownership of the brand experience workflows and relationships there.
We greatly increased the modularity of our platform enable us to offer more variability in our product line.
Clients can simply turn on various modules and programs to accommodate their evolving needs.
This means better return on investment for our clients as they are able to pay for components the use as they use them.
It also gives us better ability to offer best of breed components as they become available with significantly lower development and integration costs.
The effective converge as an open platform designed to host third party apps means the ability to offer even more flexibility customize ability and innovation to our clients.
A great example was provided by Google Cloud, who created our first third party app.
Powered by sophisticated natural language processing. It offers real time automated medical grade caption and translation.
With trust Googles App could have significant contribution to making care more accessible and impactful to many more people.
Apps opened a new revenue stream from well, mostly in 'twenty 'twenty, two and beyond we plan to share more details on apps and the business model that governs their deployment later this year.
Our single context, driven user interface creates one meeting place for all digital care delivery use cases.
This in turn drives a simple and exhilarating user experience with a much shorter learning curve and faster path to adoption.
Converge is positioned to support the rapid adoption of digital connectivity by existing trusted providers payers and other ecosystem players.
It is designed to scale exponentially, while remaining reliable and efficient.
Finally converge is designed to work globally with its open architecture. It allows us to expand beyond the United States much faster and more efficiently.
We are thrilled by the feedback of our clients and partners and we'll continue to update you as we deploy converge across our client base and beyond.
We now see a clear market move from buying telehealth clinical services to Growingly relying on animals technology is infrastructure to enable the full continuum of digital care delivery in visits and between them.
As this trend accelerates once the pandemic subsides, we expect the high margin contribution of our technology to become significantly more dominant in fueling our growth.
And with that I would like to turn to Keith to share with you more details Keith.
Thanks, Peter and thank you everyone for joining us on our first quarter call.
Nito highlighted we believe Q1 demonstrates a foundational level of utilization of digital help performed on our platform.
Well later in my prepared remarks, I will unpack our performance this quarter I want to first provide some insights and a specific themes and dynamics that customers are citing as compelling differentiation that strategically also lend some insights and the key components of our inorganic strategy.
Coming out of the pandemic conversations with current and perspective customers had been much more thoughtful as they are now viewing virtual care is a significant and permanent component of their overall care delivery plan.
Customers are coming to the table with more crystallized views on the wall. They want the Emerald platform to play.
Many have expanded their views of telemedicine and are discussing full longitudinal care strategies that require an interoperable platform with virtual care delivery at its core.
Providing a platform that enables and facilitates our customers' own doctors to deliver care to their specific patients or members is further differentiating for am well as our customers, having now thought out our virtual care strategy, you our business model and structure as one a partnership versus a potential competitor.
For example, some plan or health system customers with more evolved virtual care strategies are keying in on animals ability to highlight their own chronic condition management or care coordination programs. If that is a particularly key strength a differentiator for them. They want their core strengths to be acknowledged and incorporated within their virtual care.
Our strategy.
The theme of longitudinal care at the core of converge is also driving our expanded inorganic strategy and the areas of interoperability care coordination device agnostic patient monitoring and the ability for AMOLED to provide programs to manage chronic conditions. If the health plan our system doesn't have their own strategy.
As <unk> discussed at our client Forum two weeks ago. Our recently launched converged platform demonstrates our nimbleness as a company to acknowledge how quickly our clients have embraced and advanced virtual care as a key component of their overall model.
Now turning to our first quarter results. We reported total revenue of $57 6 million, an increase year over year of 7% driven mainly by solid subscription growth and also continued expansion of visit revenue.
Subscription revenue in the quarter was $24 6 million, an increase of 13% compared to the first quarter of 2020, but 20% if normalized for the two customers lost due to M&A that we discussed on our last call.
The growth is a result of new logos and increased volume of module on program subscriptions.
In terms of total visits 1.6 million visits were conducted this quarter on the EM well platform, representing 100% increase over the 725000 visits performed this quarter last year and a tick up from Q4.
As Deno mentioned in this quarter annual passed a significant milestone having exceeded 10 million total visits performed on the platform since inception with $5 9 million of that volume in 2020 alone equally.
Importantly, the continued trend of empowering our health plan and health systems, one providers to deliver care virtually as on the first quarter now 80% of all visits performed on the platform were conducted by our customers own providers. This is compared to 50% on the first quarter last year and 75 per cent in Q4.
Total visit revenue was 27 8 million this quarter, a 6% sequential increase over Q4, and a 5% increase this quarter last year, when COVID-19 volume significantly began ramping up <unk>.
AMG volume continues to shift to higher acuity specialty visits as well total AMG visits decreased approximately 6% both sequentially and year over year to 340000, the average price per visit rose to low $80 range, resulting continued increase of visit revenue.
While we discussed on our last call the expectation of the full year average price per visit to be on the low $80 range up from $73 last year, an acceleration to this $80 range out of the gate in the first quarter was driven by the significant increase in behavioral health visits while it is sad that a significant ponant on the increase has come.
Going from behavioral visits we are happy, especially in these times that these folks are getting the care they need and in the manner and medium, which they prefer versus not getting care in their conditions getting worse.
As we forecasted our services and care points revenue of $5 2 million was relatively flat year over year.
2020 was an anomaly I mean on so many levels, but as it relates to our care point sales COVID-19 hit in Q1 of last year. When we were shipping out cards as fast as we can produce them as health systems, we're rapidly expanding their emergency room and COVID-19 related programs to deal with the surge we experienced another surge at the end of the year on Q4.
Our system's rush to spend the remainder of the unprecedented federal grants that contained use it or lose it tight exploration dates. This pulled some revenue from Q1 into Q4 and created an even more odd distribution of care points revenue.
A more normalized profile for care points is backend weighted since the nature of a typical health system budget is approval at year end, then a progressive ramp up the following year and ending in Q4 spending any remaining funds.
Gross margin was 38% an increase of 50 basis points over Q4 and was due to revenue mix shift more weighted to higher margin subscription revenue and efficiency measures implemented on the services side <unk>.
<unk> margin expansion this quarter was the initiation of migration on to the converge platform a dynamic that well continue the remainder of this year.
R&D expense on the first quarter was $23 million, representing 40% of total revenues compared to 28 per cent of total revenues on the first quarter of 2020.
While we are forecasting an overall increase in R&D spend in 2021 due to the converge project spend on was lower this quarter than in Q4 due to the stop and start on the various converge sub projects that involve integration with specific strategic and functional partners.
We still expect the overall total R&D spend we made at the same levels as we discussed on our last earnings call, which was similar on a percentage basis to revenue in Q4 of last year.
Sales and marketing spend up $13 7 million is a decrease from one 4 million sequentially versus Q4 and flat year over year.
Spend was lower this quarter, mainly due to the timing of marketing campaigns and client services that are expected to occur later this year.
G&A expense in the quarter was in line with our expectations at $21.4 million and lower versus Q3, and Q4 of last year. As we are now past, our IPL and the related nonrecurring expenses.
We are reporting an adjusted EBITDA loss of $26 4 million compared to a loss of $35 4 million last quarter and $17 7 million last year.
The sequential favorable decrease loss was primarily related to lower R&D and sales and marketing spending that we just discussed well, which we believe will increase over the remainder of the year as converged spending increases and marketing events take place.
Regarding our annual guidance at this point on the year, we are reiterating our previous guidance ranges of 260 to 270 million per revenue a.
AMG visit volume between 1.5, and $1 7 million and on adjusted EBITDA loss between 157 on $147 million.
Since we IPO Ed in a very atypical year in terms of a typical revenue distribution over the quarters steady subscription revenue growth combined with our assumption of returning to a more normalized flu season results on a more back end weighted quarterly revenue profile similar to what we saw in 2019 for.
For Q2, we are expecting similar levels of services and care points revenue was in Q1 as well as similar visit revenue as we enter the summer.
As we look towards the second quarter I also want to unpack a dynamic within our most important kpis total active providers as <unk> mentioned the number of active providers increased again sequentially over Q4, ending the quarter with over 81000 total active providers delivering care on the EM well platform.
But looking at Q2 last year. It was the peak of the pandemic and in that single quarter alone we more than doubled the number of active providers from 24000 to 57000.
For the remainder of 2020 and through Q1 of this year, we added another 24000 providers.
As detailed on our filings we define active providers as those providers that deliver care on the platform over the last 12 months.
So it is expected next quarter when Q2 2020, the peak of the COVID-19 crisis Rolls off the measurement period, we will experience a lockstep decrease enact on provider count on some of these lower activity providers will now be excluded from the 12 month measurement period.
So mathematically we are expecting a reset to levels similar to last quarter, but are then forecasting similar continual growth as we've seen over the last couple of quarters, especially due to the adoption of converge in conclusion. We are pleased with another good quarter. As we are operating according to plan and believe it represents a solid start to the year.
The launch of converged the next step in the evolution of our platform and we look forward to the competitive and operational advantages steepening, the slope of our growth and expanding our efficiencies.
I'll now turn the call back over to Ido for his closing remarks.
Thank you Keith.
As the conversion of traditional health care into a new model of care accelerates, we could not be more excited about the expansion of our platform and its strategic direction.
Going forward, we see the rollover on win is relevant unique and important than ever before with that I would like to open the call to questions.
Thank you at this time on the ninth to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Again that is star then the number one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
They are our first question coming from the line of weaker golf bathroom with.
Stanley Your line is open.
Yeah, Hi, good evening and thank you for all the details.
You know investors are very focused on understanding the potential future revenue contribution from converged. So thank you for all the details on kind of like explaining on the.
The feed on the opportunities associated with it from one of the things. He said is that it's going to be set from an upgrade for current subscribers.
So maybe you can help us.
Think through and about how over time that will translate to increased revenue growth.
Metric that we look at is the number of module with the health systems.
Bye from from from aim well is that a way to think about.
On the opportunity in the in the near to midterm does it sort of explained.
The average number of modules at a health system I would purchase from you.
Hi, Ricky a greater share of voice and thank you for this.
It is important to your question Sn.
Essentially what's happened is exactly what we said is likely to happen.
Well from telehealth as a service initiatives urgent care and primary care and specialty care is now becoming.
We remain flexible.
In order to build the revenue around technology. The first order of business is to build exceptional on technology that meets the future needs. In addition to the current needs of our clients. The second order of priorities to convert as many of our clients to the new platform. We don't want to create any type of barriers for that day conversion.
Because we see enormous amount of upsell opportunity once the ecosystem is on this unified day platform.
Because of long list of reasons I'll just give you. The highlight we believe that with converge every client will use the platform more.
It's much nicer and easier to use it offers many more options and so on and so forth.
We also believe it's more likely that clients that had certain plan for scale. The membership on the audience for the platform.
Non lethal different reasons are likely to expand it.
On more with the converge and then the scope of views well they are using our platform for whether it's utilities like programs and modules created by them well and now with new models by third parties.
Well have an opportunity to really upsell additional value to this day ecosystem Nathan on the fact that the ecosystem itself could connect and offer to trade services with one another because it's one solid code base with unique a unique identifier. This is why we.
On basically said that while we are focusing on converting most of our client base starting this year we believe.
We're going to see a lot of the upside starting in 'twenty 'twenty two and beyond.
That's helpful. Thank you and then if we think about the opportunity associated with converge to expand long term.
Margin profile.
Absolutely. So there are actually quite a few things.
<unk>.
I'm sure you noticed the competition and urgent care reasons pretty fierce right now and the margins as a result on very very slim and we expect the same thing happening in primary care and even in specialty care on line when the services at the core as an alternative to main the Pottsville care at the barrier for entry for those areas, it's fairly low.
And you can see people from Amazon to seek them out to many others entering the field all day.
The simple carriers as replacement around those areas.
In order to create an enabling platform that is fully embedded with lots of other platforms that is covering the full day care continuum. It takes a decade didnt have it takes over a billion dollars of institutional investment.
Great fun thing that day that they enabled day and we are.
Sure.
That as we as we as we implement the platform.
We're going to.
On the subscription fees from contribution on the platform are going to be far more significant to our topline and bottom line.
And then any any other source of the revenue.
The margins in upscale or programs and modules is far higher than the margin on.
Over an urgent care is music.
In addition to that this is day.
Fairly new well actually very new a very modern it platform that is incredibly efficient so things like the cost of deployment the cost of hosting and implementation are expected to be much smaller.
Some of which will be passed to clients, but some of it would translate directly into our range gross margin.
Okay. Thank you very much.
Thank you we have our next question coming from the line of Robert Jones with Goldman Sachs. Your line is open.
Great. Thanks for taking my questions. This is Jack rogoff on for Bob So it looks like cost of service went down on a dollar basis sequentially.
Despite more specialty mix at AMG and more growth of providers on your platform and I know you talked about some other factors that led to expanded gross margin, but can you talk about how these two factors impacted gross margins if at all.
Yeah, So I mean gross margin door.
There was there was more mix shift to subscription when you'd see I think you know when you saw the press release on the breakdown.
Scripture made up a greater portion margins would've been higher but we're starting the migration over to you know the new converged platform. So that was a headwind to margin. So margin increased gross margin increase was because of the increased subscription as a percentage of mix as well as some other efficiency.
The factors that you know with our partnerships with Google and and some other operational efficiencies as a headwind was the or is the initiation of the migration over to the new platform that that headwind is going to continue for the remainder of the year. So we expect margins to be on the same zip code as well.
Where they are now and then you know continue to grow.
After we're fully on the converged platform.
Got it thanks, and then to follow up I just wanted to ask about <unk>.
Program on last which he learned about during the client forum.
I'm curious if you foresee our clients, mostly customizing and program OS or using a care pathway strategy. That's more preset I'd imagine you're on a mix of clients that have kols on staff and others that would prefer something more turnkey and then secondarily do you see the solution being used more by hospitals or health plans.
So the answer is as you rightly.
Suggests to Jackie's all of their book.
We really want to step back and allow the market to do what it needs for different day needs.
Good day fairly rigid they need to agree with every component of the plan in order to buy it and then either works or it doesn't work, but the cost of making changes and implementation is very significant what we did with the program away from what Theyre doing and building gets right now is to really allow us when it went up quickly as well for turnkey.
Solutions, but then replace them as needed and that's the philosophy that you see all through the architecture. If welcome today something fairly heavy but you can think about the program is something very small is they literally intervention that avoids the readmission or helps with triage of many out there and little touch point that could be further.
On a customized and optimize.
And we believe that some of our larger clients are likely to take the advantage of building their own apps and their own programs, while others may want to use those programs themselves or turned to third day part.
The end result is that you're going to see an enormous network effect in the way of creativity and span of options.
For the market and we are going to really allow every participant every subscriber to be very dynamic in creating solutions that are a REIT day for them. It will of course will allow us to for the first time in our history to really monetize directly the ecosystem that we've built over over a decade, the NAV by base.
Rev sharing those innovations as part of our revenue stream.
Very helpful. Thanks, a lot.
Thanks Chuck.
Thank you we have our next question coming from the line of Sean Wieland with Piper Sandler Your line is open.
Hi, Thanks very much.
So on keeping on the converged theme.
Can you just address how it's impacting the sales pipeline the pace of new bookings and can you give us an update on expectations of.
New logo adds this year.
Yeah. So you know what you reported when we normally don't day report I can tell you that we add.
Crazy attendance in our client forum over 1000 participants it's not only the number. It's also the quality we had the best academic medical centers day around the country.
Some of the largest payers in either a very meaningfully large vehicle operations.
And the innovator that participated and already expressed their desire to begin to work with the converge as I said earlier, our number one goal is not necessarily to immediately get new logos on new clients. We are laser focused on our existing clients and want to make sure that day that that's a great experience.
Since converting to our a new way got home from away reasons, it's already talked.
<unk> talked about we.
We believe that the success that we are beginning to see right right now with the first few clients is going to be very helpful. In accelerating our growth with new customers day in the United States and beyond but as he said we are reiterating on guidance for the year.
And we are suggesting the change would be much more palatable.
In the next year and beyond.
I mean, Sean just to add on that.
The customers that we're talking to are coming with a bigger request west you know theyre coming with more crystallized views on the wall that they wont tell.
Telemedicine to play and the platform is further differentiating on we're winning business because of this expanded functionality and bigger picture opportunity.
It's already paying off.
There's a couple of recent wins that we had because of this differentiation and because of them coming with you must have this functionality and we will provide that on the platform. So already we're seeing out of the gate advantages to <unk>.
Broader a broader platform that is as you know.
More interoperable and can bring more of what they do into our ecosystem. So we're already seeing the benefits.
I would just add this is Shawn I think you and other people on this call were invited then came.
Two are a client for them and I think that it's very difficult to translate the bright eyes in the room. The reaction enthusiasm because it's really these are trying to free them to operating a very new way, it's not a little better.
It's dramatically better than any other technology out there and we are confident that that would translate into expansion won't be dimensional expansion, starting with our existing equals.
That's that's great thanks for that.
And can you give us an update on what's going on with the rollout of the virtual primary care strategy.
Well sure.
I can tell you that day.
It's a great product and the results from where it's deployed are better than we expected.
On the BPC has become an acronym many people talk about it in the mean different things.
You can see of course parked on converge as well and it's going to be folded in.
Into the main the main platform.
Okay. Thank you.
Thank you we have our next question coming from the line of Charles <unk> with Cowen Your line is open.
Yeah, Hey, Thanks, guys I appreciate taking the question.
You talked about the.
The per visit revenue getting up to 86 and that was sort of the target you had expected to get to over time.
And the reason, though as we think about the full year guide given the strength of this and how much is coming into more like scheduled visits on specialties.
How do we think about maybe upside potential here in this part of the business and then if can you just go over again when you talked about the providers on the platform. This quarter I kind of missed it Linda can you just remind us why does this number we set necessarily starting next quarter. Thanks.
Sure Charles Thanks for the question and if it wasn't clear on glad we're going over it again, so we were $73 $73 $5 per visit in all of 2020.
Already in this quarter it shot up into the low Eighty's, we thought that that was going to be more gradual. The reason is because of behavioral visits. So we're continuing to see that mix shift to more specialty visits.
And the average for the year, we were saying was going to end up being in the low eighties. We're already there you know out of the gate within the first quarter. So.
Can I say that there's further upside on the air Yeah, maybe I, we werent expecting this massive shift in this accelerated fashion because of the behavioral visits and other specialty visits now does that continue throughout the year maybe.
On.
I'm not going to go there right now, but we were expecting the average for the full year to be in the low eighties.
In terms of the scheduled visits on specialty I mean were continuing seeing that ramp scheduled visits makes up almost three quarters over overall visits so that's a leading indicator its not urgent care. So the vision and the mission statement of being back up care, providing those services seeing.
That continued shift to schedule a visit just shows you know the more stickiness of our platform.
Looking at the providers you know.
And Q2, we we went from 24000 to 57000 in one quarter. So we added 33000 active providers.
Q2 last year was the peak of the pandemic entire hospital systems entire larger even a part of one state put their doctors on our platform.
Doctors were actively delivering care virtually on the platform.
<unk> Q2 rolls off so the definition of an active providers over a 12 month period.
With Q2 2021, you subtract out Q2, 2020, so what youre going to see is youre going to see a decline or a step change decrease.
Back to around the levels that we saw at the end of Q4, but youre going to see the continued growth that we've seen throughout the quarters at the end of last year and then you know in Q1. So it's just math that as Q2 rolls off last year Youre going to see the step change, but the continued growth thereafter.
Helpful.
Yeah, So youre, saying its just the way the your your Formula for how you calculate that number is just not.
More than anything.
It's defined as a 12 month period. So when we add Q2 of 2021, and subtract Q1 or Q2 of 2020.
Where the step change is going to be.
Got it if I could just ask one more you mentioned that three quarters of the visits were scheduled visits does that mean that those are the visits in support of your health system clients and that the on demand visits really kind of ties more to your health plan clients or or if if someone's using live health online day.
You're seeing a lot of people scheduled visits through live health online. These are overall these are both non AMG doctors and AMG doctor so across the board.
Lately less than three quarters, but.
Somewhere between the majority in 75%.
On our scheduled visits so.
I want to receive care virtually from my Doctor I am scheduling a visit.
And then the visit results and that triggers the criteria of a scheduled visits.
But Charles maybe.
To elaborate on this just a little.
Here's how we think we really have two businesses one is very much the business of the past.
Sort of in decline the other one is the business of the future and he's definitely emerging a fast and furious.
The business over the past is very much day length of service.
So you see these maturing on its own moving from urgent care to primary to specialty care.
And of course, the business on the future as telehealth as thoughtful Helios is enabling technology.
Technology, we have one foot here on the other food there. So when you have an opportunity to speak with you our doctor, it's less likely that you're going to use the open market from your per your employer to look for someone else and we talked about it in great detail.
Many times it make no mistake. However, there is value to having network even for talos is enabling platform. The ability that you can rely on available National network with short wait time is proving to be very very helpful to all our clients health plans and health systems.
So we believe that the transition is not going to be certain it's going to be a multiyear process, but since our bet and our focus is on the technology. We really feel that we are much shielded from the obvious decline in competition in the tailing off of service.
Net that he's seeing enormous amount of.
Traffic and newcomers there these days.
And Charles just to clarify <unk> point the visit part of our business is not in decline. It's just the subscription business is outpacing the visit ports. Thank you Keith I meant in comparison and I meant long term versus the long term trend and everything is showing up pointing up just a tick.
It's pointed out much sharper.
Then answer thank you Keith.
Great. Thanks.
Thank you we have our next question coming from the line of jail interest Singh with Credit Suisse. Your line is open.
Yeah. Thanks, Thanks for taking questions I was hoping if you could share some more color on on recent feedback from hospitals on telehealth post COVID-19 are you coming across many situations where providers out of waiting for more clarity on reimbursement post COVID-19 before making any significant decisions on virtual care back from investments and beyond.
Reimbursement I was hoping if you could touch on what health systems on looking forward to all day doesn't and processed by evaluating these telehealth platform options like yours.
Yeah. So.
We actually see different types of clients say, one thing different type of things.
Of course reimbursement is much better than it was but it's really far from what it can be and our health systems.
Clients are aware of it although I can't think of anyone who simply says theyre not going to delay on that doesn't exist. Some moving to use it in the most simplest way as the video conferencing platform embedded in their EMR, while others are building a whole spectrum of services and they're really using our platform to the maximum.
The degree and many are in the meat.
We don't believe that we can necessarily control that the variability in our clients all the speed of adoption in a significant way the market will do what it will do one of the benefits of converge is the modularity. So you don't need to buy the full spectrum of options today, if youre not ready to use them or you don't.
There is a business reimbursed model that day.
We will make it worth your while however, many clients and that is a word that kept coming in again and again look at conversion our future ready, it's a safe bet I can start with simple modules and whenever I'm ready to expand its very easy to do that in a consistent consistent day in integrated the way and we're not trying to fight.
This type of a trend.
Does that answer your question Yolanda.
Yeah that does that does my follow up on the health plan side of your business.
We have seen some consolidation there, but the one of the large health insurance company acquiring a telehealth company any parts on on these foundational is providing some incremental opportunity for you guys as a on the other health plans are not willing to work with the competitor on telehealth and up and well what do you think how do you think about the timeline for this.
Opex from these coming up and how is how are you guys set up to capture those benefits.
Sure I think that is.
The service part of the business that we discussed earlier, we are seeing a lot of activity and digest, though each.
Parkey, maybe different from people want to own the telehealth platform. So they can benefit from the P. P. M revenue stream related to prescription others want to use it as a way to get to providers that either want to use it as a way to get to consumers and so on and so forth as I mentioned earlier, there was a big inventory of auctions and people want to make sure.
But they have the best tools and on those cheap to realize their goals the business of enablement technology that we've built is much higher bar to compete it's very hard to recreate.
It took us 15 years and over $1 billion.
And we also a D day together with enormous amount of feedback from all the parties. So if you were really good at one area moving to get the 360 degrees perspective that we got in creating what we have.
Created very tactically when a big health line is buying.
On a competitor, although fairly limited to the service part of the business. We should assume that initially at least initially they're not likely to become our clients. Although we don't definitely give up on that opportunity.
Opportunity on the flip side that waiver such a company has different clients.
Clients that directly compete with the new owner and we are already seeing some very encouraging signs for us at least by having going directly to their clients and replacing them with as well.
We took a strategy as you know for all those years that we never ever compete with our clients and partners. So we are really a safe zone sort of Switzerland. In this highly competitive environment and we use that in order to allow everybody to transact it well.
On another in a way that does not intimidate any of the players.
Great. Thanks, a lot.
Thank you we have our next question coming from the line of Eric Percher with Nephron Research. Your line is open.
Thank you I wanted to come back to the margin commentary and your comment on.
We're going to see a decline over time for services I think you've always said youre not visited company and keep at it but that's long term, but the market's clearly concerned about.
Competition, and I think that's both volume and margin impact. So we have to really expect that technology is going to fuel growth. Well then the question becomes what can you feel over the next year or two.
You know when we look at subscriptions how much comes from functionality that you have today versus the open auditions net you seem to be inviting west converge. So can you give a feel for within the base current functionality went.
Can that drive enough to do.
To drive growth.
Yes, Eric I guess.
Maybe even if I'm correct on me I.
Well.
We're not going to have a decline in gross margins gross margins would've been higher in this year alone and had it not been for the.
The initiation of the migration on to the converged platform.
We saw it this quarter with the increase in.
Our subscription revenue in terms of mix shift.
The margins that we have for our technology business the subscription our technology margins you know they're there in the low Sixteens day visit revenue. If you look at us on other competitors you know they are not technology margin so well.
That's right now are <unk> 48 per cent of all of revenue.
If you go back to when when visits where a third of our business margins were in the mid fifties. So now with other efficiencies that we have with some of our partners moving over to the converged platform, we're going to be able to capitalize on both operational efficiencies and technology efficiencies.
That are going to get us to those target margin levels quicker.
So I I I'm glad you asked that question because I think maybe you misunderstood me.
What's holding back further expansion this year as the migration onto the new platform.
It sounds like you were talking about inflection back in margins and I'm thinking about the on organic.
Elements that you mentioned to all of those are enablers of technology, they're not clinical content themselves is that what we should take from the inorganic list that you provided.
Okay, well switching gears. So let me yeah I wanted to give you know inorganic we have $1 billion of cash on our balance sheet and it's one that we do have a very robust targeted inorganic strategy and so wanted to give some more insights into now that converges out you know in terms of Ido as explained what.
The functionality and and what its role is for them well.
Wanted to give some insights into areas that we are focused.
With converge it's much broader.
Great.
Different components to the ROI of.
Migrating over to the converged platform in one of those is the broader inorganic strategy. We have four four businesses that you know and partners that we can put on the platform.
I will further accelerate growth or accelerate margin expansion.
Eric with the reasonable funding in mother's day, we are fairly convinced based on a lot of hard work and dialogue that we have today by far.
The leading platform.
But we don't assume that's necessarily say for many years to come we need to always investing and improve part of the tools that we have is inorganic acquisitions and the purpose of those acquisitions will be to make us a better platform, we're not going to buy services, we're not going to buy things that relate to.
In the past, we're going to really make sure that we offered the best experience for our clients or partners for innovators. So they can basically achieve and create more value.
With the platform that they have there is greater clarity in who we are award dnas is a technology enabler.
That's helpful. Thank you.
Thanks, Eric.
Thank you we have our next question coming from the line of Ravi Misra with Baron per capital. Your line is open.
Hi, good evening. Thanks for taking the question. So I just wanted to go back to converge and kind of ask the margin question from another perspective.
You know as you kind of layer on these these kind of third margin third party App models can you help us understand.
What's the kind of incremental view to gross margin or operating margin that can be delivered here I think in the past Keith you know you've kind of talked about getting close towards breakeven around 'twenty 'twenty four 'twenty five ish period help us think about well.
What this kind of new stream.
<unk> from a profitability perspective, and then secondly, I think you talked about kind of a partnership with Twilio during the call with converge any kind of.
Insight there in terms of.
That's going to be doing to kind of bring the cost of serving the visit a little bit lower.
Thanks.
Thanks, Ravi I mean, we're not we're not changing our EBITDA profitability time line, yet that is one of the.
Rationales for converge, but we're knocking on we're not going to change that right now.
I'll, let you answer the rest, but I just wanted to take the first part the easy part.
Thank you Keith.
Look.
We know already many things and we're going to quantify and validate them as we go along and then of course, we're going to share a view into into the future. There is great clarity already that day.
The new platform drive much better EBITDA margin.
On the cost side, the modularity allows us to really renegotiate and rebuild all our suppliers and subcontractors they're in a new way to new is a good example are we simply believe partnership moving forward.
No well you wanted to select a video engine and we believe the Twilio is the best the epic used them too. So we are likeminded on that front and we are offering it to our clients.
Down the road there'll be a better video engine, we take this out we put one in we can do that today with the module already have got familiar that we have but this is a good example of creating value for our customers overall because of that strategy, we expect the hosting cost to be dramatically less.
Costly and deployment to be much faster.
One simple user interface and many many other re things that we touched upon on our a client three or four of them much more importantly, because we build it is there is it is a real platform the cost of add ons is almost insignificant.
So when we build then we announce an open on our App store.
Later by the end of the year, and we bring more and more apps.
This in the coming years, because of adding them is very small to us, but the value of accessing the network effect and our ecosystem is very considerable to all parties. The concerns. So we believe that we are going to see very high margin revenue stream and much greater stickiness. There is the Arista deposit.
Between the diversity of options and the stickiness and the value to bring to your clients. But these are all the wins that we don't necessarily participate in we're basically leveraging other peoples the innovation in order to create that network effect that we expect.
Great. Thanks, and just maybe one last follow up just going back to the to the.
The revenue recognized per visit behavioral health clearly benefiting from a mix shift there can you maybe give us some commentary on the pricing on some of the other kind of layers in that in that model. Thank you.
We havent gone to that to that level I mean, we have some.
Per transaction that you now can get as high as this was in our S. One $800.
Then we have the lower urgent care price per visit so the average we said for the full year was going to be in the low eighties.
It got there pretty quickly in the first quarter last year the average was.
$73.50.
Operator can we have our next question.
Thank you we have our next question coming from the line of David Larsen with B T. I E. Your line is open.
Hi can you please talk a little bit about the 20% growth in revenue that would have occurred excluding those two customers.
That rolled off because of M&A, where is that growth coming from.
Especially with regards to new client wins or you're winning on the health plan side or the hospital side, where is it coming mainly from installs into existing health plan customers, where you're getting more members or is it really the visit volumes, where you're generating a fee and any additional color around that growth would be very helpful. Thank you.
It's pretty evenly mixed Dave and Hello, Bye bye all those different areas I would say the new logos are being a little bit paused because they now have a more evolved crystallized expanded view of what they want the platform to be and they know that this is now not an insignificant.
<unk> decision for their.
For the organization so having the partnership with Cerner is helping on that on.
And you know as we see it actually in a large opportunity on the health system side. The health plan side is yes, it's ripping across our member base.
That's where the expansion is there as well as introducing new modules on programs or programs on the health plan side, given it's in the beginning of the year.
And then in terms of you know.
The mix at <unk>.
It does two large customers that churn due to M&A that we talked one at the IPO and then the other the play on that acquired a telemedicine company.
You back out.
Those are those two customers.
Get to the low 20% growth that I quoted in my prepared remarks.
Okay, Great. That's very helpful. And then just regarding like.
Using Amazon as a platform can you talk a little bit about home care and I was intrigued by your relationship with Taito care do you have any relationships with home health companies, where you could share.
N nurses into the home and deliver a mad can offer like a complete sort of solution.
That would effectively compete.
With Amazon Thanks.
Yeah again, we are enabling others, we're not bringing our own solutions and recommending it to the market. That's a very important differentiator between us and other telehealth players youre absolutely right. Its homecare easily incredibly important area and players in the area or are some of them on.
Using on bold and hopefully some of them many of them well use that I'm well also in the future. What we bring is the integration because in home care you needed more than ever you want to connect to your payer you want to be in contact with gaps in care with you on tour and of course, you want to connect devices and you want to connect to different type of free providers and so on and in a different type of systems for.
Continuing to care and the full spectrum of care homecare, we thought about coordinate care urgent care or primary care necessarily alone.
And we thought we check all those boxes. So we believe that as home care is that trend is going to be much well equivalent as I suddenly believe that you're going to see those systems definitely connected to the AMOLED platform and through the platform to the rest of the participants that are very relevant.
In the home care a title he is a great example of an app.
So we don't say to our clients use title, though we resell title, but we don't necessarily say that's the only device that you should use but the plan is to really allow you to choose from a greater variety of different devices different programs and really customize what you need when.
When you need it.
Great. Thanks, very much appreciate it.
Thank you we have our next question coming from the line of Donald Hooker with Keybanc. Your line is open.
Great. Good evening. Thank you.
Just with regards to the.
The step up in R&D expenses as we go through the year.
How do we think about modeling sort of stepping down potentially in 2022 and it sounds like Youre doing this program OS on Google Cloud next year.
Is that going to keep on.
Update us with regards to what R&D expenses might look like longer term.
Sure so.
Yeah. So everything we said in our client forum is going to be delivered and well R&D. This year.
So all of that expense is going to be delivered.
It is this year.
However, and then obviously, we expect the R&D.
Close to normalized.
We are a technology company and we may invest in new opportunities day emerge, but they will be connected to new revenue streams are.
Associated with them every day part of what we discussed day on the call and in our client Forum is they're going to materialize in this year's plan normalizing next year excuse me I'm, sorry, before taking your park.
No no it's it's.
The spend that.
For the entire year is going to be similar to the percentage of revenue that we experienced in Q4 of last year and then the program will be complete until the project will be complete and it's going to go back to a more normalized level and in 2022.
Okay got it got it and just to be clear and more normalized level would be.
I'm just looking back is there a particular reference period I guess Kris first half of 2020, perhaps is that kind of.
What is a more normalized level.
Okay.
You know where it was where it was.
At the end of 2019.
Okay Super So that's great.
And then maybe just one last one from me I just I was very intrigued by the sort of the natural language Google sort of.
Language translation.
App or whatever you call it its very interesting.
It does seem like that would open up international opportunities.
Can you update us on your ambitions there does any any incremental comments on the international obviously, a large opportunity internationally. So love to hear about couple couple of points on that.
Sure. So your question on number of components, you talked about our relationship with Google I'd like maybe to make a comment there first.
We are beginning to see evidence of our partnership with Google, becoming incredibly important day for Ray on well so the app that Google launch and we were very thrilled that they were the first official app to launch on M O M.
Many many more to follow.
Very important that I'll talk about it in the second so the technology collaboration is really working and there is not more where that came from.
The sales is beginning to work are we we are on the Google marketplace. We signed all the required agreements and our sales force is working together and we actually started to sell in earnest, which is which is great.
The third component is we are beginning to leverage some of the benefits of working with Google cloud itself and that has the February the hosting cost and margin contributions.
For us as well so that's really important.
Converge is designed as they said, it's a global platform from the get go it's designed to work anywhere as well.
Probably no we already have a very successful deployment in Israel on op.
Current day platform, which is not the converge, but the whole point of Ameren in general is an enabler is true anywhere it's not only true in the United States and we definitely plan to expand.
Of course, the Google relationship is very relevant, but we have other partners like cerner that over or operating traditionally north even mentioned people like Allianz Phillips and others that also are our global global if global presence. So we are we're going to leverage our relationships to grow a bit.
On the the United States, and we believe that our investment with converge and it seems like the Google apps that we described would really help.
You know we have a JV together with proven cleaning for example, and it has a really broad audience and some international.
The client and for clients like that the ability to have real time.
Caption in translation medical grade is a very big deal.
We all know what's happening in India. These days.
And imagine how helpful. It would be where providers and countries that are less affected could potentially chipping in health and well I'm talking about the regulations right now things of that nature. There is a way to go there as well, but can work technology. That's an enablement that these are very important.
So so we definitely plan to.
Be active on all those.
Of those fronts.
Great.
Make sure you got my answer correctly, it looks like Q4 of 2019 as a percentage of revenue obviously, we're not going to go down to the R&D level that we had in 19, we're big on sharpening, but on a percentage of revenue base on a percentage.
That's what we're looking for for next.
Next year.
Super Thanks, so much thanks John.
We have our next question coming from the line of Ryan Macdonald with Needham Your line is open.
Hi, good afternoon, thanks for taking my questions.
You know you talked about in the prepared remarks about the opportunity from monetization of converge.
Through the apps that will be developed on the platform once the marketplaces launches.
I know you mentioned theres already a few apps already out there, but I guess I'd be curious to understand from the client form what sort of interest you've seen from the development community to build out that potential pipeline of additional apps to come onto the platform and how quickly you're thinking might be able to start monetizing that.
Sure. So the interest is very strong it came from all over and it came from a more companies with the you know that we're thrilled to find a shortcut to get the two markets. You came from large established companies that failed.
Well it wed like Google.
And it also came from clients interestingly enough many of our larger clients have the big shops of our innovation is a lot of what they've done could be very relevant and helpful to the rest of the of our clients.
So there are two aspects to apps and and and and and programs the program away.
One is the technology aspect you can use API. So you don't need to write yourself codes for real time, manageability cold or integrate with multiple EMR or do many of the other things that we're doing because we already do that then you can use our API. The other one which is equally important maybe more important is the ability to interact with.
With the ecosystem because we built.
So you were already integrated it is much easier to add component then to grow retail and try to sell to a CIO yet another service that's something that is fairly fairly in there.
The general direction of this is that it.
There is value in both the technology to provide true innovators and the access that we provide to an ecosystem that took us many years and lots of resources.
To build.
And as I said in my in my remarks.
To give you more details about the way that we're going to enable it from a peninsula business standpoint later in the year. It's also based on dialogue that we're having with different innovators and with ecosystem clients. So we can form a view on something that these very comprehensible very simple.
To understand for for everybody and very reproducible and that's fairly new to us we're learning.
Excellent and then as a follow up for Keith you had mentioned I think to one of the previous questions on on new logos.
A bit of a pause there based on some crystallized sort of vision of what they wanted to do well you were seeing any instances of potential pent up demand as customers were waiting or prospective customers were waiting for the launch of convergent any chance that that gets released as we've looked at.
For the remainder of the year.
Yes, I mean, we won a large mid Atlantic Blue line. It was a competitive takeaway because of you know the <unk>.
<unk> of our platform and the partnership aspects of our business. So they were waiting they knew that we were we were rolling this out and you.
That is that was a great win.
You know our clients are generally excited.
And they can do now many more things that they were waiting to do I would not call. It supposedly would call adjusted.
Yeah.
On a serious look it's what's possible and planning the deployment program that was just on think about it.
Before so overall I think that we are going to be able to offer converged to many larger audiences.
Going forward.
But when you put in front of kids with lots of always on the table. There is an element of choice that takes a little longer tool to realize.
Understood. Thanks for taking my questions.
Thanks, Ron.
Thank you we have our next question coming from the line of Glen Santangelo with Guggenheim. Your line is open.
Oh, yeah, Thanks, and good evening, Thanks for taking the question Hey, Keith I just wanted to follow up.
On something you said in your prepared remarks, and I apologize to make you repeat it but I thought you were giving us some commentary with respect to Q I know, we talked about the different providers, but did you make some comments.
With respect to the revenues in <unk> that that May look somewhat similar.
Q1, or did I did I Miss hear that.
No I was saying that we're going to have a more normalized revenue profile. So when I when I think about visits when you go into the summer.
Q2 is normally.
Somewhat I guess flat to Q1 at least that's what we're expecting.
Services and care points really starts ramping up toward the end of the year you have less marketing in Q2 you have.
The care points being too.
Starting to cause a capital budgets on the system starting to be bought.
Both of those are more back end weighted the subscription growth is going to be continued growth.
Right. So so when I think about the full year outlook, we see that sort of inflection coming in <unk> and if I heard you correctly, you're saying that's really driven by.
On the services and on the care points.
And to kick in am I understanding that correctly.
And the a.
So you know we're going to have a nice growth again you know.
Next quarter on that line, but it's it's you know I guess more of the stuff coming out of converge more of the modules on programs.
Being purchased in the expansion within the member bases.
Of the plans getting getting even more detail.
Okay. Thanks, a lot.
Thanks Glenn.
We have our last question coming from the line of David Grossman with Stifel. Your line is open.
Thank you.
Most of my questions have been answered, but I wonder if I could just go back to.
Some of the structural questions about the converged rough in the model does when you convert an existing client to converge does that naturally create a lift in revenue.
For that client or does the incremental revenue come from selling incremental modules and if in fact it is selling the incremental modules can you help scope for us just how many of those modules are really available today.
For those clients to drive that incremental.
Yeah, so well.
Well basically as I mentioned, we want to make sure. It's an upgrade you get it if your clients are on mill you get an upgrade to your current day platform with the with the converge and we tried to make it as streamlined as possible of course, our clients are all over the place and well the scope. Some are using very small part of the functionality what others are using.
On a big part of it.
In.
The average client has lots of room to grow in many areas. So a typical health systems have lots of modules that they didn't buy it that are more likely to buy on converged because of the reasons that we already did.
Discussed many health plans, they're using certain programs that have new programs that they can do on convergent are likely to buy it and as I mentioned also.
Because the change in user experience for the many of the aspects, we expect them to use it more frequently and we expected to use it with more people with big array audiences. So there are aspects of frequency and volume there are aspects over the scope of the Jos.
There are likely to drive the revenue growth from our existing clients and later on in <unk> 'twenty 'twenty two as I mentioned, a lot of that will come not from them well, but will come from partners like Google and others that are well be developing.
Really interesting solutions on our platform.
One two.
Can you expand upon that answer even more we have to justify the elevated R&D spend.
For converge this year and so I view it from being CFO and ROI perspective, So I mean, there's three components that I broke it down when we were explaining it internally into to leadership.
Revenue side, where we do believe it's going to accelerate and steepen the slope of our revenue growth because a they're going to be.
Buying more modules on programs.
But we're also going to have access to more of the wallet and.
And the wallet is also going to expand because we're going to be doing more on the platform that expands margins I think we've already talked enough about that but it also is opening up a broader inorganic strategy.
Some of the things, we're looking at because of the functionality because of the.
Different ways of delivering care virtually we're looking at some targets that are on the previous platform I don't think it would've made as much sense now it's actually pretty exciting on the converged platform. So those are the three ways I look at converge on justifying the elevated spend this year.
Right. So I think that that's actually very helpful. Insight. So Keith So if you think about that and I think by your own admission you've got a heavily more heavily backend weighted share some of that care points on some of the other elements you talked about but also more.
Modules being purchased under converged. So I assume your clients are sharing some of their plans with you and you know what you have in developments. So how much visibility do you have at this point on the back half of the year. If you could at least share some of it whatever visibility you do have.
I mean, like we said on our prepared remarks on when you tried to give some insights into the selling season into the pipeline you know they are coming to the table with bigger opportunities.
That would get us even more excited because we can take a greater share of that wallet. So while we had the volume of logos.
On the pipeline that we are mapping out for the rest of the year you can see a greater opportunity.
The large mid Atlantic Blue that we won that Ido mentioned in his prepared remarks by having this new platform, we're going to be able to access a greater portion of that wallet deliver more functionality more modules and programs or programs, you know too that customers so well.
We're very excited about what we're seeing because we're seeing the opportunity to expand beyond just the addition of logos. So we are looking for you to see you know expanded.
Average contract values.
And a portion of our growth coming from that as well as you know just the simple additional logos.
Great. Thanks very much.
Thanks, David.
Thank you there are no more questions on the queue I will now turn the call back over to the speakers for additional comments.
Well. Thank you everyone for joining I know that many of you spent a lot of time with us at the client Forum and also we're discussing our progress there is a lot to chew on it's a big change it's exciting change and we are very glad that our vision of many years.
Come in coming into we're into fruition.
So we look forward to continuing the dialogue with you.
And keep you updated day with our progress.
This concludes today's conference call. Thank you for participating you may now disconnect.
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