Q2 2021 American Well Corp Earnings Call
Good day, and thank you for standing by welcome to the EM well second to acquire 2021 earnings conference call. At this time all participants are in the listen only mode.
After the Speakers' presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker today.
Schoenberger, Chairman and CEO of ammo. Thank you. Please go ahead.
Good evening and thank you for joining our earnings call.
Our call. This evening I will discuss the <unk> performance and show full year trends, including a 2021 guidance.
I will then cover our strategic trajectory as reflected in our recent performance and acquisitions.
Finally, I'll turn to Keith to give you more color on our financials and then we will both open the call for Q&A.
The second quarter remains consistent with our plan with $60 million in revenues.
55% came from our technology business and 45 from visits.
We were excited to count over 70000 active providers significantly higher than we expected considering 2020 COVID-19 related one and done adjustments.
Following the typical seasonal pattern as we ended the school year and headed into the summer. One 3 million visits were performed on our platform in Q2 of 2021 versus $1.6 million the previous quarter.
Clients continue to significantly leverage down we'll platform to deliver care to their patients is 75% of all visits this quarter were performed by our clients' own providers.
I'm pleased to report the AMOLED drove a 600 basis point gross margin improvements to 44%.
This was accomplished through a favorable shift to more higher margin technology revenues and a set of efficiency contributors that started to realize including our migration to Google Cloud Amun Medical group technology improvements and initial deployments of <unk> will now on converge.
Sure.
These efficiencies also improved our EBITDA loss to 23 million for the quarter.
Our software subscriptions care point and technology related business continued to operate at or better than originally expected. However.
However, the recent emergence of the Delta variant has introduced some uncertainty towards second half visits outlook.
To cover all visit demand scenarios, we want to account for a new potential second half profitability in which the delta Varian preventive measures, including masking and social distancing could significantly reduce the flu season, while not adding to actual COVID-19 related demand too.
To cover such potential variance related development.
We are adjusting our full year range to $250 million to $262 million.
Given the earlier discussed efficiencies, we're improving our organic EBITDA guidance by $12 million to negative $1.54 million to $146 million, which on a GAAP basis includes the 10 million EBITDA burden from the conversant silver cloud acquisitions in there.
Related deferred revenues write offs.
In Q2, we began to deploy converge in hospitals and delivery networks.
38 am will now clients are already live on converge powering 1300 providers when our new platform.
Patient satisfaction rates are high clients are seeing significant performance improvement over our legacy platform. For example video connection speeds on mobile devices are twice as fast on converge.
You May now other example, a Midwest hospital is using converge for both ambulatory and inpatient care and providers are giving high marks for the reliability and simplicity of the new platform.
They highlight the intuitive user experience pre visit tick checks in real time troubleshooting for connectivity issues all of which they say has enabled patients and providers to focus on care rather than technology.
In the second quarter, we also expanded our work with our strategic partners. For example, our products are now sold in the Google marketplace.
And I will sales teams are cross selling in key accounts and Google Cloud technologies are building to converge and will bolster automation and user experience analytics and insight.
We also accelerated our work with Cerner a partnership that continues to gain momentum and has led to significant number of new clients choosing anvil in two strategic cerner client renewals.
These clients span the spectrum from public health systems to academic medical centers to regional centers of excellence across the country.
More strategically we see telehealth transitioning from a digital alternative for an office visit into an independent arm of care delivery.
The long term impact of Covid on telehealth is driven not only by patient uptick, but more so by devoting more physicians, who have adopted it and we'll continue to use it.
With digital care, becoming mainstream it is possible to expect a technology assisted presence so the health care around patients.
Such constant presence and companion sheep cannot be achieved with only commissions it.
It can only be achieved at scale using intelligent automation.
For these companionship to be adopted is valuable.
Must strengthen the cohesion between physical and virtual care tying into real conditions, where various skill sets as the need arises.
There was no such convergence in the market until today.
No single integrated platform, combining automated conversational companionship virtual care and physical care.
This is changing with AMOLED converged platform and our recent acquisitions.
We are assimilating the components needed for joining digital companionship life telehealth in AI knowhow with annual vast ecosystem with payers and providers to offer an affordable longitudinal health care experience.
Two weeks ago, we announced two strategic acquisitions.
Our 320 million total investment was made via a combination of stock and cash.
Both silver cloud and conversant feature incredible teams that share our values culture and mission.
They are both outstanding high growth high margin technology companies.
Both companies are loved by their clients with net retention of nearly 100%.
And with over 140% annual same store revenues growth rate.
Like us their purpose is to further enable and not replace existing provider patient relationships and like us the power health care, our largest most trusted players. It is easy to understand how conversant silver cloud will directly improve and expand the value and differentiation.
The Asian of AMOLED converge platform.
As we already shared we expect these assets to grow over 100% next year, adding approximately 30 million to our subscription technology business.
Conversely brings capabilities to create run and manage automated longitudinal programs in converge.
The result is data driven highly efficient always on fully integrated mitigation and engagement experience.
In addition to improving the patient experience and outcome. The conversant technology can greatly enhance axis and utilization of other converge assets, including silver cloud.
Conversely is trusted by many leaders, including Northville, UNC health and UCSF.
We expect to fully embed comverse enamel platform by the end of this year.
Silver cloud delivers a range of digital cognitive behavioral health programs that are evidenced based and clinically validated.
These programs have shown results equivalent to face to face care for patients with diagnose a bowl mental health condition.
Use globally by more than 300 organizations, including Kaiser Permanente, Optum Providence health and over 80% of Uk's National Health service mental health services, AMOLED will leverage silver Cloud Health E Award, winning platform and more than 17 years.
The clinical research to enrich our own view of her health offering as well as to develop new digital specialty care programs.
Fitbit cloud also allows our clients and partners to enhance their own provider services modules and programs Jaime.
Finally, it opens a new base for them will we trusted relationships in the UK and Ireland.
Both companies enables significant care improvements through automation.
Combined we are now able to offer our clients and partners is single unique platform that enables hybrid care covering physical virtual and automated services.
Our open marketplace for App certain programs will allow health innovators to deploy deeply integrated health technology that could improve outcomes across the full continuum of care.
We are well positioned to maximize the impact of providers by supporting them continuously.
Before during and after their visits expanding their reach and impact through technology.
The result will probably be one of the most advanced and comprehensive digital care delivery enablement platforms to date.
It will connect vast array of providers payers employers and innovators as existing and new clients and partners Growingly rely on it for powering bigger parts of their business.
As we begin to think beyond 2021, we feel that we are better positioned to further improve margins and EBITDA.
The growing demand for our high margin scalable and highly differentiated technology is fueling this change.
With that I would like to turn to Keith to give you more color on our financial performance.
Thank you Joe and thank you everyone for joining us on our second quarter call. While later in my prepared remarks, I'll unpack our performance this quarter I want to first provide some insights into the two acquisitions, we announced simultaneously two weeks ago.
If you recall, we discussed on our first quarter earnings call that the theme of longitudinal care, while our core functional tenant of the converged platform is also driving our inorganic strategy and the areas of care coordination interoperability device agnostic patient monitoring and the ability for AMOLED to provide programs.
To manage chronic conditions at the health plan or health system customer does not have their own program <unk>.
Acquiring these two companies simultaneously was intentional as conversions focused on automation in care coordination, while silver cloud then delivers lower acuity CBT Bache behavioral health tools to address the situations identified by conversant.
While both of these companies have been wildly successful in their own right. The combination of both of them at the same time on the converged platform opens up many opportunities for analog to further deliver on our core mission to provide the environment the platform and the tool for our customers own providers to deliver care to their patients or members.
While conversion is mainly automation technology that will broaden convergence functionality silver cloud as a behavioral health tool that when appropriate and searched the customer's own providers to treat their patients Kaiser and their use of silver cloud is a fantastic example of this dynamic.
What is most important about silver cloud and convert is that it highlights the differences of <unk> versus other virtual care companies as we are partnering with the provider and coordinators of care person is competing against them.
This enablement theme and function as competitively differentiating and has been a key to our success and our selling season.
In terms of financial impact, we acquired silver cloth for $210 million and converse of our $110 million with both transactions paid for with a similar mix of approximately 50.50 cash and stock.
Both transactions have additional earn outs based on operational in 2022, GAAP revenue milestone that upon achievement will be paid for an M. Wal stock.
In aggregate and if operating on a standalone basis. The companies are expected to achieve $15 million in revenue in 2021 and over $30 million in 2022 on a GAAP basis and in terms of contribution to M. While due to significant deferred revenue balances, we expect little to no contribution to our 2020.
One revenue, but approximately $30 million in 2022.
While the deferred revenue write down as a headwind to 2012 O on revenue on a GAAP basis, we still recognize all of the expenses, which are significant as both companies were building up the infrastructure to support their 100% growth rate. So on a GAAP basis for 2021, we will absorb an additional 10 million in EBITDA loss related to these.
<unk>.
Both companies in aggregate are forecasted to achieve 70% gross margins in 2022, 75% of silver clouds revenue comes from the UK from notable customers such as the NHS.
From a customer base perspective, the majority of revenue from both companies comes from health systems, which was important to us and typically achieve over 140% net revenue retention, we closed conversant yesterday and are expecting to close over cloud by the end of the months.
Now turning to our second quarter results, we reported total revenue of $60.2 million, an increase of 5% over last quarter, driven mainly by expansion of our technology subscription business.
Total subscription revenue in the quarter was $26.8 million, a 9% increase over last quarter and about a 15% increase compared to the second quarter of last year and normalized for the two customers lost due to M&A that we previously discussed.
The growth is a result of expanded health plan programs and health system modules.
While we report average contract values on an annual basis. It's notable that average contract value is now around $700000 for health plans versus 600000 in 2020 due to the rapid expansion of programs being conducted through our platform.
Total visits conducted this quarter on the AMOLED platform was one 3 million and AMG performed 325000 of these visits.
Reiterating what <unk> said in spite of the Q2 and Q3 typical summer slowdown in urgent care visits which was exacerbated by people experiencing a much needed COVID-19 passing euphoria.
Our clients continue to deliver significant care on the platform at 75% of visits were delivered by our customers on their buyers total visit revenue was $27.5 million this quarter, which is the same level as Q1, despite that some are dynamic.
Unpacking the mix AMG volume continues to shift to higher acuity specialty visits with the average price per visit rising now to $85 per visit range from the low $80 range in Q1 and $73 per visit on average in 2020 <unk>.
Similar to the first quarter. This increase was also driven by the increase in behavioral health visits, especially higher acuity psychiatry delivered virtually to patients mainly in the hospital.
While the number of AMG visits decreased slightly revenue remained flat as the mix percentage continued to shift to higher revenue specialty visits versus simple urgent care.
As we guided last quarter services and care points revenue increased to $5.9 million from $5.2 million and is on plan as health systems to begin to execute their capital plans in earnest in Q2.
Gross margin increased over 600 basis points to 44% of revenue versus 38% last quarter. This was partially due to revenue mix shift more weight into subscription revenue, but also efficiency measures implemented on the services side.
Specifically the efficiency aspects of our partnership with Google being realized economies of scale and technology process improvements within our AMG business and early aspects of margin expansion as we begin to migrate clients over onto converge.
Note that in Q3, and Q4, we expect margins to slightly that person's this quarter as we began to migrate some of our more complex customers onto converge and this will take additional resources to ensure the migration of seamless.
But what we are seeing in the business and what we have done operationally and with technology confirms our ability to meet our IPO target margins in the mid 50% range and with continued mix shift over time, eventually even higher margins as our subscription business. Our core business is currently operating at above 60% gross margin, but again.
That'll take time as AMG visits currently represent half of our vessels.
Moving to Opex, we've also achieved similar efficiencies within company operations.
R&D expense in the second quarter was $22.4 million, representing 37% of total revenue.
Compared to 40% of revenue in the first quarter for favorable $600000. We achieved these efficiencies through better leveraging our strategic partners in the development of converge and also offshoring some aspects of engineering that we originally thought we'd keep in house. These changes have been reflected in our favorable adjustment to our revised and narrowed EBA.
Our guidance and we will discuss later in the call.
Sales and marketing spend of $14.8 million is an increase of $1.1 million sequentially versus Q1, but was mainly due to our client forum.
G&A expense in the quarter increased $2.8 million, mainly due to onetime legal and M&A expenses that have been excluded from our adjusted EBITDA calculation.
We are reporting an adjusted EBITDA loss of $23.7 million compared to a loss of $26.4 million last quarter the majority.
E. A sequential favorable increase was due to our gross margin expansion, but also a successful operational and technology efficiency measures in our operations.
We expect R&D and sales and marketing spending to increase over the remainder of the year as converged spending increases and marketing events take place, but at a lower cost versus our original guidance and thus the favorable revision to adjusted EBITDA, we ended the quarter with $975 million in cash and.
In terms of active providers, we closed Q2 with 71000 active providers delivering care on the platform of which 4000 were AMG providers.
As we touched on in Q1, the number of active providers in Q2 in the next quarter will decline as those doctors, which we added solely to handle the COVID-19 spike during the peak of last year will roll off in Q2 and Q3.
And we'll also added a number of providers on the platform. When we were doing 40000 visits in a single day a good forever. One. This has now passed and we do not need this level of AMG doctors on the platform.
Since then we've added more specialists as our visit mix is migrating to that have higher revenue part of our business and our customers doctors are delivering more care through their own providers.
Regarding our annual guidance as Ito discussed we are now reflecting the impact of how we believe the new Delta Covid variant will affect the flu season.
While no one has a crystal ball with Covid and now, especially with the Delta variant our revised guidance range reflects a moderated flu season on the high end and a low flu season on the low end of guidance versus a normal flu season, which we originally assumed when we provided guidance in March.
We are confirming our original guidance for our technology subscription business as it is operating at or above plan and are also confirming our original guidance for our services and care points business. There is potential for upside in the care points business given the recent CMS announcements regarding grants for health systems will update you more on.
This dynamic on our Q3 call.
For visits we are narrowing and lowering our visit forecast to a range of one four to $1.5 million.
From our original range of one five to $1.7 million visits this translates to a revised total overall revenue guidance of $252 million to $262 million.
I want to give you the math for your models. So that you can isolate the adjustment solely within our business line.
The top end of our original guidance range was $270 million and this represented approximately $1.6 million visits.
The difference between the top end of the visit ranges 1.6 declining to $1.5 million visits is 100000 visits and an $80 average revenue per visit equates to a change in about $8 million of total revenue. Thus, we're lowering the top end of our range $8 million from $270 million to 200.
$62 million.
Our low flu season in our forecast model equates to approximately $1.4 million visits are for all of our 100000 visit decrease so again using the same math, we are setting the lower end of our revised range at $252 million.
In terms of the two M&A transactions contribution to our 2021 results on a GAAP basis, they are adding little to nothing to our revenue due to the significant deferred revenue write offs, but will burden EBITDA by 10 million, mainly due to the significant ramp up of operational expenses in anticipation of supporting their 100%.
Growth in 2022.
So in terms of EBITDA, we are favorably, increasing and narrowing our organic EBITDA range by $12 million and netted together against the 10 million of EBITA burden caused by the two M&A deals equals a range of 154 million to 146 million EBITDA loss on a GAAP basis SEC.
Differently on an organic basis, our revised EBITDA range would be 144 to 136 million EBITDA loss, but on a GAAP basis combined with the two M&A deals is $154 million to $146 million loss.
Next quarter subscription revenue will be flat to slightly up as specific new logo implementations will hit starting in Q4 <unk>.
Services and care points will sequentially increased double digits each quarter as hospitals continue to execute on their capital spend and we execute marketing campaigns for both systems and plans.
With visits since we're halfway through the third quarter. We can say that we are seeing specialty visits continue to grow less so with urgent care visits in terms of distribution of visit revenue assumes high single digits over Q2 with a balance of majority of growth coming in Q4.
Ido discussed gross margins are expected to temporarily decline next quarter and in Q4 as we have begun to migrate some more complex clients onto the converged platform, which will temporarily burdened gross margins.
In conclusion, we are pleased with another good quarter, especially noting the positive results. We are seeing in our gross margins and operational spend we're pleased to announce our two acquisitions two weeks ago and yesterday closing the converse acquisition, we continue to evaluate opportunities to enhance the overall functionality of converged to deliver full launch student.
And coordinated care and have ample funds to execute on our inorganic strategy. We are happy with the progress of our converged development and rollout and especially the competitive and operational advantages. We are seeing steep in the slope of our growth opportunities and expanding our efficiencies.
Now I'll turn the call back over to EBIT for his closing remarks Peter.
Thank you Keith I Hope today's report further clarified our unique strategy and the growing evidence for its impact on our current and future growth trajectory and overall performance.
And with that I would like to open the call for questions.
As a reminder to ask a question you will need to press star one on your telephone again that is star one on your telephone. However, if your question has been answered and you wish to remove yourself from the queue press the pound key please standby, while we compile the Q&A roster.
Your first question is from Ricky Goldwasser with Morgan Stanley.
Yeah, Hi, good evening and thank you for all the details my questions are going to focus on on one on guidance and second on the margin. So just to understand the second half guidance and Keith It sounds like the difference here is around your assumption over it.
Can you just kind of like want to come here to testing through just better understand your assumptions around sort of the delta there and what do you think that does too.
Tuesday.
Linda visit mix and also there I mean, you you were talking about scaling back on number of physicians, because we're seeing less COVID-19 related.
Do you see any.
The scenario, where because we're now seeing an uptick in COVID-19 that you'll have to rehire.
Hi, Ricky this is either good evening I'll try to answer and maybe Keith.
Complement my answer.
All right.
The change in guidance is exclusively related to visits and very specifically related to wave called and the flu.
The performance of visits from the beginning of the year was exactly according to our models as I mentioned on July 18th the American Pediatric Association reversed their guidance and now mandates K to 12 masks and social distancing for children.
Yeah.
A few days later on July 27th the CDC reverse their own guidelines and now a mask our mandatory in all effective areas, which is about two thirds.
The United States.
As you remember, a flu and cold or significant part.
Great.
In the second half say over the year, which is a big part of our overall.
The profit.
We those changes we have to take into account is scenario where.
Flu and cold are much lower.
Then a normal flu season, which we assumed earlier in the year.
Same time, we cannot automatically assume COVID-19 related increase.
In visits and that's what's driving our guidance obviously.
And it goes forbid if we see a serious illness.
Going back those dynamics will change and we'll mandated changes.
So in our own performance, but more importantly in our preparedness.
Should we need to increase.
The ability of more provider in providers in AMG.
We are much better prepared to do it than we were last year, both in the way of operationally and technologically in addition to that many of our clients a much more integrated and ready to chip in if that emergency shoot the reoccur.
So if we see if this is just very recently circus continues should we assume that that would provide upside to the revised guidance that you provided today.
That's definitely a possibility look I can tell you for example that even from July to August we've seen an average growth in urgent care AMG visits up 17%. However, we noticed the growth of 40% in the south and heart disease States.
<unk>.
So obviously, that's an unfortunate situation if that could continue.
Nationally for the end of the year that would definitely have a significant effect.
On on on <unk>.
<unk>.
It's also possible that.
The reverse will happen, which is what we see in England.
We will see a.
A decrease of the down to the very end and coupled with removal of masks and social distancing, which is likely going to create the flu season that is much more.
However, we really cant assume that based on what we see right now and therefore, we had to adjust our guidance to the scenario with digests articulated realizing that there are.
Are there possibilities that are driven by factors that we don't control.
Okay.
And then on the margin.
It sounds like you're starting to see at least this quarter the benefit from conversion I understand the dynamics in the second half of the year, but I think one thing that.
We're all waiting two to better understand and we're getting a lot of questions from investors.
Around the potential.
<unk> will benefit from converged to margins.
On a steady state basis, so now that you've all read that you're seeing the benefit in the quarter skew maybe may provide us at least.
Some sort of and you have maybe you have kind of quantify what.
Steady state a potential incremental benefit from converged could be to margins.
Sure. So here's what we know we converted we upgraded 38 I'm with now clients, which as you may remember is the simplest part of our client.
Our client base and way of use case.
And we have about 13, a 100 day providers.
On the on the platform.
What we've learned is that a client love it as I mentioned earlier.
We have reasons to believe that is at least as far as I'm going now is concerned.
The deployment time is faster the host didn't get superefficient there that support.
Is the much better in Wales efficiency.
And that leads us to believe that as we deploy the rest of the 85% customers, which translate to much larger proportion of revenue I'm on now is a much smaller proportion.
Print of the revenue because it's a simpler.
We are going to bleed those efficiencies into the red more importantly, the impact of converge is not only related to the fact that pizza super efficient modern platform.
<unk>, mainly related to the fact that the mix between service revenues and technology revenue is likely to change is clients that appreciate the value of converge are likely to use it more frequently increase the scope of youth usage for more things and increased.
The reach we also build converging in a way, where it's more likely for people to upsell or to buy up.
The functions and capabilities with apps modules and programs that are much better integrated into into it converge. It we're going to report it.
We deploy we plan to report the sizeable amount of drop of greatest sides of the amount of additional clients already this year and complete the lion's share of our clients by the end of the.
Next year.
Or is it too early.
Extrapolate from the I'm on now installed base into the fully installed base the news will be positive and meaningful.
But we'd like to take a few more quarters in order to quantify it for our partners.
Okay.
Lastly, before I go back into queue. So if we think about that 600 basis points and gross margin expansion.
What percent of the Google relationship versus converge.
Yeah.
Well thank you.
Go ahead, Ed I've got you.
I mean were not it was it was.
Material you know I mean, you had Google you had operational economies of scale efficiencies on the AMG providers. You know we've been talking about those operational economies of scale for a while and those are starting to come to fruition or are coming to fruition, there's technology enhancements within the AMG side that we are better utilizing.
You know, there's higher specialty doctors that cost a lot more and then there's the migration over to the Google cloud and some other leveraging our strategic partners. So you know there's all of those and then we're starting to see early days of the efficiencies coming from the converged platform. So it's it's really all of those.
Okay. Okay. Thank you.
Your next question is from Charles <unk> with Cowen Your line is open.
Yeah, Thanks, guys for taking the questions.
Maybe first just to just follow up with breaking on the margins when we think about the.
The costs related to scaling up with conversant in several cloud in the back half of the year recognizing that we're not getting on the revenue side.
Can you give us sort of a breakdown between opex and cost of goods.
Is it mostly in and operating Opex or how should we kind of split though that burden out.
In terms of the converge rollout it it's going to hit both above the line in Cogs as well as you know in Opex. So we talked about the expansion of R&D you know when you get the.
When you go through the numbers, you'll actually see that we unlocked a fair amount of efficiencies in the R&D line. You know there were certain projects that you know we've offshored. We felt we were going to keep those in house, we've been able to leverage some of our strategic partners for other aspects of converge. So we actually decreased on our R&D spend quarter over quarter.
As we migrate the more complex customers onto the converged platform. There is going to be a higher level of customer support I mean, it has to be seamless and the functionality that they're going to be able to you know.
Utilize on the converged platform is much more than the current platform. So the level of customer support is going to be higher so youre going to see it in order to answer your question on both sides, one and the gross margins are into and the Opex, Although I will say.
The company has been very focused on this and you are going to see when you go line by line through the Opex, we have been able to unlock and we're proud of the efficiencies that we think are going to continue you know below the line.
Thanks, Thanks, and actually I might have misspoke, but I, what I was asking was.
With conversant in several cloud you talked about the $10 million EBITDA burden on the back half of the year.
Is that also going to be kind of split between the two cogs and opex or is that no.
It is actually because of this thing called deferred revenue write down or haircut. It's a nasty thing with acquiring tech companies you know the gross margins actually could be negative.
For for the business, because we got to recognize little to nothing in terms of revenue. They have a significant deferred revenue balance if youre going to see when you look at the.
The Q3 balance sheet.
But all the Opex is there. So you know the majority of it far majority almost all of it as Opex. Both companies are growing over 100% year over year. So they were building up you know all aspects of their business to support that massive growth we have to absorb that for the remainder of the year going into next year.
It's really being on the platform, they're going to realize we're all going to realize their part of the family.
We fish in CS by combining the businesses, but that 10 million burden is coming from.
Both those businesses for the remainder of the year when we bring them on the platform.
Okay. Thank you and then just sticking with conversant silver cloud can you talk a little bit more about.
Obviously.
<unk> worked with these companies prior to acquiring them can you talk about sort of customer overlap between the two between them and yourself at EM, well and you know how are you thinking about cross selling opportunities, particularly into either our clients of converse and silver cloud that might not be AMOLED clients and then.
Our case you know what are those clients currently using as a virtual care platform. Thanks.
I mean, Charles it's a great question, the Venn diagrams get us very very excited I mean, when you look at silver cloud silver cloud, we're going to treat it like a program and 75% of their revenue is currently coming from the U K you know they have the NHS contract, which was one of the larger behavioral contracts in that part of the world. So you know.
We don't have business in that part of Europe. You know, we do have a significant presence in Israel, but we clearly have been talking to customers over there and buying silver cloud really is going to open a number of doors organically and Inorganically. We are very focused on expanding the footprint into Europe as well.
When you look at converse Converse I has a fantastic customer list in the U S. Many of those customers are already our customers I mean, that's how we really were able to I mean, we did both of these deals simultaneously fully diligence converse are quickly alongside of our silver cloud, but the neat thing about converse says it really automates the delivery.
Of all of our products, our virtual care and when you talk to the customers. So they do have an overlap with us it really becomes a companion with a patient as they are on their health care journey. So buying both deals simultaneously was intentional because converse.
Identifies a number of situations, where the patient or member requires behavioral intervention and so you know when you look at the Venn diagrams, we do see it opening a lot of doors, both domestically and internationally, but silver cloud internationally gets us gets us really excited.
Great and then one clarification of that 30 million contribution next year that does not assume any cross selling.
No it does not.
You know they are that is a GAAP number. So there is deferred revenue going into next year. So you know assumed the full $30 million in your model, they're actually going to do somewhat better.
Great. Thank you thanks, guys.
Charles.
Your next question is from Eric Percher with Nephron Research Your line is open.
Thank you I'd like to double click on R&D expense I know as we came into the year you spoke about increased support for converge and I recall roughly $36 million. It would be helpful to understand some of the component back in that expectation and where you were able to.
Outperform or expect to outperform.
Sure so.
Like many companies, we basically decentralized our development and our service oriented architecture allowed us to do this we have teams today are working really around the globe from Israel to Mexico to India, Eastern Europe, and all over the United States.
That type of developing which was new wave one well is now really a mainstream way to operate and it does drive enormous sufficiency.
We're able to recruit anywhere we're able to get great quality at scale.
Much more at a decent price.
You may see some of it in the R&D expense earlier this year I'd like to at the same time points out that you've seen has.
Very aggressive.
Aggressive airplanes between now and the end of the year.
<unk> basically account for.
Our spending plan there is the possibility that it will end up being a little lighter than.
Original plan because of the efficiencies that they just mentioned.
But we're not prepared to make any significant change right now.
Eric the efficiencies that we've identified and that we believe are going to continue our incorporated the $12 million benefit into our adjusted increased EBITDA guidance.
Right, so they're part of that as well as the upside from the first half of the year.
Correct.
Okay, and then along.
Similar Brian when we think about some of the benefits of partnership you called out Google sales teams and it sounded like.
No.
Effort on both side can you give us a little more insight on what it is that the Google teams are able to do today.
Sure I mean, we have three levels.
Our relationship with Google one relates to the migration to Google cloud that Ive discussed already the other one relates to technology collaboration are gone different apps and technologies and the third one is the sales collaboration Google as you know powers and has lost relationship across the healthcare ecosystem.
Jim.
In the United States and globally, but currently we focus on the United States.
They are.
Effective in.
Increasing our our channel.
Pipeline in the sense of helping us to get access to a either qualified opportunities in some of their products complement our board that.
For certain clients.
The.
Marketplace that Doug mentioned it allows people to go online and basically reach AMOLED product through the marketing machine.
So it's both the technological afford in a personal way forward through the sales executive Oh, Google really at R&D that states and hopefully in the future.
The United States, So they basically sell our technology our services.
And as we create more a solution together, we are really cross selling each other's.
Solutions in the marketplace.
Does it feel like you're still early or was your comment that period to suggest that there's some increasing momentum there.
We are pleased with the momentum of mail the Google relationship.
<unk> partnership and the momentum is there growing it.
It's nowhere near its full potential we believe there is a lot of room to grow in what we can and will do it together.
Thank you Beth.
Your next question is from Jay Linda Singh with Credit Suisse. Your line is open.
Yeah. Thank you and Hello, everyone I joined the call little late so apologies. If this has been addressed but following up on Charles' question earlier on silver cloud and convert from.
From the customers' point of view will there be any heavy lifting for integrating these new solutions will all of that come to a single integrated project with converge and maybe any color there would be helpful.
So as hygiene, Andrew good to hear your voice.
As we discussed.
We have it as you can imagine we've made significant plan for integration for both companies.
Integration is little different converse, though will become part of the core of am will by the end of this year. This plan was thoroughly reviewed for a transaction obviously and he is very much underway. So it's not something that we are concerned about or.
With you about it its not a heavy lift it sounds like that we see.
It's an effort, but it is not counting because we can do or.
Any difficulties.
The silver cloud is the wonderful module as Keith mentioned that will be added to the converge engine is built to get most of them badly editing suite. So then again it's.
Not a very large.
Heavy lifting expect it seems the technology.
It's designed to accept these type pools.
It does.
Fair point.
Quick follow up.
I was wondering if you could spend a little time on how youre thinking of opportunities our capabilities from chronic care at point of view in the health system space. One of your competitors have highlighted multiple chronic care agreements with health systems. Just wondering if you are having any discussion I look in this area with any of your clients.
Oh, absolutely, it's a very very important area right now.
It also connects to home care and in a similar adjustment.
He told me.
The whole effort that we're making is really designed to bring together a singular platform that includes theres not ignore physical care virtual primary care referrals is a good example of that but rather integrates into physical care, which really allows for the full spectrum.
Coordinate care from primary care acute care, all the way to different types of.
Ts virtual care the ability to meet those different providers online and not only in person and very importantly, also automate longitudinal care. So the ability to collect data from sources like remote patient monitoring that you mentioned labs many other.
Data sources analyze it and then create the right intervention that could be a physical visit with a clinician.
And online visits with explanation, but very importantly, and Growingly also set of automated highly efficient interactions that really complement equal and only present a health care.
Spirits.
We believe that the benefactors of this platform, our first and foremost those clinically in patients that require care that this ends over it continuously over many years.
You'll enjoy it you were late to the call then I mean I in my prepared remarks, I talked about that the majority of revenue from these companies comes from the health systems and that was very important to us so by being integrated on our platform and the fact that both of these companies highlight and insert the health systems.
And providers when appropriate and when there is an opportunity we see a massive opportunity there. So when we were looking at the landscape and knew that the areas that we wanted to you know enhance inorganically. Both of these really differentiated themselves by creating a product that works really well on the health system.
Some space. So you know both of these assets were intentional for that aspect.
Great. Thanks, guys.
Your next question is from Sean Wieland with Piper Sandler Your line is open.
Thank you Keith what's the ramp on that $30 million in 2022.
When do you think youre going to begin actually recognizing GAAP revenue.
In Q1, you know I mean, it's it's.
Probably halfway through Q1, you know on a standalone basis, they would've done 15 this year.
Take for 12, you can know what they were gonna do roughly you know given the ramp that's going to continue throughout the entire year on a I would say somewhat exponential basis.
Yes.
Okay. So what's the.
How much of the deferred revenue write off extends into 2022, I'm just trying to get a sense of what that ramp should be.
Well I gave you the GAAP number so so the GAAP is 30 million. So I did the math for you. So that assume GAAP 30 million contribution to AMOLED next year. So it just backs out at it alleviates the need to figure out the deferred revenue.
Okay.
Awesome can you comment on how many installs you've done so far and converge and how many people are alive.
Sure.
We've done Hi, Sean.
I'm well.
The 30th I wouldn't know clients, a 1300 providers I don't have the exact number of patients that are associated with that but.
It's a it's not a huge huge amounts of yet translate into about 15% of our installed base, but the much smaller number as it relates to our revenues because I'm going now has been much less expensive or that would much simpler.
The use case.
Alright.
And then.
Last one I'm paying attention to that to the non engine visits 975000, if my math is right.
How much of that decline is a tough comp and how much of this is a REIT ferring to utilization of the software.
I would say it was neither I mean, it's it's Q2 was always one of the lower months and its all really an urgent care. So.
You look at the revenue per visit I mean, we were $73 on average last year in Q1. It shot up to 83, we guided to 80 across the board for the entire 2021 were already at 85. So the decline is solely on urgent care visits the specialty, especially behavioral but other specialty areas.
To increase so you know on the unpaid visits the customer visits being conducted on the platform those were mainly urgent care. So it's it's just typical summer months and then we did see and at one of the conferences. We mentioned that you know there was this and thank goodness. This this COVID-19 passing euphoria.
There are people you know the weather was good people were putting off receiving health care just celebrating what we thought was the passing so.
It's typical Q2 declines it was isolated in the urgent care area specialty continues to increase thus the $85 now revenue per per visit.
Okay. Thanks for that.
Thanks, Sean.
Your next question is from Ryan Macdonald with Needham Your line is open.
Hi, Thanks for taking my question first one for you.
Last quarter, you talked about with converge that as you continue to get the installations going in and building the ecosystem that a key aspect of the monetization strategy was the app marketplace in getting developers to continue to build apps. There just curious how that's trending in terms of starting to get interested developers to start building some of those apps and fill out that marketplace.
Hi, Ryan.
So there is.
Healthy appetite and interest in those apps that now also with the.
Writing a program with a new way of capabilities as I mentioned earlier, we don't expect to open the App store before the end of the year.
And we may introduce other apps it will be years not through the App stores.
We believe that the cohort of innovators.
It will become a very important part of the value proposition of nominal whether it's external third parties or even our clients and partners in 'twenty two and beyond.
Axon and then for Keith.
As we think about the acquisitions and the impact that they have on on 2022.
Just curious what you think what are your thoughts on sort of the margin impact in particular, adjusted EBITA margin non I guess asking for guidance today, but would you generally expect them to be neutral or slightly dilutive to adjusted EBITDA next year.
Uh huh.
It'll be neutral to adjusted EBITDA, but their gross margins are at 70% you know and that's on a GAAP basis. So includes all of the deferred revenue and includes you know well the deferred revenue. So on a gross margin basis, it'll be it'll be accretive you know $30 million and 70%.
On a adjusted.
Adjusted EBITDA basis, we need to.
Continue to make them more efficient and.
<unk> capitalize on using using our platform so it'll be neutral next year or two <unk> adjusted EBITDA.
Understood very helpful. Thanks for taking my questions.
Ryan.
Your next question is from Ravi Misra with Baring Berg capital Your line is open.
Hi, Thanks for taking the question. So I guess, they do an ROI I want to kind of touch on converge and the penetration and how do we think about that with the kind of ACD expansion that it seems like youre seeing right now so maybe maybe I can start on that latter 0.1st I think you said.
ACD around 700000 now.
You're kind of health plan.
How much of that as being kind of powered by this move to converge in the near term or is it really are.
An issue, where where your clients are adding more modules and kind of how should we think about that as the base running Florida, just kind of a onetime thing or the kind of new normal that should be fueling our expectations going forward.
So Ravi I'm not sure that we are prepared to talk about next year in your guidance, yet, but I can definitely talk about the trend.
The increase that you see relates to many things but the.
Kicking off can go very encourage you yet have you.
See a lot of existing modules things like virtual primary care and not sell a specialty care and other services and technologies that we can.
Provide.
Verge has carried a very large pool muse for upsell in multiple a multiple a way it did.
Not yet.
Yet quantified so the efficiencies and the progress that you've seen actually relates mostly to other efforts that we've done throughout the company and we are still waiting to begin to see a converge.
I'm, saying the impact, although when we talk to our clients and partners.
We are very encouraged by their reaction people are beginning to plan quite strategically interesting here is that we found out that the larger more complex declines are the greater the value of convergence. So we expect to see deals that are probably going to be bigger in size.
Because of the many capabilities of converging the value once talk show up with a single integrated modular scalable platform for a larger organization.
He's very apparent.
Great and maybe just pushing on that one a little bit more youre going to have about 800 million or so cash on the balance sheet roughly speaking after the deals close.
And you know Youre talking that this is going to give you kind of firepower to go after more complex accounts with converge so.
How do you guys think about maybe kind of the allocation of capital when it comes to going after that opportunity out there versus kind of acquisition like why wouldn't you given how exciting this seems to be in kind of our check suggest the demand for something like this why wouldn't you kind of invest much more upfront to kind of drive this growth.
Well, we are investing quite significantly already I am not sure if its little or less in our opinion, it's quite significant.
This year.
The time to market is a very important and completing everything we need to build these very important we are trying to create the best combination between organic investments and inorganic investments. For example, we were really thrilled to find the ingenuity.
He will converge in the quality of the technology that fits so well in the core.
We also realize that would be able to help these incredibly important not only for be able to help patients with <unk> as part of any program that anyone would want to create and that's why silver cloud fit.
Well, we're going to continue in the same fashion to look for ways to further improve the value for our clients, whether it's organically, but also.
Organically by.
Finding things technologies, mostly didn't make it.
Converged better it makes our platform better for our clients, it's not that complicated to imagine what I'm talking about we focused on one very powerful programme now in program engine. If you will that really amplifies the value of each therapies with Azure cloud.
The other therapeutic areas, where such examples could be very very helpful. And you want to give our clients and partners. The full flexibility to use our if you will make these apps native programs that are available as part of converged built in and ready to go or for either because of either race.
To incorporate their own assets should that the palatable for them. When you go down market to smaller organizations like it's more likely that you would want the complete the offering provided by US when you go upmarket to organizations that already made significant investment in different assets the flexible.
IDT will converge to take into account what is already there and embedded seamlessly in one cohesive offering is very helpful to them.
I mean from a cash perspective, you're right, we have slightly north of $800 million.
We're going to be able to execute on both strategies work as fast as we can to migrate all of our customers over onto converge, while equally continuing to execute our inorganic strategy. The environment has changed you know people are no longer delusional. Both of these assets. We acquired are perfect and really highlights the advantages of opera.
A rating in the converged environment, you know stay tuned for more we are we are very focused you know both on converge and on our inorganic strategy.
Operator can we go to the next question if there are.
Definitely Sir our next question is from Donald Hooker with Keybanc. Your line is open.
Great.
So I think you guys in the past I've talked about getting to EBITDA.
Yeah.
Mark here.
Kind of any changes to that sort of can you talk about sort of the cadence from your guidance for 2021 and to that point because it sounds like Theres a lot of moving points the moving parts with <unk>.
Some of these acquisitions and GAAP accounting and the deployment across the converge as we exit 2021 should we assume kind of a linear progression to EBITDA breakeven as you grow revenue.
Okay.
I I mean lets you broke up a bit there. So I didn't get the whole question you wanted to break apart the EBITDA enhancements or the increase to our guidance for EBITDA.
On an organic basis, we bettered the guidance by $12 million, you know and when you're not the 10 million burden from the M&A transactions.
<unk> arrived at the range of.
$1.54 to 146, instead of or I'm, sorry, $1.57 to $1.47, instead of $1.54 to $1.46, So you know.
It's going to be better than linear.
Cause these efficiencies that we're unlocking for all the different examples the strategic partnerships with one of them being Google the economies of scale and the technology enhancements within AMG.
Once the R&D spend for converge subsides you know.
Still we have a path to what our IPO.
Target margins, where you add all those together you know we we.
We continue to March toward the path to profitability.
And I'll just ask one follow up real quick so it sounds like the there are there material costs deploying converge across the client base.
To this I mean does that sort of equally extend into 2022, I'm just sort of.
Wondering if we're going to have a snapback in gross margins I mean, you're telling us that gross margins will be weak in Q3, and Q4 does that kind of bounce back to maybe.
2019 levels in 2022.
We do have a path to hit the mid Fifty's you know with the companies that we are acquiring and the.
What we're seeing margins could be on the converge platform you know, we see past two even bettering that but we do have a path and are confident in getting back to what we told the investors at the IPO.
Okay. So that won't happen definitely out of the gate next year in terms of timeline, we do have to migrate our customers over onto the converged platform.
The next two quarters, you are going to see a dip for the reasons that we talked about earlier on the call as you know the increase customer support that will continue into next year.
As we continue to migrate the customers over.
Okay. Thank you.
Yeah.
Your next Monday.
No. Please go ahead.
Thank you Sir your next question is from David Larsen with <unk>. Your line is open.
Hi, can you talk a little bit about the platform subscription revenue growth up 9% in the year. I think you said it would have been up 20% except for those two clients that were acquired can you give any more color around the.
That acquisition process with those.
Hospital customers or with a health plan customers and any sense for what what telehealth platform. They switched to just any more detail around that line item and expected growth in that would be helpful. Thank you.
Yes, the one company was empty law that was acquired so it was you know.
Their acquirer was a customer.
So they are on the MD life platform, although we still do business with them to a small degree because we do things differently, we offer different functionality than M. D live. The other one was a large hospital system that was acquired that has not chosen their telehealth platform. Yet. So you know they are using a hodgepodge of different platforms. There were two very large.
Health systems that were bought together that we talked about during the IPO. Those are the two subscription growth was 15% on a normalized basis if you.
Remove those two <unk>.
9% sequentially and the reason is just the additional programs in module is being sold on the platform. So when you know on the on the health plan side, you know there's been a a increase in the number of programs that had been subscribed for their members and then on the health system side equally.
You know theres a lot of modules that were seeing nice increases you know the different EHR integrations Tele psychiatry behavioral health and well now you know and then all the cards that are sold to require modules as well. So all of that goes into subscription you know other than obviously the capital spend for the cards and those are the reasons for the.
The increase.
Okay, great. Thanks, very much Keith.
Your next question is from Allen Lutz with Bank of America. Your line is open.
Thanks for taking the questions. Keith you mentioned conversant silver cloud are going to grow about 100% next year can you talk about the line of sight into that revenue growth.
What percent of that is already contracted today. Thanks.
The nice thing about both of these companies, which gets us really excited to put them on the platform as their net revenue retention is 140%. So they sign a contract and then it grows you know another 40% over the following year the contracts are anywhere from a year to 18 months. So there is significant.
Line of sight for the 30 million that we guided to you know on our platform. We're pretty excited talking earlier, you know about the the the Venn diagrams, you know theres a lot of customer opportunities, especially in the U K, but you know to answer your question.
Given the 140% net revenue retention, there's there's a significant line of sight.
Got it thank you.
Thanks Alan.
And your last question is from David Grossman with Stifel. Your line is open.
Thank you.
So in your prepared remarks, you spoke of good momentum with Cerner and I'm just curious now that there's more stability in the health system.
End markets. If you will any updated thoughts on how the relationship with Cerner and the other major EMR vendors with large health systems evolves.
Overtime.
Hi, David good to hear your voice.
Cerner has been a terrific partner for a well and youre right to assume that as the both companies mature in their thinking around digital care delivery. The partnership they became a bit there.
That's it.
Our relationship with Cerner is different than our ability to integrate with the likes of epic and others. We do integrate with a long list of EMR.
But the difference is that with Cerner, we do that very proactively in order to create a seamless experience.
For the Cerner clients. We also is much bigger investment in the sales force training and go to market efforts between our team and the Cerner team.
So cerner went through quite a bit of change.
Recently as I'm sure you know.
But it's being stabilizing again.
We knew them for so many years and we worked together for so long is that change does not have any impact on our relationship is as strong as it was and as I mentioned, we begin to see really good good momentum converge on the sound on platform works really really well.
And it's well received by the clients and prospects.
Oh the Cerner.
And you're seeing anything in terms of the others like an epic where.
The clients are contemplating whether to upgrade to that platform and if they're running on epic and the cost and complexity of doing that is does that enter into the equation at all.
Well because you know it has an ability to do video conferencing. It today inside the ear mark when someone buys Dom will.
They basically buy it for a long list of the reasons that we have many clients.
Ethical converge he's a big upgrade to.
Two the previous epic integration, we have Nathan fire extensions, we have lots of technical details that would probably be most of the people on the call are there to make it work faster and better.
The most seamless way.
Then before and therefore, it very rarely the option.
We plan to grow in both let's say epic and Cerner.
<unk>.
Probably a little.
Faster with Cerner because of what I mentioned earlier.
Alright, great. Thanks for that and good luck in the back half of the year.
Thank you David really appreciate it.
And that concludes the question and answer session for this conference call I will now turn the call back to the chairman and CEO Sean brick.
Thank you Paul and thank you everyone for joining our call today, we look forward to continuing to report on our progress.
On our next call and even into four more quarters that follow.
This evening.
Ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect stay safe and well have a great night.
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