Q3 2021 American Well Corp Earnings Call
Good afternoon, and welcome to EM, well third 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 our Doctor Ido, Schoenberg, Chairman and Chief Executive Officer, and Keith Anderson, Chief Financial Officer, Ido, and Keith will offer their prepared remarks, and then they will take your questions.
C M well press release and webcast link are available on the Investor Relations section of and what else website.
Please note that we will be discussing certain non-GAAP financial measures that we believe are important and evaluating and was performance details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation 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 Securities Litigation Reform Act of 1995, such forward looking statements are subject to risks uncertainties and other factors that could cause the results for and what's a differ materially from those expressed where.
<unk> in this call.
And now I would like to turn the call over to start to eat Oh, Schoenberg D O of EM well.
Would you need and will come to a third quarter earnings.
And the bus pool too registered 62 million in revenues, reflecting stable subscription store, Lucas, who got cool and steady basis.
Demand.
The reception to our next generation thoughtful converge you significantly better than we hoped is you're seeing clear signals strong demand to a new platform from existing and new client.
Overall, we continue to believe converge really growing your funeral resolved in 2022 and beyond is more revenues generated from existing clients expansion and his new clients complete their deployments and begin using conferred.
We are also pleased to note that larger than expected number of clients has already committed to upgrading to converge, but some are waiting to extend their purchases and usage of additional care points modules and programs until their transition to converge. He is complete.
For a clinical services, we experienced some increase in visits quarter over quarter is the Delta Zaria include more people to use our urgent care services. However at this point, we are maintaining a conservative view on queue for visits assuming relatively salt.
Cold and flu demand do two masks and social distancing.
Why do we are confirming go over to arrange a visit volume expectations, we're seeing disproportionate contribution coming from urgent care lawsuit visits due to the delta of Orient.
Because of these dynamics, we're setting on final 2021 full year guidance to arrange over 246 million to 253 million.
Into three Ah gross margins were 43%, reflecting the continued costs of supporting a legacy platform and also commencing the conversion of our clients seem to converge and benefiting from initial efficiencies associated with this transition.
Provider adoption grow so not platform is stronger than ever. This total active providers grew from 71000, and Q2 280000 with a M. G. S. Two providers steady at 4000.
We are also seeing a great expansion of the use cases on our platform across to continue way beyond urgent care, we expect a rapidly growing provider base to become a major catalyst of scope and frequency expansion is converge deployments couldn't.
Can you.
We also so significant increase in the number of visits for active patient compared to Q3 of last year, which we believe indicates the growing demand for longitudinal care and virtual primary care programs.
Most of our visits in Q3 were scheduled vs on demand demonstrating sustained adoption by providers will making telehealth a key part of their practices.
Converge platform completion and deployment is moving rapidly.
Together with the hymns analytics, we completed the survey of key decision makers at health care organizations and found that 56% of health systems plan to invest more in virtual care over the next two years.
Health plans also plan to increase investment in view to care with 88% of health plans, intending to add more programs focusing on a range of needs for virtual primary care to be able to health and chronic condition management.
As we continue to roll out first products on the converge platform. We are noting that health care organizations are increasingly looking to consolidate their virtual carrier investments on to one platform.
As demonstrated in the survey health systems focus most on patient satisfaction and provider adoption and we're seeing positive feedback on both matrix with converge poodle.
<unk> 4000 providers, who already used to converge platform during its initial rollout.
With 43 enterprise Klein snow successfully using converge we have collected excellent feedback on your <unk> and it's significant failure. For example clients appreciate that their new platform video connection time is twice as fast on converge versus.
As a legacy platform.
Most of these clients are using converge to the reduce of Amazon now while growing number are using converge E. H R.
At this point, we converted all Uhm will now enterprise users to converge and it began deploying converge EHR with health systems, focusing on Cerner, an epic lines.
As a reminder, animal now is our entry level simplest product that his minor contribution to our revenues to the standalone offering.
It does it with her sure the Chromone converge platform and we are encouraged to seat functioning so well and fully operational live environments.
These successful deployments demonstrated the new platforms robustness. They also serve as an important foundation for future same store expansion.
Converge enables innovation agility and fastest speed to market with greater efficiency.
For example, the.
11 over for it in time and resources to release, New software versions of converge is less than 5% of therefore required to release new versions of a legacy platform.
The integration of converse in silver cloud on to converge will enhance already powerful incomprehensive digital care platform and enable hybrid delivery or physical virtual an automated care.
These two companies bring important assets in data science, AI tools, and best practices information to drive proven clinical and financial outcomes optimization.
Both feature important capabilities to enable our clients and partners to create and share crony care behavioral health and add their own G to denote programs was significantly expanding the reach of providers and greatly improving their efficiency and.
Impact.
Integration of both companies will converge is progressing well and according to plan already in Q3 alone we've seen cross selling within both our customer basis.
In summary, the receptivity to a new offering is excellent.
Clients with a relatively modest needs appreciate converge is simplicity reliability and most of all extensibility.
Large enterprises value the comprehensiveness of our platform and its ability to integrate well with their existing assets. We believe that all entities will value. The open nature of our platform and its ability to facilitate a diverse array of apps.
<unk> modules and programs from <unk>, our clients partners, an independent third parties.
Investments in digital Health solutions, Alrighty, Storable, hi, driving at tidal wave of innovation.
The need for a cold one integrated platform to host showcase and enable broad spectrum of digital products is bigger than ever before it's.
Especially as it will streamline exchange of data services and capabilities crusty ecosystem.
Many customers and prospects commented that converge flexibility and openness make it to smart future already investment.
Either to live indoors focus on a virtual tour service provision and compete with payers and providers, we focus on enabling and powering their offering while promoting intersegment connectivity.
Together, we offer consumers a single simple delightful and cohesive health care experience.
With that I would like to introduce you to our new CFO My friend and partner, Bob Shepard son, who many of you already know from your previous ventures.
<unk> joined Anwyl on October 31st.
I would also like to this opportunity to thank my Dearest friend, Keith Anderson, who will be the parking at the end of the year for his exceptional service an important contribution to will over the past incredible three years Keith.
Alright, <unk> and thank you ever on for joining us on our third quarter call for Q3, we reported total revenue of $62.2 million, an increase of 3% over last quarter, driven mainly by increased visit revenue.
Total subscription revenue in the quarter was $26.7 million flat over last quarter and close to about 10% increase compared to the third quarter of last year, if normalised for the two customers law studio M&A that we discussed on previous calls.
Average contract values continue to be significantly above 2020th levels with health plans at the 700000 dollar level and systems above $300000.
Total visits conducted this quarter on the animal platform was 1.4 million with a M. G. Performing 360000 of these visits the inquiries versus last quarter was mainly due to an increase in COVID-19 delta related urgent care visits while maintaining similar levels of specialty visits our clients continue to deliver a significant care on the animal.
El platform is 75% of visits were delivered by our customers on providers a matrix that has remained consistent over the last six quarters since the COVID-19 Spike in Q2 of last year.
Total visit revenue was 30 million this quarter, a 9% increase over last quarter, but a noteworthy six per cent increase over the third quarter last year.
Unpacking the Max AMG specialty volume is continued at 50 per cent higher levels over last year, but sequentially was outpaced this quarter by urgent care visits due to the Delta variant. This visit type mix chef toward urgent care has resulted in the revenue per visit metric migrating closer to $80 per visit versus 85.
Dollars per visit in Q1 and Q2 of this year. This dynamic is also continued so far the fourth quarter.
Services and care points revenue decreased slightly at a 5.4 million from 5.9 million last quarter at several health systems work through their government grants that this time around are not time bound in other words, they don't have to be spent before a certain date.
Additionally, in similar to the dynamic Ido earlier discussed a few health systems have pushed out new hardware deployments until they have been fully migrated onto the new converge platform. While these minor delays have so far continued in the early part of Q4, we are seeing the hardware pipeline continue to build strongly due to this dynamic and are confident in the.
Ultimate conversion into revenue of these care points once the health systems work through their grandson separately are up and running on converge.
Gross margin remained relatively flat at 43% of revenue this quarter versus 44% last quarter and 33% last year.
Also these comparisons are important a noteworthy since as compared to last year, we actually a slightly increased visits as a percentage of revenue while significantly increasing margins by over a thousand basis points.
This is counterintuitive given visits are much lower margin business. So sad differently visits made up 48% of revenue this quarter versus 46% in Q3, 2020, yet our gross margins, where 43% this quarter versus 33% last year.
Now add on the burden of increasing migrations of customers on to converge all while maintaining this improved 43% gross margin.
This has been achieved through continue technology and operational efficiencies unlocked and the M J business as well as early aspects of the efficiencies achieved on the converge platform.
As a reminder, from our queue two earnings call. The migration of some of our more complex customers on to converge would begin in Q3 and Q4 this year and will take additional resources to ensure the migration of seamless.
Well, what we are seeing in the business and what we have done operationally and with technology confirms our ability to meet our I P. O target margins in the mid 50 per cent range and with continued next shift over time, eventually even higher margins as our subscription business. Our core business is currently on the 60% gross margin range.
But again this will take time as we must first migrate our clients onto the converge platform execute on the pent up demand for our programs in module subscription business and the related care points.
Moving onto Opex, we've also achieve similar efficiencies within our company operations.
R&D expense in the third quarter was 27.4 million representing 44% of total revenue. While this is above spend levels in Q1, and Q2 of this year as we continue to develop and roller converge. We believe the overall development costs to converge will be less than originally estimated based on three quarters of development.
We do expect Q4 R&D spend to increase versus this order Q3 due to the addition, so silver cloud and converse, but we continue to achieve better R&D efficiencies through continuing to leverage our strategic partners in the development of converge and also offshoring more aspects of engineering that we originally thought to keep in house.
Sales and marketing spend increased to 16.4 million versus 14.8 million last quarter was mainly due to an increase in in person conferences and clients ramping up marketing programs for the virtual care offering.
G&A expenses 33.7 million for the quarter, an increase of 9.5 million over last quarter, mainly due to the fees associated with our two M&A transactions the hiring of our new chief growth officer, and some executive stock fasting.
These one time M&A expenses in stock based comp I've been excluded from our adjusted EBITDA calculation.
We're reporting an adjusted EBITDA loss of 31.5 million compared to a loss of 23.7 million last quarter, but the majority of the increase law's coming from increases in our R&D in sales and marketing spend the executive higher that we previously discussed.
We ended the quarter with 790 million of cash that includes payments made in Q3 for the acquisitions of silver cloud and converse.
In terms of act to providers, we closed Q3 with 80000 active providers delivering care on the platform, which is a dramatic increase of over 10% and just one sequential quarter AMG providers remain constant or 4000. So all of the 9000 provider additions came from our customers adding there.
Providers studying them all platform.
As he to explain this is a clearer an important indicator of strong provider adoption among our clients owned provider groups.
Regarding our guidance overall revenue growth in Q4 is expected to come primarily from increased subscription revenue, but also service doesn't care points.
This could have been even higher without the converge transition dynamic, but as Edo discussed earlier, we're seeing a deferral of new customer deployments and at the same store growth as a few customers are waiting to fully transition onto converge to expand their module subscriptions and related purchases of care points.
Similarly, some new customers are simply waiting for the completion of certain converge components. So as to go live completely and wholly on the new platform.
Despite this familiar and normal dynamic, we're expecting subscription revenue to grow about 15% sequentially quarter over quarter and services and care points to grow about 50% sequentially quarter over quarter from two three.
We are forecasting visit revenue in the fourth quarter to be flat versus the third quarter due to the chefs were saying within the visit type Max resulting from the Delta variant.
<unk> 2020, and the beginning of 2021, we saw behavioral visits correlated with COVID-19, but towards the end of Q3 and continuing so far in the fourth quarter. We unexpectedly observed a decoupling of this correlation with urgent care visits continuing to expand while growth and specialty in behavioral visits less so.
This unexpected Decorrelation was also observed by the C. D. C. Recently published these observations and findings in their October 8th M. M. W. R report.
Accounting for this unexpected insignificant T correlation we are confirming the overall annual visit volume to be within the updated range. We provided last quarter of 1.4 to 1.5 million visits but at the lower quartile of that range and add an average annual revenue per visit now and the low 80 dollar range versus.
$85 range, where previously expecting.
Recall that except for last year's Covid Spike in the second quarter or fourth quarters typically the largest all year for visit volumes. So this change has a magnified impact on overall revenue.
Taking all this into account in terms of overall full year revenue guidance, we are reducing the midpoint of the range by $7 million while at the same time narrowing the range is way approach ear and from 250 to 262 million. So now 246 to 253 million to account mainly for this unexpected mix shift.
Within our visits.
In terms of adjusted EBITDA were favorably, increasing and narrowing our range by $10 million to enable to a loss of 143 to 136 million from previous guidance of 154 to 146 million due to this visit mix shift the higher margin urgent care visits as well as for other efficiencies on.
Locked within gross margins continue favorability within R&D spend in sales and marketing.
In conclusion, we are pleased with the continued progress so the development of converge and then migration roll out to our health system clients were excited for our health plan customers to also experienced the benefits of the new platform.
It is especially encouraging to experienced the competitive and operational advantages. We are seeing an RFP situations, where the advantages of converge are one of the primary reasons for our when.
For other our customers, adding 9000 provider southern platform and just this past quarter alone shows we're on the right track with provider adoption as providers are increasingly making telehealth a key part of their practice.
Operationally, we are encouraged by the positive results, we are seeing in our gross margins and operational spat on.
On the M&A front, we continue to evaluate opportunities to enhance the overall functionality of converge to deliver full longitude Nolan coordinated care with almost $800 million in cash on our balance sheet, we have ample funds to execute both on our inorganic strategy as well as to fund our path to profitability.
As this will be my last earnings call with Ham well I want to publicly thank you on Roy for the opportunity to partner with them and to finance the realisation of their vision.
I also want to thank the board the other executives and the entire am well family, but especially my heads of financial planning accounting and M&A and their respective teams who work tirelessly to prepare ammo for the I P. O process and then ultimately I'd to execute the I P. L remotely as our physical office was shut down due to the pandemic.
It was never lost on us that in the end, we are a health care company that empowers health care providers to deliver their care remote later their patients and daring Covid. That's remained our primary focus.
I'm now handing the reins over to a tenured executive who knows anwyl extremely well as Bob was my banker counterpart on our IPL is a good cultural fit with them well and a well known figure on Wall Street, who I'm now trusting to lead my teams I have complete confidence in Bob and wish him. All the best does this is truly a unique and fantastic opportunity.
I will now turn the call back over to eat Oh first closing remarks hater.
Thank you Keith.
By now all of you realize the enormous transformation in will and with our clients and partners.
We have never been more bullish or excited about our future.
Are incredible effort to streamline our platform transition to converge is going very well.
We are seeing clear signs supporting our strategic pass and look forward to sharing more proof points with you when our clients and partners permit.
And now I would ask the operator to open the call for questions Corporator.
Thank you and everyone to ask a question that is star one on your telephone keypad.
Again that is star one on your telephone keypad local first too.
At catcher.
Caroline is open.
Thank you excellent to hear the client feedback on converge is there any perspective, you can provide on a headwind tailwinds acquisitions as we exit 21, and think about beginning to model 22, and I'm thinking specifically the demand for converge in a reasonable view on impact of some.
Ascription as well as the impact your saying I'm fluent urgent care on volumes.
Thank you Eric it's good to hear your voice as usual. Your question goes so great that I wish we had an hour to answer them.
But I'll do my best to give the the group at the headlines.
I think the in summary, we see some dramatic changes in the market, but luckily for us seats really well with the mission and purpose. So they converge and I'd like maybe to to give you a number of examples and then if time permits I'm happy to explain any more.
Detail, how those tectonic market changes a are being addressed in the in the new way if not.
So essentially the name converge is is very appropriate because you all weakness some serious market convergence in many ways. The first area is the area of segments, starting with payers and providers.
We all know that they're very large bear organizations are definitely going in owning one more provider assets. You 19 is a great example, with their 60000 or more providers that are a part of their group and also providers are a taking more and more a risk and offering all that.
Into mountain U P. M C and many others are a great example, a to that in any event, even if those entities do not a share a both a tasks the future a of any entity is dependent on its ability to become collaborating.
There are very few got phones, if any that have very strong footprint. Both in the provider in the payer space and very importantly, enabling connectivity converge does that.
The third segment that is converging into the snakes are innovators, we're seeing historical phenomenon and I think you alluded to get to your question.
With digital health innovation. This year alone showed more than 20 billion in new digital carrying vestments.
Up from 14 billion a in the previous year.
Was about double the year before so you can only imagine the confusion and complexity of decision makers C. I O as a chief accountant.
Officers actuary officers I'm sorry.
That need now to try to prioritize and embed all those solutions into their ecosystem.
The role of converge is to re a low for a consistent.
A middle tier that brings together all those the three segments and really aligned those organizations to growing you'd behave like population health services organizations, which is really a combination of care services and risque management and to try to rematch in the future.
<unk> noticed the replacement of physical care E. Two equivalent digital a future, but rather total <unk> nation, a over new single better health care experience.
I would also suggest that converge includes a new focus and clarity.
As to what's important by many ecosystem players there is great focus on improving of clinical and financial outcomes. There is clarity that democracy is shifting towards risk and peaceful way of value with great importance to digital tools that are now moving from the sidelines into center center raised.
Page everybody's comfortable and understanding of the importance of Omnichannel.
And no one a suggest that there is any other solution bought a hybrid solution that brings together physical virtual an automated daycare, including a liberal view use of a I, a or natural language processing and many other a technology transactional is working together with monkey too.
Well not only for a acute care or urgent care, but three across the Ford care, a continuum addressing a <unk> a <unk> and.
And these type of tools are very very effective to help contribute to network optimization referral steerage things of that nature and also allow for extensibility, bringing insight and services into the last date in mind.
Lastly, there is growing recognition and acceptance that'd be great.
Great and <unk>, the importance or the consumer experience and the provider experience and.
In getting a great experience is practically impossible without a unified identity without creating a unified profile for those for both of those entities, which converge a mouse and a line for consistent engagement of these important a play.
Here's.
So I, probably a mouthful uhm, a pretty long explanation, but we were lucky to think about those are requirements. A few years ago. When you started to a brain converge into the drawing board.
And that's really explains the extremely favorable almost surprising very violent market positive reaction to the platform that we are deployed from small players and large players existing clients and very important sophisticated a new ones.
It's a vivid description if I can pinpoint a question are we to take from your commentary that.
Adoption in response is running better than you anticipated I think was your comment and more than offsetting any delay as <unk> as.
There's a pause on purchases until convergence rolled out.
So a yes or no let me explain a there's no question that what we see in the market is much better than we expected to or even dare to hope.
Unfortunately, as you know we don't share those things, we like our clients use our platform is there is empowering their their business say agenda and they will share that when when they were ready as far as the impact of a platform transition I'd like to really explain it a little bit there to to the team. This is something that is not.
[noise] surprising that we expected and is baked into our our guidance.
But it's something that basically happens each time you you do such a major major more so when you announce if not for them and we wanted to announce it early to really make sure that our existing clients and new ones really understand where we're going and to allow them to participate in plain on what's a coming so as you remember.
<unk>, we we shared a converge in April a over a year.
And when that happens it usually if teeth, <unk> said and I said as well.
Usually clients, a more and more clients, especially when the components delivery nears a priest.
Fair to a delay little bit expansions and extensions it to their upgrade it to a to the platform. The same is true a with a new clients in many ways. That's really are excited about what's coming in the nature of converge favors large complex slash.
So add to that the fact that they those wins, a usually come with a very very large.
The deployment cycles add to take a bit longer to begin to play out. So there is an impact on revenue growth. When you when you transition a one platform a to a another so negative it's normally it's expected.
And it's something that is completely not seen in the numbers that we shared day today.
Thank you.
And our next question will come from Ricky called Placer at Morgan Stanley.
Yeah, Hi, good evening in N teeth, that's good working with you and good luck in the future and Bob looking forward to working with you more.
I always enjoyed that so uhm two questions here one clearly we're we're only in November here. So it's still early but maybe if you can just give us a sense off the headwinds and <unk> 2022 and.
And then eight Oh, just to clarify as we think about clients to have sort of delayed or expansion of the platform owners and you're locked complex time sort of delaying decisions Uhm do you expect to see those kinds committing in 22 or should we think of that inflection point in 2023, one ste converge plot.
Prom is fully rolled out in Detroit.
Sure. It's a ricky it's good to hear a voice say I want to point, that's very clearly in early on that we don't see the dynamics of any delays and decisions on the country I just mention that clients are ready to make decisions that are making decisions existing clients and nuance and eat though very favorable lay it goes into decisions.
Time, it would take for these decisions to play out into a revenue really depends on things like the literary over converge a component in the sequence that they are a that they are re released when we look into a 22 and the beyond a we really see in greater conviction in greater Clara.
D. The dynamics I was talking about the previous Ernie calls, which is that we plan to a basically a convert an upgrade the lion's share of our clients through that year is to convert those fines. We also expect to see Same-store roast and we also expect to begin to see new clients a kick in.
So all these things are very positive and obviously and and we at the same time, we're going to grow and you obviously retire our legacy platform, which would leave us with something that is very scalable very efficient and we believed to see if you believe you're going to see a very strong.
Growth a drivers is this a trend the develops so when I look at a <unk> I think I mentioned them in my reply to Eric they maintain the transformation in the market acceptance or digital formulary digital <unk>.
<unk> into the main.
Care pathways into the mainstream over health care and we have the technology that streets, that's very strong very strong brand a way of a I would say a headwinds a I think the market is overwhelmed I think that people.
Are confused there was so much innovation there was so much investment in digital health that people really need to take their time and understand what's working and what's not working and one of the benefits. It would bring to the table used to create a platform that allows you to experiment very very quickly.
With those solutions without a giving up on the common reporting on common engagement capabilities on identity management, the lower more fundamental elements that are required to really streamline and the new model over care, a while relying on innovation.
Coffee very necessary in order to truly realize ultimately outcome may improvements.
[noise], so either just to make sure that I understand correctly 15, appalling you said, it's not that the client or delayed a decision that they're making decisions. It should we understand it the contracts are being heightened interest a greater lag between sign contracts and implementation and if that's the case does it mean that you know might have better vision.
Ability.
So it's kind of like the revenues that you are expected to come in.
Within the next 12 to 18 months.
I would say that we have much greater conviction in the the trend that we're talking about because we see the very important component and user reactions sponsors reactions clients and partners voting if for converge. This is a serious decision.
So when you look at the especially a very large organization. This is not the one year decision. This is a decision for that form that maybe their platform for the next five or 10 years. So my conclusion is driven not by it quick event that happened recently, but in many cases, we were looking at the <unk>.
Is indigent cycles that took a year or in your in a half an hour now behind us. So that's a very thoughtful meaningful decision a by those very sophisticated the buyers two sided with us obviously that trend.
It does increase our confidence in our ability to grow revenue in 22, and and and it's very much. So a beyond is the what I was talking about who's going to play through.
Thank you.
And next week, we'll take a question from Charles Ray of counting.
Yeah, Thanks for taking the questions and Keith Good luck with everything and it was great to work with you.
I I guess my question you know, it's kind of following up a little bit.
You know obviously good to hear some positive feedback on converge can you talk about I might've missed it but what percent of <unk> of your clients have now made the converge switched to converge and then secondly can you talk about what other telehealth platforms. You know some of these classes may have been using and have you seen.
In a concerted effort by these clients to consolidate all of their virtual capabilities solely on to converge.
Sure. So hi, Charles good to hear a voice so as I mentioned earlier, we have 43 40.
43 enterprise users of mostly I'm going now.
Now on on the converge as I mentioned in my prepared remarks, a really.
Right at the heart of converge is working very well, but these though to be fair a use cases that contribute very little to a revenue and now the simplest the tie a typo view so the old downwind.
Converge you charge, obviously more complicated in in the next phase you're going to see also pairs.
And really a go for our entire a client base. So counting the number of accounts may not give you the right.
Answer eating way over a number of accounts. If you. If you took him a couple of hundreds of good the proportion of crime, but you need to take into account. They also a also a complexity.
What we do see which is not reflected in this number is the reaction of clients and their readiness to embrace converge. So many more clients. Obviously are a raise their hands and made the decision to a upgraded to converge or by converge as a new a new new class.
<unk> and that's a very meaningful meaningful decision of course is a reconvention there could be a gap between this decision and the actual deployment anything in fact on the revenue that you need to take it into into account.
The excitement.
My team and and our clients and our partners really relates to that a typo there decision.
Now when you look at those clients, obviously, a almost all of them have different solutions, a running a file on it and what we see quite frequently are are different videoconferencing solutions from teens say 222 zoom in other ray tools.
None of those a company's necessarily C. S. As there is competition, we happened to work with the Twilio, but we did that type of activity really resembles a little bit what we have been me I'm with now and I don't think they even aspire.
To do the many other things that I explain the earlier ray on on this call.
What we do is put unique it's extremely complicated.
And thankfully now very highly appreciate it.
And I think that the differences that we are very likely going to become <unk>.
Part of the care pathway.
So it's no longer going to be a situation, where a telehealth is promoted as a side a event, but rather a did you started interaction montone video visits but everything else that we do including a automated programs.
Programs and.
The connectivity of information and insights that is designed to improve the outcome is really going to become part of the health care. That's a very big lift it took us 15 years to develop.
We invested more than a billion dollar a and we're still investing heavily it's enormously difficult to recreate and now it's a very very relevant we don't feel threatened by these types of a company's at the same time I would suggest that the people like ethic are definitely.
Trying to raise their way into into the same space by working whenever people do care and things of that nature and programs. We have a different a view into holiday to reach that we see enormous Sip August Microsoft trying to enter into health care from a different day and.
But again very dissimilar.
Dissimilar.
Two a what we are a triangle to do so based on the market reaction and based on where we are we feel pretty confidant about our ability to maintain and either.
Significantly grow a a market share in the not so distant future.
I appreciate that if I can just one follow up uhm to Recuse question, you know I think when you announced Bob joining and well you made a comment around expectations of well over 300 million for next year can you comment on that is that still sort of target.
For next year, and you know any way do maybe frame out what you know well over could until you know we're talking you know significantly over or is it just.
A little bit over just anyway anyways, so maybe frame what you know maybe well over means thanks.
Well, we're going to continue to grow next year and the year. After we are going to dedicate our next or any cool to talk about our focus today for next year and you'll have your answer right promised I don't want to give on theory and said is such a dynamic a dynamic market and I want us to.
You're very forceful and take our time, a butt directionally received very positive and encouraging signs.
Great. Thank you.
And our next question will come at Fatima Shine Atlanta of papers hand there.
Hi, Thank you very much so I'm just generally confused on what's going on with visits maybe if you could just take another crack at it starting with last quarter. When urgent care visits were week now they're strong relationship with margins and how they factor in a paid versus unpaid like why are these whereas this myth.
<unk> shine up at them up.
Alright.
As.
Yeah go ahead go ahead.
Thank you.
And though music complete my answer it so.
We all confused I mean, Covid then delta are very very confusing, but let me maybe walk us through the music dynamics and tried to to to.
Bring some order to understanding it so in general a clinical services and aimed your visits.
Are very important in supporting our technology.
And they are important in the at least two ways. The first one is obvious. They are we were checking the box on our urgent care convenient care of it.
Nobody need that in the markets, a and we offer short wait times and scalable solutions today in a very efficient way, we focus on quality and safety and regulatory compliance and all those things that as in many other than the health a vendor's they are doing.
The more important part of our network is designed to really help improve outcomes and what do you mean by that is that these services are now grown me embedded in programs and clinical pathways.
So for example, our ability to use M. G. In virtual primary care <unk> not programs like they wanted to converse ahead and coordinate care programs is here to stay unlike the previous article that eventually we believe will fade out as many of those.
At times, the Angel transactional providers are going to really be replaced by your doctor.
So so the ability to use our network for specialty visits and then just to think of visits is is important. It's also helpful. Because the way that you create demand for the second category is much more efficient than the first one.
As you probably know customer acquisition costs for various reasons is much much higher today. So in companies tried to sail urgent care visits a in the.
The margins are fairly depressed and the customer acquisition cost is very high it's becoming a really I'm not as up to my leg businesses. It was.
Before.
The demand that if for embedded clinical services is really coming from your doctor and from your hospital informal care pathway.
And that is something that is much more natural and we we is going to grow so they customer Christian close as much lore, but it also bring much higher value because it's connected to too much more important the outcomes and now for for what happened this year in the way of the visits.
So of course, the year before we it's COVID-19 everything short topic quite dramatically and in general demand for a.
Urgent care it came down slightly and for us in in in in in in many many others versus the pickles the over the last two years.
Uhm, we a so a much softer we predict much softer a cold and flu is Susan.
Cause of masking because of social distance season, because of hygiene and that was at some of the reasons why we adjusted the E R or guidance for visits.
In our previous a cold.
What are you. So now in Q3 was was surprising and interesting.
So if you look at the dynamic in the C. B C gave very good data that you're welcome to to really look into it.
Beginning of the year <unk> free there was very a clear correlation between Covid and do you ever have physics. So it's COVID-19 showed that a demand for being able to health anxiety depression and things of that nature, a shop up Israel and that also comes with you too.
The mix of specialty visits and that we already ripped.
<unk>.
In Q3 that Brooke.
So at the death of oriented go up and demand for being able to health actually a break will separate from that the correlation.
And while it's anybody's guess to to really understand that hopefully it's it's a good thing people get more comfortable and deep with Covid me a different way and it creates less so.
Reaction or emotional reaction, we had to adjust our forecast for two four which is a very important a quota for us and will visit said because of the seasonality in the urgent care a visit said during this.
<unk>.
Keith has only if you have anything to add.
I mean, Sean I think your question was more you know dynamics I'm happy to give some math I guess to just confirm you know for the models that the adjustment and guidance is just focused on the visit line. You know we we are we're gonna hit where in the beginning of the year, we targeted for you know the subscription.
Online as well as in the services and care points, but you know for visits given all the reasons that eight Oh sad the way our observing towards the end of cute three and we're still continuing to see this play out in the C. D. C. Predicts. This will continue through the end of the year. You know, we we are adjusting our our visit forecast I guess before I and I just want to know if Ricky.
Charles Thanks for the kind words and look forward to working with you again in the future.
Alright, I'll leave my question there Keith best of luck to T in the future and thanks for taking my question.
Sean.
And actually will take Ryan Mcdonald's have medium.
Hi, Thanks for taking my question you know maybe for you on the first one of the 9000 providers that you added with clients. Obviously, some some great progression, they're just curious what you're seeing in terms of activity from those providers that that have joined converge and and perhaps what you're seeing from a mix of specialty verses urging.
Care use cases, so far.
So hi, Ryan.
So that's that's a really good question. So all of them materially all of them are not Andrew providers. There are all our clients providers as you know our clients typically are academic medical centers large J Ivy ends and so on and so forth.
So most of these visits actually on all over the place and you will be a specialty.
And these change really is a demonstrating a secular clear trends that we see or growing adoption or digital virtual connectivity.
Between our clients and their patients that are <unk> that are not in the room.
<unk> from their EMR from the H R. So this is there really is a covering the full spectrum of the care continuum and very rarely if at all it is is is primary care or urgent care.
That's helpful and then any one for Kisan on gross margins, obviously, you talk to about some of the great progression inefficiency and the model despite sort of this mix shift back towards visits you know as we think about next year and the continued progression there with with converge and some of the benefits you know.
How should we think about that progression is this is this are we at a point now where we can get back to say prepandemic levels, we're thinking about sort of the gross margin ranch. Thanks.
So I mean, given what we've seen where we are now supporting two platforms. You know as we migrate customers over on to the new platform. The new converge platform way up to maintain the old platform until all the customers over on the new platform. So you know what we saw this quarter and you should read into it you know it was really exciting because.
Cause you know we started in earnest in Q3, and it's continuing in queue for you know it was starting to migrate some of the more complex larger am well customers onto the platform. We were expecting you know gross margins too you know hover around 40% in Q3 or in queue for maybe even go <unk>.
Low 40% you know we ended up at 43% part of that is the make shift urgent care visits we do generate higher margins you know for those then specialty you know, but also just the continual unlocking of efficiencies within the AMG group that we've been talking about all year.
As well as you know technology margins continuing to expand you know by further leveraging our partners and you know I'm I'm partnering with them. So.
I think we're going to end the year you know right around you know the the the the 40, 41% Mark which is above where I thought we were gonna be you know in the beginning of the air when we announced converge. We're really pleased with you know with what we're saying or what we're seeing you know we know.
Have you know a significant degree of confidence getting back to you know what we set up the I P. O of the mid 50 per cent range or subscription business, you know generates margins and and you know the sixties and not at the lower end. So it's just a matter of finally getting all of the customers migrated over onto the platform continuing to unlock the.
And cheese within you know our services side of the business. The a M. G. A bed and then for other partnering and and capitalizing on the partnerships that you know we have we have established with some other technology players.
Thanks Best of luck in the future.
Alright, thank you.
And now our next question will come from Chile interesting of credit Suisse.
Thanks, and thanks for taking pushing on Keith Good luck with your future I joined into the late so Ah bothered me since you're already I guess, but can you date us on any faction, you're getting with white <unk>, how should we think about that opportunity within the context.
I know you guys are really small business and.
Florida market, but as you go to the market for Rachel primary care will that strategy involved in any way that you might see you guys potentially market more directly employs I gotcha.
[noise] hygiene downright man congratulation for your recent wins.
The get your primary care or digital first is going to be a common way that people interact with health care right in the future I think it's very clear right now and of course it is a very important the capability.
Of a converge we don't necessarily see it as an independent program. It's one of the model is one of the capabilities and we believe based on what we see that he is going to continue and grow and become a very popular <unk> capability.
It is you know a <unk> a R. A very loyal two or a pair a partners and believe that they are a good writer channel a to manage services with the with the employers and we don't expect any change in this.
Lots of G. A in the new year in the near future. What we do right now is try to and from then obviously, we <unk>. We serve very very large number of it or the employers that seemed to be very comfortable with the growing quality and capabilities that are offered to them by their a P.
There's a the sophistication of pairs a could be very helpful.
Two implores by basically now, allowing to connect gifts and care right now they're analyses a wave the providers that we enable connectivity to.
And that is the type of service that individual employer. It may be hard pressed the 2228 to obtain alone. It's it's not their their day job <unk> latest quantifying fortifying gear risk and that is part of the reason for a spot the gene in maintaining.
<unk>.
Thanks, Thanks for the comment in my follow up I was wondering if you could provide updates on your Google partnership. In addition to the capabilities captured in that converge platform. What are some other areas. We had partnership has helped the two companies and any of that and he asked me to think that I'll put Jodie that's spelled.
And could be fugit opportunities for you guys.
Yes, absolutely a so a if you remember there are a number of areas of collaboration.
There are a growing number of components a from a Google that's.
That's R. A integrated into converge many of them are an option.
For clients a to choose from and they are very powerful and capable somewhere announce and some are in there and play and impulses.
We are also in enabling a more capabilities on the Google a cloud.
Which is a working well both financially and operationally from a for US and are the last element is it relates to our preparation around distribution as you know, we really focused on the U S market day today at Google is a global company and.
Growingly, we built converge so it could really be relevant in the food globally Tan, where Google has some really interesting a S.
And and that's pretty much what I can say this at this point I would summarize the three are thrilled by the Sparc machine and it's just beginning to a really I would say develop they say, it's it's very strong full potential.
Great. Thanks for taking questions.
And next we have a scan at Bernstein I've classified as a K.
Hi, Thanks for taking my questions first I guess I'd like to I put my sentiments towards keeping Bob like.
I guess a question on the willingness for clients to be first movers onto converge is expectations for a large reclines to be personal <unk> offer smaller clients to be first movers as you're thinking about this upgrade cycle.
Stand that's a great question you know I thought you asked me. This question in April I would definitely say that will be smaller clients would be ready to jump in and more easily there. It's it's less complicated that it could be less perceived the risk interestingly enough what happens right now either.
We see just very large client jumping in the air D. Because they probably realize the enormous value they could take flak.
From a dark form and.
And a lot of it is fairly a special and unique and could provide them, especially advantage eh I'm really looking forward to the day that that could be more specific when these entities will be comfortable sharing their business strategy that they're really relies.
On the on the converge, but to be fair, we don't have any difficulty not with small or a big decline several different advantages and disadvantages a four H, even more clients loveday year that there is a very very big engine under the Hood, even if you only use on one now.
And you can really grow at two two of heart content in a very diversed way when you're ready a coupled with the fact that the experience is is is pretty awesome and I mentioned earlier that the Super fast video times there are many other right.
What's the three day life, a both a providers and the patients even in the simple agencies.
Got it that makes sense and then I guess, there's obviously a lot of moving pieces here you have the upgrade your cross cells. You want you want your new product converge just thinking about it from a sales standpoint, what is the focus for your Salesforce over the next 12 to 18 months given all these moving pieces.
Sure. So our number one focus is our existing clients, we have a very large market share a today and we are laser focus on streamlining the upgrade process as as as much as possible.
The white Gloving, it's being very attentive getting feedback as quickly as we can as implementing eat it as fast as we can to really make sure that our a very vast installed base is happy and ready to take advantage of numerous you a options that the the new plan.
For me is a bringing it at the same time, a we are also looking to expand our market beyond our currency market share and naturally we're looking at the big clients first because they represent an enormous disproportionate a a part of a of the eighth.
[noise] assistant and as you know the number one priority for them will is executive providers, we really want to make sure. The poodle is very large entities, we get as quickly as we can to as many existing gay providers. So they become <unk> from network, because we believe that most speaking.
Most relevant way to really create enduring impact on on on consumers and on clinical and financial outcomes.
Got it got it that's helpful and I guess, maybe just one quick housekeeping question I was surprised to see the non and your providers were up this quarter I think the expectations were probably to see some more slippage anything to call out where those providers came from why the southern uplift.
[noise] sorry, do you mean writes it do.
Do you mean active providers or do you mean nine a M G visits.
I'll providers.
<unk> yeah.
<unk> provided.
Yeah. The nine a M. G providers went up 9000 in just one quarter I mean, that's a significant uptick you know sequentially and just you know 90 days.
Yeah. My my question is I I believe the expectation was for for that to be a negative growth this quarter or maybe still kind of light because I think there was some COVID-19 related onboarding last year that you saw that would possibly flow off the platform. This quarter. So I'm just curious what what actually ended up driving.
<unk>, the uplift and providers and non names your provider's this quarter.
So you know we tend to talk about our our new platform converge a lot and we tend to discount. The fact that the current by four legs nothing's working very very well in the market and so many people are using Nathan and things of that nature. So that growth is three secular growth since the adoption of providers and embedding they.
Totally connectivity as part of their a work so it you're right technically that we saw an enormous surge a before and I'm sure. We lost a lot of those providers.
But we won neck many more so actually the 9000 is your right to point out is really a reflecting even bigger a change if you take into account those a one and done the COVID-19 related the provider does that amount a clearly out of a out of the mix.
Yeah, I would I would just say this suggests that we spoke to seize you started what we see is very dramatic.
In the sense that they just.
The tools are now becoming part of the main pathway of health care and a lot of it will be on our platform.
Got it thanks, so much.
And next we will go to that email <unk> ask her name that kept on my cat.
Hi, Good evening. Thank you for taking my question. So just on the first one the subscriber business I think you mentioned average contract values over 700, K and the health plan and maybe over 300, K and health systems is that kind of on an organic basis is that seems to be trending in the right direction or is that is there any.
<unk> from the acquisitions that that's pulling that up and then maybe secondly, and I'll just have a second question upfront more of a maybe just like an operational question. You know the the visit business has been I don't know how to put it mildly but it you know it's cause a little bit of a variance and and and and kind of forecasting here and I am.
<unk>, there's a lot of milkshake going on there's a lot of new provider is being added but what gives you. The confidence maybe you know looking into 2022 without giving us numbers that you have you know the understanding that you need to kind of limit the the volatility I guess in that space. Thanks.
So it's it's all organic on the subscription side I mean, we just close those two deals at the end of you know at the end of you know the quarter. So in terms of you know the subscription and the growth. There you know what that is that is the building nicely you know.
By our our current and new customers in terms of the of the visits we went public in the middle of the pandemic and he knew that you know the the visit component of our revenue was gonna be volatile yeah. No. I mean, it was it was a pandemic that nobody out a crystal ball and we said those exact words you know when.
We went public and that's why we compartmentalize you know the visit revenue in the visit part of our business you know from the rest of the model. So.
When we went public we gave a number you know and in the beginning of this year. You know we we confirmed the same number you know in queue to the Delta very unhurt, and many different sources as well as us we're expecting a lower flu season. So we had to adjust when we started seeing that.
And then the significant unexpected decoupling of behavioral to the Spike in Covid visits you know we started seeing that after the call you know and in August which was you know halfway through you know the Q3 and you know that's why we're adjusting it as well. So you know again, we're not.
Adjusting any of the subscription expectations, we had in the beginning of the year, nor the services and care points. It's just this visit component that you know COVID-19 is still happening and they're still dynamics that you know people are discovering how it spreads you know through through society. So we'll continue to isolate.
As the visit part of our business and you know continue to talk about you know the the subscription technology aspect of our business you know the subscription line as well as the services and care of points that also feed the subscription line.
Great Day, just one quick follow up I appreciate the color of their you know as we hopefully soon get out of Covid whenever that may be do you think the kind of variance in that visit fee business should kind of normalized your what your expectations were prior to Covid, maybe help us think about that thanks.
Sure Yeah.
Yeah, you know you can take that.
I don't think so.
Absolutely I mean this is.
We have a a deep analytics team that that is all that they do you know they look at the different sources, we are able to look to the southern have hemisphere as a leading indicator for flu season. You know we also monitor what's happening with the C. D C. As well as you know other telemedicine companies. We also get feedback from our customers you know the health systems and we can.
See the volume we can see the dynamics you know of how their providers are delivering care you know to help forecast with a degree of accuracy, what's gonna, what's gonna happen with R. M. J business you know what's interesting is.
For the first two quarters and all you know towards the end of last year, you know the specialty business was continuing to grow nicely as a greater portion of our customers doctors were delivering more and more urgent care remember that urgent care aspect is the core business of some of the other telemedicine companies out there and we do see that can.
<unk> shift too you know doctors delivering that type of care to their patients. So it's nice to see the continued expansion of specialty it is still growing in Q3, and it's still growing slightly in queue for but there's a decoupling. It's not following the dramatic steepening of the slope of urgent care happening you know.
Towards the end of Q3 and continuing so far halfway through Q4.
So rugby maybe just to add the color on what <unk> just said.
We are going to and the answer to your question is yes, we're going to have much more a reliability or predictability you're going forward for the following reasons. The most important reason he's growing part of our business will be sticky a R. R.
So very large clients that use our technology in a very integrated way for their day job business for their main business. So this is something that is very much like lucky and big epic implementation. Once you do if you stay with it for a really long time, although we are very very different from ethics. So that's the only.
Analogy here the second point that the increased reliability and predictability or services of the park a clinical services relates to the fact that we believe the urgent care component. The one and done business is going to basically the flat or even the.
The much smaller than the growth prescribed services the top part of programs. So.
So think about the Super cloud the program that includes a lot of information that prescribes now at conversation with therapies to the psychiatrists to lose a psychologist.
Likelihood of that visit happening is much much higher than it campaign over an employer or a pair suggesting that you should try a to talk to a psychologist, which we know is very expensive and very inefficient. So is digits.
Part of the mainstay of health care, the ability to predict volumes is going to become much easier because unfortunately or not health care works all the time.
And it's pretty consistent to show a a to see the the demand for those type of services and that's what a M. G and a P. C. R networks are going to do Growingly next year and in the years to come.
Okay.
And next we broke out to account on okay.
Back.
Oh, Great I think one of the thanks for taking my question here I'll just stick to one here, but just so obviously, we're all seeing and hearing about labor shortages in wage inflation's uhm.
Uhm across southern healthcare system and I'm, just wondering if that could you know do you see that potentially creating a scenario where sort of M. G sort of demand for for for outsource visits my my increase around some of the lower acuity might expand that business in a way that you hadn't contemplated before or is that.
Is that not the case.
Well, it's hard to tell if that makes sense, obviously, but to be fair I I'm not sure what proportion of the health care demand is.
This type of relationship thick and the soul.
Your point, but he's he's very very though and I would say that the answer to this is make sure that there is the appropriation of care. So navigation to the most appropriate intervention, if you'll pardon raquel and things of that nature is a very good step in the right direction and the usable to mention.
They use the programs like the silver cloud programs that these are deployed with with 80% of the members of the head and chest hold it seems very very big deployment, there and was proven over many years to really dramatically increase the reach of terrorist thing. It. Another way you have very few therapies that street.
Many more patients much more effectively by the appropriate use of tools like AI and conversational, a navigation and things of that nature of that the only all the ultimate I believe that the technology back too far outpace the availability over.
Urgent care, a networking will be helping to support it.
John where we are seeing it continue to to exacerbate is on the psych side, you know psychiatrist or the shortage in the U S continues and you know there are increasing visits happening you know in the emergency room. So that was the whole thesis why are we bought a line telehealth a couple of years ago.
And that thesis has been you know very accretive to our business you know there's so many of our health system customers that just don't have the staffing to meet the demand that they are experiencing a people showing up in the emergency room you know.
So that businesses is performing nicely.
Okay Super Thanks, so much.
And now we will go to Alan My Bank of America.
Thanks for taking my questions and for squeezing me in I guess going back to a M. G. In more of a conceptual question I guess first or the amount of customers using Angie increasing and then is there any way to kind of frame of what visit growth would look like in a normalised environment. You know you kind of mention.
And the urgent care expect that over time to be kind of flat down maybe you were speaking more about the the industry as opposed today in G business, but just trying to get a sense of how to to think about but urgent care and behavioral you know going forward. Thanks.
Sure. That's a great question again deserves a really long answer, which I wanted to buy the regular one with but.
The nutshell there are two types of visits right. There is the visit where I couldn't find my doctor and it was very convenient and possible to find a really simple a provider ray online to prescribe with temporary.
A I believe that there is value in that type of his service and it's very very convenient and I'm going to die out obviously people they need that but as more of my Doctor is my trusted the environments are going to be more and more available digitally I believe the public was always prepared those trusted their relationship.
<unk> with full access to your record that you can see in person and so on and so forth.
On the flip side, what we the growing use of longitudinal programs that heavy to use automation and things of that nature, but they'll based on very sophisticated collection of insights that can engage the consumer end providers continuously there is a need for it.
She will cloud the availability of clinical services, both to urgent care and specialty services.
There is a place for these type of a of a services imagine a group of experts around COVID-19 or not and another special topics that are available via a true nationally and are making their services available to everyone, including primary care providers in their offices and.
Their patients when needed that's not going to go away. So the redistribution of services include the cloud availability of clinical services in my opinion is a here to stay in that business is very very important because it can really contribute to closing getsy care that cannot be close by information alone.
Or by existing relationships and.
Alone, so a but but that's a very very different type of a business is just beginning to grow a right now to sum it up I believe that's overall did in the a M. G services are not going to die out they're going to replace their purpose and they're going to grow but they are going to be grown less.
Fast and the less impressive way versus the technology, which is really the main contribution a.
That we bring to the new model of care.
And that's why we're so focused on the specialty visits cause specialty you know again, our mission is to supplement rather than you know replace so supplements you know the capacity of our customer's own doctors to deliver care to their patients or their members. So specialty in so many situations has more supplemental.
Then you know being the primary.
Deliver of that care.
Great. Thank you.
Thanks.
And your final question will come from Covid last N F. P T I T.
[noise] Hi, I just have a quick one can you talk a little bit about your relationship with some handsome anthem. Obviously has a digital first plan design is American well the telehealth solution that will basically power a big piece of that virtual first plan design and then can you also talk.
A little bit about your relationship with Walgreens, but obviously investing heavily in the village M D.
How many Walgreens stores are you in and look at that increase up to just any color around those two relationships will be very helpful. Thank you.
David You know, it's really well and in order to never ever talk about clients projects and we're not going to change our way. It today I would always suggest that a relationship with anthem.
Is very important relationship for a well it's been going for almost a decade and it's it's very very strong we're doing different things with them. They obviously do other things as well the the digital the activity Nansen is vast and impressive and we're very proud to contribute.
To eat that I will not say anything beyond that.
Okay I appreciate it thanks very much.
Thanks, Dave.
And with that ladies and gentlemen that does conclude today's conference call. If I could thank you again for your participation you may now disconnect.
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