I guess we're live. All right. Yeah. All right. Cool. All right. Well, thanks everyone for joining this next session at the 19th Annual Needham Tech and Media Conference. I'm Ryan MacDonald, and I lead the firm's Digital Health Research efforts. With me in this session, we've got Amwell CFO Bob Shepardson. Bob, thanks for joining me today. Hey, Ryan. Nice to see you. Thanks. We've got about 40 minutes for a Fireside Chat. We'll kind of run through questions, and I'm sure we got plenty to talk about. Good. Awesome. So Bob, for those who might not be familiar, how about a brief overview of Amwell? Sure. So Amwell's really one of the pioneers, very early companies into telehealth and an evangelizer for telehealth. It's a company that's almost two decades old. So the vision has always been to deliver better care, better quality care, more efficiently. The initial manifestation of that was telehealth over the phone. And that's evolved to what today is really enabling hybrid care. So virtual, automated, and in-person care is what our platform enables. We connect payers, providers, government agencies, and consumers. We have a very large footprint in terms of our customer penetration. We've got about 2,000 hospitals and around 50 payers in our customer base. And those payers represent about 100 million lives. Excellent. So COVID, kind of just a little bit further, COVID changed the game for us and others. On the back of that, we went public in September of 2020. As a result, we're very well funded. We made a decision to re-platform our business in 2021. We're coming out the other side of that now. Yeah. Yeah. I wanted to touch on that. So let's call a couple of years here have been a little bit of a transition as you've migrated onto the Converge platform, which is more modular and configurable than the prior Amwell platform. Can you talk about how that new platform is resonating within the market? And are you seeing it unlock opportunities with customers that you previously couldn't see with the old platform? Yeah. So the customer satisfaction metrics that we track are leagues better than what we had on the legacy platforms. So we have very high customer satisfaction. And we've been successful in not just migrating our customer base, but also signing new customers with it, even though it's very recent that we have the platform kind of up and running in a major way. So we successfully migrated our largest customer at the beginning of the year, Elevance. We actually signed CVS prior to the platform being done. And they've been up and running for over a year now. And notably, and I'm sure we'll get into this, but we signed a contract with the Defense Health Agency, actually with Leidos, who's the prime on the contract. But I would say that's kind of the poster child for what have we been able to do, the return on investment, I guess, there with the full 10 million lives that they speak to, as well as the circa 40 hospitals and health systems that they've built. Yeah. Really interesting opportunity there. As we think about the recently reported quarter that you just reported, you mentioned a statistic that 68% of visits are now happening on Converge, which when we break it down means that you're almost complete with this platform migration and mostly complete with the health systems. Well, the payer transition is obviously still ongoing. So as we think about where we are with both end markets today, what's your confidence level that you can be sort of fully complete with the Converge transition by the end of 2024, sort of based on where we sit today? I would love to tell you we'll be done. At the end of 2024, we won't be. It's not 100% in our control. So we've made great progress at around 70% now. That number will go higher over the course of the year. There are some health systems that really don't have the resources to speak to a migration at this point. And I think making progress on our payer base, that's very much more within striking distance. But there will be a group of providers at the end of the year that are still on the legacy platform. And look, over the course of 2025, we will figure out a solution that works for us and for them in terms of how to deal with the small tail that we might have outstanding there. Yeah. Because it always can be a little bit difficult when you're having to support two different platforms at that point. But the end market has its clear challenges in terms of how tight budgets can be. So yeah, that makes sense. Yeah. I mean, they're unfortunately not operating on our calendar. But I do think that we will find a way. And there are certainly margin benefits, especially at the COGS line of getting this done. There's also R&D dollars that go into supporting the platforms. But we'll get there, I'm sure, over the course of 2025. Or we'll get to a solution over the course of 2025. Now, migrations can create an opportunity for upsells, which obviously is a positive. But re-platforming events, even with the best platforms, can create the risk of churn and sort of reevaluation of the platform that they're utilizing. What have the churn dynamics been like as you've gone through the transition? It's been a headwind, no question. We announced this in 2021 and really started on it in earnest that year. And when you're going through it, you've got renewals that come up. And that's where you're most vulnerable, as folks really don't know what they're renewing onto and when and if that might be available. And then you also have upsells that aren't going to really happen during that period of time. And signing new customers is your challenge, too. So our numbers on the top line have really been challenged by this. We are kind of coming out, as I said, the other side of this. And all of that churn has been on the legacy platforms. So we're very much encouraged by, again, the performance metrics of the new one, the customer satisfaction that we're seeing, and the lack of churn. It's early days, obviously, that we've been up on this. But I feel like as we guided this year, the first quarter was really, I think, a low point for us on the subscription software side. And we expect that to tick up sequentially over the course of this year in the second and the third quarters, marginally, and then have a rather large jump in the fourth quarter with go- lives that are contracted. Excellent. I mean, and when a customer churns, obviously, you said it's really sort of core to just the legacy platform, nothing that you're seeing from Converge. What's maybe not clicking? Is it pricing? Is it they just don't see the product vision quite yet? And then do you see sort of opportunities as you mature with Converge to sort of win those customers back? We definitely see that opportunity. The buying cycle throws some challenges at you there, right? Because folks have signed for new contracts. In the payer market, it's kind of you're gearing up to a once-a-year sale. So seeing the flow through of that is to play for. But no, I feel like we're in a very good place. We've done a lot of work looking at pricing, looking at market segmentation, revamping our go-to-market. And I feel like based on all the new capabilities that we have with Converge, we're kind of primed to start to certainly see the churn come off and the growth come back into the market. Yeah. That's a good point. So I was going to say part of the remedy, it sounds like, has been sort of that restructuring of the go-to-market motion, the sales organization, to better align the sales force with client needs. What were some of the changes, if you can go through, that you made? Or what were the main structural changes to the go-to-market? And what are you seeing sort of early in the transition as proof points that it's working? Well, on that last point, I would say the biggest proof point that things are working is probably that DHA contract. Because when you look at what they bought there, it's everything we have. So it's Converge platform. It's digital behavioral health. And it's automated care programs, the full library. So all of that together really resonated for a very large payvider. The selling effort there was long. We had a pilot going back to, I think, the 2018, 2019 time frame with the Navy. So we've been working with the military for a while. And that kind of took on a new urgency really over the last year. And so it really can turn very quickly and turn into something really meaningful. What we've done from a sales force perspective is a complete revamp. So we used to have an account management organization and a hunting organization. Now we're combined into a hunter-farming organization, right? So you sell a customer. You own that customer. You're responsible for upselling that customer. You have the relationship. It's a completely different way to go to market for us there. We've done a ton of work on the customer segmentation side where we have a right and really figured out where we have a strong right to win and focused our pipeline building efforts really on those markets, our marketing, and really directing our sales folks at those accounts. And we've really said, what are the parts of the market that we really shouldn't be in? And so the low end, the customers that really want cheap video visits and really aren't in a position to do much more than that, either from a size or a financial capacity perspective, we're happy to sell a low-end product to them. But we're not going to be pursuing that market segment. We were kind of going after everything. And a sale was a sale was a sale. So that's changed dramatically. And we've really also changed the sales compensation to target much higher margin recurring revenue software sales and less towards equipment, services, et cetera. Yeah. That makes sense. Well, Hank, if the DHA win is your first signs of the sales force go-to-market improvement, I can't wait to see what the second act's going to be here. You mentioned sort of the owning of the customer now and owning of the upsell and cross-sell within the new model. Can you just talk about maybe what you're leading with when you're looking at cross-selling and upselling the customers? And how is this maybe informing your expectations for sort of same-store sales growth with customers? Yeah. I mean, when you think about our model, we'll go in with, for a payer, for instance, a platform sale with urgent care for a certain amount of their population. So how do we grow with that customer? We get more of the population. We sell more digital programs into them to sell to their covered lives. So a number of different ways we can grow. And there's the volume aspect, too. So a number of different ways that we can grow with them. The one that we're well, we're focused on a lot of different ones. But the one that's resonating a lot for payers right now is Virtual Primary Care. And when you think about how they're just starting to go to market with digital-first plans that have free visits, free video visits, and with a provider that is your provider. So that's, I think, a relatively new. It's not a new product. But it's a new product that's really scaling for the first time in some of these payers' businesses and one that's really focused on controlling their spend by providing something that is new and cheap. So that's an area that is a big area of growth. And when you think about what we have to offer there, it's this platform. But we also have 3,500 provider force. So you can use our providers. Or if you are a payer that has a large installed base of providers of your own, we activate those. And we can route to yours and then overflow to ours. Or if you don't have any, then you can just use ours. So we really, I think, have a lot of the assets, all the assets we need to be able to provide that in a way that makes a lot of sense to our customers. So that's on kind of growing with the payer customers. On the provider side, I would say what we have from an automated care library perspective is something that is very much an upsell-type product. And then beyond that, there's kind of new products like e-nursing, e-sitting that we're providing over our platform that have gotten of late a lot of traction. Yeah. Absolutely. I'm curious if we separate out DHA because it's obviously a big growth driver over the next year and change. You look at sort of that core business between payers and health systems today, what do you think the balance looks like in terms of net new logo vs existing customer expansions in terms of your growth algorithm? I would say it's very balanced between the two. I mean, the nice thing about having the footprint that we have into both payers and providers is it's big enough to see a sizable amount of upsell but also not so penetrated that we can't get new logos. And so I would say it's very balanced on that level. Excellent. So let's shift to the government opportunity. Because obviously, it's a big topic. And you've deployed Digital Behavioral Health at the five initial sites. You're now working Converge deployment at the initial sites. And then that'll be followed by the Automated Care programs. So what's the timelines for the initial deployments? And And any opportunities to accelerate this? Or how set in stone are sort of those set deadlines? I'm on these calls weekly now with the whole group internally. And then I also get on a monthly call with the customer, Leidos and the customer. And it's really amazing to me as a finance guy, just what goes into this. I mean, it really is a ton of heavy lifting, OK? And a lot of back and forth and integration between what we do and what the integrator Leidos does. And all of the other, there's like 30 participants in the Leidos Partnership for Defense Health. And so the amount of coordination is impressive. And what we're doing from we're bringing a very commercial mindset to a government environment, which is really well received. They're not used to this level of ability to deliver this way. And so that's terrific to witness. The cadence here was early first quarter for digital behavioral health. And then early third quarter, we're going to see the Converge platform. And then early fourth quarter is going to be Automated Care. So what you'll see in the financials is as we deliver on the services to do the implementation, some of those we can recognize revenue on as we go. Others get triggered on go- lives. So we'll see the Services and CarePoints line item tick up nicely over the second, third, and fourth quarters. But we won't see, given the timing of go- lives, the subscription software line item really tick up meaningfully until the fourth quarter. And that's what that looks like. Can things change relative to that set of expectations? No question. They've already changed. Because when we set out, it was originally going to be Digital Behavioral Health, Automated Care, then Converge. The customer said, you know what? We really want to get our hospitals going. So can we figure out a way to accelerate the Converge platform? So we scrambled and, together with Leidos, figured out a way to get that delivered a few months ahead and pushed back automated care a little bit. But it's all about getting the customer to the point where they're comfortable going ahead and going to full enterprise. The way that they're positioning this is interesting. It's not about, this is a pilot. Let's see how it goes. Then we'll make a decision. This is about, we want to learn as much as we can from these initial five sites. We pick the five sites to really be representative of our whole footprint. So that when we do pull the trigger, we're hitting the ground running. So they could make decisions that accelerate pieces of an enterprise expansion. It doesn't have to all be at once for all three services. I'm not suggesting that's an outcome that we expect to see. We still fully expect the enterprise to go live in December, at the end of kind of towards the end of December. But there is the possibility, just as we saw the order change, that they want to do things a little bit differently than the contract modification suggests. Well, and I imagine that there's more importance being placed on those five initial sites so that they can do whatever tinkering they need to do. Because, again, what these I think a lot of sometimes it gets overlooked in the investment community is when it's these large government contract opportunities, yes, it's a 22-month contract right now. But these organizations typically make five- and ten-year decisions when they're contracting out for it. And so they don't mind a little bit of tinkering on the front end to make sure it's actually going to be effective on the back end. No question. And we're very focused on making them very comfortable with that whole process. But yeah, the amount of work that's going in on both sides here is substantial. And the LPDH is very focused on making sure this goes flawlessly. Because there's other ones that obviously could follow. So everybody's equally motivated and doing everything they can to deliver here. Yeah. Absolutely. Absolutely. So once you've completed the implementation with DHA and are live, the revenue stream should have a pretty transformative impact on Amwell's P&L, both from a revenue and a margin perspective. Can you just talk about the magnitude of the impact here and when you'll expect to begin collecting sort of this margin accretive revenue stream? Yeah. It really is transformational. Because of that, in February, we gave some pretty specific guidance as to what to expect. We gave guidance for this year that was very much like what we did last year. The reason for that is, on the R&D line, what we're gaining from a spend coming off Converge, we're having to give back a little bit for the customization of the platform in the government cloud. There's puts and takes. This year looks a lot like last year. Next year, with the benefit of this contract plus other go- lives, we expect our revenues to go from, call it, around $265 at the midpoint of our guide to $335-$350 next year. A 30% increase area on the revenue side. That will bring gross margins from, call it, the high 30s to over 50%. That's the quality of the revenue. And then what that means when you put it together with the costs coming out of the income statement, R&D, SG&A, that will translate into a 70% improvement area in EBITDA. So we've got a guide going from, call it, around $155 this year to -35 to -45 next year. And I expect that it'll be better than that. So as I look at it, Ryan, if I were to tell you we had a company that was going to do, call it, $350 million of revenue. And it has around $200 million of cash. It's going to lose a little bit of money. But we got 2,000 hospitals and about 50 health plans. And we got a platform that we've just invested $400 million in. And we've got one of the largest health plans in the country that's an anchor customer. We got CVS. We got a very large government agency as a customer. Would you think that was a circa $150 million market cap company? Yeah. It seems like a little bit undervalued. Yeah. Yeah. Yeah. But we live in a world that's kind of, you're kind of looking backwards. You're kind of in a show-me market. But if I were, in my old job, taking a company public that had those aspects, I think it would look a lot different from a valuation perspective than kind of where we sit today. Yeah. And as I think, look, you've got a great line of sight on the implementation and the deliverables there. And so I think getting through that is definitely going to be a huge factor, right? Just for context, as you think about the DHA contract that you won, can you help us understand maybe what the sort of timeline was around the bidding in that contract and how long that took? Because, again, it's a 22-month contract, right? So if you execute well like you are on the implementation, this is not likely going to be a one-year contract, essentially, after the implementation. There's further opportunities. How should we think about when the next contract starts that bidding process or? You mean with the DHA? Yeah. With the DHA. Oh, I think that's early 2025 kind of thing. I would think right after the enterprise go live, the discussions would be around that. And I would imagine that we're the service that's kind of specked in there. So look, as I said, we had a long-ish history doing business in a very small way with the military. But it turned on a dime in terms of the it was kind of in line with the Lloyd Austin has a TCOP, taking care of people, mantra. And this is squarely to that. They were very desirous of very quickly being in a position to take advantage of everything that was going on that they'd seen going on commercially and bringing those benefits to the military. A mental health crisis. How do we get high-quality health care into the field or hospitals or health systems around the world for our folks in uniform? And if we can do it commercially, we certainly have to be doing it for the military. And so it took on a life of its own. It went very quickly. It went from a lot of early discussions around much different scale to all of a sudden being, all right, let's do the whole thing. And it was very much lined up on the back of the Cerner implementation, which actually was done on budget and on time. I think everybody thinks about these as very difficult and problematic because of the experience with the VA. I was going to say the VA. But this has been totally different. And so we're coming into this pristine environment. And so our implementation is that much easier. Because that's all new and done. So I would say it was kind of a slow burn. And I got to tell you, I got tired of hearing our sales guy talk about the military opportunity. Because he's like, you know I got all these meetings. And I'm like, yeah, great. Give me a call when it's done. But then it was done. Wow. So So as I said, they can really turn on a dime. And I really do think what we're doing here positions us for a much broader opportunity set. And it's kind of to be a little geekish, I mean, that's why we're capitalizing some of this spend. Because it's not contract specific. It's really sector specific. You can make it. It's leverageable to other opportunities. I would imagine, because of the size and scale of this implementation, that makes Amwell quite formidable in sort of government conversations and additional deals here. I mean, Leidos is going to be, I think, a really good sales force for us. I think the DHA is going to be a terrific partner in talking about what we were able to deliver for them. And yeah, I just think it's going to be very accretive. Yeah. Let's maybe move away from government and talk about sort of the evolving market dynamics around sort of digital health in general and Virtual Care. Obviously, it recently was in the news that Optum was shuttering their Virtual Care offering, Walmart's closing health care centers, and virtual health care offering as well. What sort of impact do you think this has on sort of how the space is being viewed and maybe more directly on Amwell? Does this create incremental opportunities for you over time? You know. I think the initial reaction, looking at all of the rags that I read on digital health, was, oh my god, this is the end, right? This is really the death knell, the nail in the coffin for telehealth. It couldn't be more wrong. I mean, I think it highlights just how difficult this is. You need to have the right addressable market, right? But just having that market at your fingertips doesn't guarantee success. You also need to have the right platform to address it. But having the platform and the opportunity doesn't even guarantee success. Then you need the provider network. That has to be configured appropriately for the opportunity. So we have all of those pieces in place. The fact that others are pulling back because they don't have all of those capabilities to bring to bear is not at all a surprise. And we've had folks work with us and then pull back and say, I can do this myself, and then come back to us and say, we can't do this ourselves. We need you. That's happened a number of times with some pretty big situations. But to see some smaller situations pull back after multiple efforts at it is not a surprise. I mean, you really got to be very focused on. It's like a candy store, right? So you can't just say, well, I got this great footprint of underserved population. And I can really go after it. Or I've got this big opportunity set. Look at all these visits I can go after. And all I need to do is have a bunch of doctors and be able to go after that. How to make money doing it all the while delivering a very high-quality care outcome is a really complicated thing. Yeah. No, I think it comes down so much to structure of the organizations, right? If you look at where I think digital health has really grown, it's been digitally native companies. That was sort of how they were built and how that process is built. vs if you look at a Walmart, it's a retail, physical footprint. Moving into virtual is not so easily done. You've seen, obviously, CVS has had struggles over time and Walgreens, et cetera. And then on the insurance side, there has never been that much of an incentive for utilization, which is what Virtual Care needs to be built off of, this sort of proactive engagement and driving of that. So to me, it just shows that they need assistance in sort of bringing in outside parties for expertise in this area. There aren't that many companies that really have all of the pieces in place and the scale, I think, to do it well. So we feel good about the opportunity that we have in front of us and aren't at all put off by the fact that you have folks leaving it. Well, and I think so this kind of brings me to maybe a next topic, which is so one of the visions for Converge was really to build out this marketplace. Because as you think about moving from telehealth or Virtual Care 1.0 to 2.0, it's less about, how do I get an urgent telephone call or urgent care visit over virtually? And it's, how can I offer different points of specialty care and sort of in that native referral network all in one virtual experience? And I feel like that's what you're sort of building with Converge and have started to try to build out with the partnership opportunities. So can you just speak to a little bit of the vision of the marketplace and progress update on where you are with that? Well, I think what this platform allows us to do is make a decision about what we need to have native. And then based on demand from our customers, what we need to deliver to them beyond that. The platform allows us to plug in best-in-class, whatever it is. And so we can take what they have invested in, in their portfolio of assets. We can take third-party assets and light those up for our customers. That's the beauty of it. And we don't have to buy or build a cardiometabolic solution, right? I mean, we can just partner up with somebody. Or we can just plug in what they have in their portfolio. So I think we're really set up very well in terms of delivering what our customers want and enabling that and ultimately to get paid in different ways for that. Right now, this is all, I think, fairly nascent in terms of what kind of revenue is getting delivered. But when you think about kind of where things are going and what business models might develop, we have a platform uniquely that will enable all of that to become a much bigger part of our business. So I'm not here to tell you that our marketplace of apps for Converge is a reality today. What I am here to tell you, I think, to your question is that we do have some third-party digital assets that we're doing business with and taking a rev share. But what this does, I think uniquely, is solves for a lot of people's different problems, right? So if you have the best cardiometabolic program, but you need access to 10s of millions of lives to make that real, you can either go and try to contract with a bunch of different payers. Good luck with that. Or you can go to somebody that has those relationships in place that can help you really light that up for them. And that gets our payer customers everything that they need, which is access to the best programs out there. And it gets us an incremental revenue opportunity. Yeah. Absolutely. Maybe to talk on sort of the profitability side of things and of the P&L, you've obviously got a lot of opportunities here for driving growth. You will be able to sort of work towards that break-even goal with revenue mix shift is going to help with a lot of that. But what are you doing from cost optimization perspective incrementally to drive more leverage in the model? A ton. Yeah, I mean, we are laser focused on every line item. So how can we get more margin out of this on the gross margin side, looking at different ways to take our delivery costs down? But very focused on the operating expense line items. We're going to see very naturally a ton of costs come out of R&D, as we've talked about. But look, on the SG&A side, we're looking at every dollar we're spending. What's the effectiveness of marketing? What's the right amount of spend to carry on the sales side, given where we are? And then G&A is we're looking at offshoring. We're looking at just a lot of different ways to kind of take costs out. And so I gave some numbers that I think are conservative. If you look at a year that's done and dusted of 2023 and what our operating expense was then, we expect that we're going to be down approaching 25% from an operating expense perspective in 2025. So it's clouded in 2024 by what's going on on the R&D side with our government spend. But you're going to really see, and that's not just R&D. It's also SG&A coming down. Makes sense. Then as you think about pathway to break-even and where your cash balance sits today, you're confident in that you've got enough cash to kind of get to those targets? Like I said, I mean, I see us kind of call it, if it's $350 of revenue and it's a small, call it, I think I guided $35-$45 loss on the EBITDA side in 2025, we're going to end the year better than $200 million of cash. I feel very comfortable with our liquidity, no question. That's not an issue for this company. Yeah. Is it to a point where you maybe look at, is this an opportunity to be buying back stock at these levels? Or does M&A come into your mind at all? I mean, you are an ex-banker or a recovered banker. We'll call it that way. We have a lot to say grace over right now just in terms of getting to the point where folks look at it and say, all right, I can really grasp this. I'm seeing it in the numbers. I think once we get to that point, we're going to be a lot more comfortable that growing inorganically or using cash to buy back stock is the right way to go. I think a lot of the valuation will take care of itself here once people start to see what we're telling people is going to happen and is contractual in the revenue and the cash flow. That makes sense. Maybe just so the minute left, any questions from the audience? Yeah. I was curious to ask you about international finance. There was an announcement earlier yesterday about a deal in Australia. I don't know how substantial that is. Which of the markets do you think are strategically important? We've been focused on English-speaking markets because, kind of, looking at a lot of what we have, which is digital behavioral health, automated care programs, it's all in English. And there's a heavy lift to make it applicable outside the market. Part of our just the platform piece would be applicable broadly internationally. What we want to do, I think, is get proof of concept internationally, which we've done in several English-speaking countries: the U.K., Ireland, and Australia. And I think in South Africa too. I wouldn't expect that we will see anything dramatic near-term because we're really not focusing a lot of sales efforts internationally right now. But I do think that's a leg of growth for us in the future, no question. And we have had discussions historically, very large opportunities in markets like the Middle East, for instance, that have come. They're still there and out there. But again, that would be a very large customization of the platform that I don't think we're really looking to undertake at this point in time. I think we want to kind of get through this government customization, start to see the cash flow come in, and then maybe set our sights a little bit more broadly. Excellent. Well, that.