Earnings Call: Q2 2021

Aug 11, 2021

Good day and thank you for standing by. Welcome to the AmWell Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your first speaker today, Ito Schoenberg, Chairman and CEO of AMLO. Thank you. Please go ahead. Good evening, and thank you for joining our earnings call. On our call this evening, I will discuss our 2Q performance and share full year trends, including our 2021 guidance. I will then cover our strategic trajectory as reflected in our recent performance and Finally, I will turn to Keith to give you more color on our financials, and then we will both open the call for Q and A. The Q2 remains consistent with our plan with $60,000,000 in revenues. 55% came from our technology business And 45 from visits. We are excited to count over 70,000 active providers, Significantly higher than we expected considering 2020 COVID related 1 and done adjustments. Following the typical seasonal pattern, as we ended the school year and headed into the summer, 1,300,000 visits were performed on our in Q2 of 2021 versus $1,600,000 the previous quarter. Clients continue to significantly leverage the Amol platform to deliver care to their patients, as 75% of all visits this quarter were performed by our clients' own providers. I'm pleased to report that Amul drove a 600 basis point gross margin improvement to 44%. This was accomplished through a favorable shift to more higher margin technology revenues A set of efficiency contributors that started to realize, including our migration to Google Cloud, Amoil Medical Group Technology Improvements and initial deployments of Amoil Now on CONVERGE. These efficiencies also improved our EBITDA loss to $23,000,000 for the quarter. Our software CarePoint and technology related business continue to operate at or better than originally expected. However, the recent emergence of the delta variant has introduced some uncertainty to our second half visits outlook. To cover all busy demand scenarios, we want to account for a new potential second half possibility in which the delta variant preventive measures, including masking and social distancing, could significantly reduce the flu season While not adding to actual COVID related demand. To cover such potential variant related development, We are adjusting our full year range to $252,000,000 to $262,000,000 Given the earlier discussed efficiencies, we're improving our organic EBITDA guidance by $12,000,000 to negative $154,000,000 to $146,000,000 which on a GAAP basis includes the $10,000,000 EBITDA burden from the Conversa and Silver Cloud acquisitions and the related deferred revenues write offs. In Q2, we began to deploy CONVERGE in hospitals and delivery metrics. 38 Amwell Now clients are already live on CONVERGE, Powering 1300 providers on our new platform. Patient satisfaction rates are high. Clients are seeing significant performance improvement over our legacy platform. For example, video connection speeds on mobile devices Are twice as fast on CONVERGE. In another example, a Midwest hospital is using CONVERGE for both ambulatory and inpatient And providers are giving high marks for the reliability and simplicity of the new platform. They highlight the intuitive user experience, pre visit tech checks and real time troubleshooting for connectivity issues, All of which they say has enabled patients and providers to focus on care rather than technology. In the Q2, we also expanded our work with our strategic partners. For example, our products are now Sold in the Google marketplace. Google and Amwell sales teams are co selling in key accounts, And Google Cloud Technologies are built into converge and will bolster automation, user experience, analytics and insight. We also accelerated our work with Cerner, a partnership that continues to gain momentum And has led to significant number of new clients choosing Amwell and 2 strategic Cerner client renewals. These clients span the spectrum from public health systems to academic medical centers to regional centers of excellence across the More strategically, we see telehealth transitioning from a digital alternative for an office visit Into an independent arm of care delivery. The long term impact of COVID on telehealth is driven not only by patient uptick, But more so by the volume of physicians who adopted it and will continue to use it. With digital care becoming mainstream, it is possible to expect a technology assisted presence of health care Around patients, such constant presence and companionship cannot be achieved with only clinicians. It can only be achieved at Care using intelligent automation. For this companionship to be adopted as valuable, It must strengthen the cohesion between physical and virtual care, tying into real conditions of various skill sets as the need arises. There was no such convergence in the market until today. No single integrated platform combining automated Patiental companionship, virtual care and physical care. This is changing with Amol converged platform And our recent acquisitions, we are assimilating the components needed for joining digital companionship, live telehealth And AI know how with Amel's vast ecosystem of payers and providers to offer an affordable longitudinal healthcare experience. 2 weeks ago, we announced 2 strategic acquisitions. Our $320,000,000 total investment It was made via combination of stock and cash. Both Silver Cloud and Conversa feature incredible teams that share our values, culture and mission. They are both outstanding high growth, High margin technology companies. Both companies are loved by their clients with net retention of nearly 100% And with over 140 percent annual same store revenues growth rate. Like us, Their purpose is to further enable and not replace existing provider patient relationships and like us, They power healthcare largest, most trusted players. It is easy to understand how Convergent and Silver Cloud will directly improve and Expand the value and differentiation of Amel's converged platform. As we already shared, we expect these assets to grow over 100% next year, adding approximately $30,000,000 to our subscription technology business. Converso brings capabilities to create, run and manage automated longitudinal programs in converge. The result is data driven, highly efficient, always on, fully integrated navigation and engagement experience. In addition to improving the patient experience and outcome, the conversta technology can greatly enhance access and utilization of other converge assets, including Silver Cloud. Converso is trusted by many leaders, including Northwell, UMC Health and UCSF. We expect to fully embed Conversa in Amworld platform by the end of this year. SilverCloud delivers a range of digital cognitive behavioral health programs that are evidence based and clinically validated. These programs have shown results equivalent to face to face care for patients with diagnosable mental health condition. Used globally by more than 300 organizations, Including Kaiser Permanente, Optum, Providence Health and over 80% of U. K. National health service mental health Amul will leverage the CloudHealth award winning platform in more than 17 years of clinical research To enrich our own behavioral health offering as well as to develop new digital specialty care programs. FibreCloud also allows our clients and partners to enhance their own provider services, modules and programs. Finally, it opens a new base for Amwell with trusted relationships in the U. K. And Ireland. Both companies enable significant care improvements through automation. Combined, We are now able to offer our clients and partners a single unique platform that enables hybrid care covering physical, virtual and automated services. Our open marketplace for apps and programs We'll allow health innovators to deploy deeply integrated health technology that could improve outcomes across the full continuum of care. We are well positioned to maximize the impact of providers by supporting them continuously Before, during and after the visits, expanding the reach and impact through technology. The result will probably be one The most advanced and comprehensive digital care delivery enablement platforms to date. It will connect vast array of providers, Payers, employers and innovators as existing and new clients and partners growingly rely on it for powering bigger parts of their business. As we begin to think beyond 2021, we feel that we are better positioned to further improve margins and EBITDA. The growing demand for our high margin, scalable and highly differentiated technology is fueling this change. With that, I would like to turn to Keith to give you more color on our financial performance. Thanks, Ito, and thank you everyone for joining us on our Q2 call. While later in my prepared remarks, I'll unpack our performance this quarter. I want to first provide some insights into the 2 acquisitions we announced simultaneously 2 weeks ago. If you recall, we discussed on our quarter earnings call that the theme of longitudinal care, while a core functional tenant of the Converge platform is also driving our inorganic Strategy in the areas of care coordination, interoperability, device agnostic patient monitoring and the ability for AmWell to provide programs to Manage chronic conditions as the health plan or health system customer does not have their own program. Acquiring these two companies simultaneously was intentional As Converso is focused on automation and care coordination, while Silver Cloud then delivers lower acuity CBT based behavioral health tools to address the situations identified by Conversa. While both of these companies have been wildly in their own right, the combination of both of them at the same time on the Converge platform opens up many opportunities for Amel to further deliver on our core mission to provide the environment, the platform and the tools for our customers' own providers to deliver care to their patients or members. While ConvergeOne is mainly automation technology that will broaden Converge's functionality, Silver Cloud is a behavioral health tool that when appropriate and search the customer's own providers to treat their patients. Kaiser and their use of Silver Cloud is a fantastic example of this dynamic. What is most important about Silver Cloud and Conversa is that it highlights the differences of AmWell versus other virtual care companies As we are partnering with the provider and coordinators of care versus competing against them, this enablement theme and function is competitively differentiating and has been a key to our success in the selling season. In terms of financial impact, we acquired Silver Cloud for $210,000,000 And Conversa for $110,000,000 with both transactions paid for with a similar mix of approximately fifty-fifty cash and stock. Both transactions have additional earn outs based on operational and 2022 GAAP revenue milestones that upon achievement will be paid for in Amwell stock. In aggregate and if operating on a standalone basis, the companies are expected to achieve $15,000,000 in revenue in 2021 and over $30,000,000 in 2022. On a GAAP basis and in terms of contribution to AmWell, due to significant deferred revenue balances, we Expect little to no contribution to our 2021 revenue, but approximately $30,000,000 in 2022. While the deferred revenue write down is a headwind to 2021 revenue, on a GAAP basis we still recognize all of the expenses which are significant As both companies were building up the infrastructure to support their 100% growth rate. So on a GAAP basis for 2021, We'll absorb an additional $10,000,000 in EBITDA loss related to these acquisitions. Both companies in aggregate are forecasted to achieve 70% gross margins in 2022. 75% of Silver Cloud's revenue comes from the U. K. From notable customers such as the NHS. From a customer base perspective, the majority of revenue from both companies comes from health systems, which was important to us And typically achieve over 140 percent net revenue retention. We closed Conversa yesterday and are expecting to close Silver Cloud by the end of the month. Now turning to our Q2 results, we reported total revenue of $60,200,000 an increase of 5 Over last quarter driven mainly by expansion of our technology subscription business. Total subscription revenue in the quarter was 26,800,000 A 9% increase over last quarter and about a 15% increase compared to the Q2 of last year, if normalized for the 2 customers lost due to M and A that we've previously discussed. The growth is a result of expanded health plan programs and health system modules. While we report average contract values on an annual basis, it's notable that average contract value is now around $700,000 for health plans versus $600,000 in 2020 due to the rapid expansion of programs being conducted through our platform. Total visits conducted this quarter on the Unwell platform was 1,300,000 and AMG performed 325,000 of these visits. Reiterating what Ido said, in spite of the Q2 and Q3 typical summer slowdown on urgent care visits, which was exacerbated by people experiencing A much needed COVID passing euphoria, our clients continue to deliver significant care on the platform as 75% of visits were delivered by our customers' own Total visit revenue was $27,500,000 this quarter, which is the same level as Q1 despite this summer dynamic. Unpacking the mix, AMG volume continues to shift to higher acuity specialty visits with the average price per visit rising now to $85 per visit range from the low $80 range in Q1 and $7 to $3 per visit on average in 2020. Similar to the first This increase was also driven by the increase in behavioral health visits, especially higher acuity psychiatry delivered virtually to patients mainly in the hospital. While the number of AMG visits decreased slightly, revenue remained flat as the mix percentage continued to shift to higher revenue specialty visits versus Simple Urgent Care. As we guided last quarter, services and CarePoint's revenue increased to $5,900,000 from $5,200,000 It's on plan as health systems begin to execute their capital plans in earnest in Q2. Gross margin increased over 600 basis points to 44% of revenue versus 38% last quarter. This was partially due to revenue mix shift more weighted to subscription revenue, But also efficiency measures implemented on the services side. Specifically, the efficiency aspects of our partnership with Google Being realized, economies of scale and technology process improvements within our AMG business and early aspects Margin expansion as we begin to migrate clients over on to Converge. Note that in Q3 and Q4, we expect margins to slightly dip versus this quarter As we begin to migrate some of our more complex customers on the converge and this will take additional resources to ensure the But what we are seeing in the business and what we have done operationally and with technology confirms our ability to meet our IPO target margins in the mid-fifty percent range and with continued mix shift over time eventually even higher margins as our subscription business, our core business is currently operating at above 60% gross margin. But again, that will take time as AMG business currently represent half of our business. Moving to OpEx, we've also achieved similar efficiencies within company operations. R and D Expense in the Q2 was $22,400,000 representing 37% of total revenue, which compared to 40% of revenue in the 1st quarter for a favorable $600,000 We achieved these efficiencies through better leveraging our strategic partners in the development of Converge And also offshoring some aspects of engineering that we originally thought we'd keep in house. These changes have been reflected in our favorable adjustments where we're 1,100,000 sequentially versus Q1, but was mainly due to our client forum. G and A expense in the quarter increased 2,800,000 mainly due to one time legal and M and A expenses that have been excluded from our adjusted EBITDA calculation. We are reporting an adjusted EBITDA loss of $23,700,000 compared to a loss of $26,400,000 last quarter. The majority of sequential favorable increase was due to our gross margin expansion, but also successful operational and technology efficiency measures in our operations. We expect R and D and sales and marketing spending to increase over the remainder of the year as converged spending increases and marketing events take place, but at a lower cost versus our original guidance and thus the favorable revision to adjusted EBITDA. We ended the quarter with $975,000,000 in cash. In terms of active providers, we closed Q2 with 71,000 active providers delivering care on the platform, of which 4,000 were AMG providers. As we touched on in Q1, the number of active providers in Q2 and the next Quarter will decline as those doctors which we added solely to handle the COVID spike during the peak of last year will roll off in Q2 and Q3. Amil also added a number of providers to the platform and we were doing 40,000 visits in a single day, but good for everyone, this is now passed and we do not This level of AMG doctors on the platform. Since then, we have added more specialists as our visit mix is migrating to that of higher revenue part of our business And our customers' doctors are delivering more care through their own providers. Regarding our annual guidance, as Ido discussed, we are now the impact of how we believe the new Delta COVID variant will affect the flu season. While no one has a crystal ball with COVID and now especially with the Delta variant, Our revised guidance range reflects a moderated flu season on the high end and a low flu season on the low end of guidance versus a normal flu season, which we originally assumed when we provided guidance in March. We are confirming original guidance for our technology subscription business As it is operating at or above plan and are also confirming our original guidance for our services and CarePoints business. There is potential for upside in the CarePoint's business given the recent CMS announcements regarding grants for health systems We will update you more on this dynamic on our Q3 call. For visits, we are narrowing and lowering our visit Forecast to a range of 1,400,000 to 1,500,000 visits from our original range of 1,500,000 to 1,700,000 visits. This translates to a revised total overall revenue guidance of $252,000,000 to $262,000,000 I want to give you the math for your model so that you can isolate the adjustments solely within the business line. The top end of our original guidance range was 270,000,000 And this represented approximately 1,600,000 visits. The difference between the top end of the visit ranges 1.6 Declining to 1,500,000 visits is 100,000 visits and at $80 average revenue per visit equates to a change in about 8,000,000 Thus, we are lowering the top end of our range $8,000,000 from $270,000,000 to 262,000,000 A low flu season in our forecast model equates to approximately 1,400,000 visits, a further 100,000 visit decrease. So again, using the same math, we are setting the lower end of our revised range at $252,000,000 In terms of the 2 M and A transactions contribution to our 2021 results, on a GAAP basis, they are adding little to nothing to our revenue due to the significant deferred revenue write offs, but will burden EBITDA by $10,000,000 mainly due to the significant ramp up of operational expenses in anticipation of supporting their 100% growth in 2022. So in terms of EBITDA, we are favorably increasing And narrowing our organic EBITDA range by $12,000,000 and netted together against the $10,000,000 of EBITDA burden caused by the 2 M and A deals equals a range of $154,000,000 to $146,000,000 EBITDA loss on a GAAP basis. Said differently, on an organic basis, our revised EBITDA The range will be $144,000,000 to $136,000,000 EBITDA loss, but on a GAAP basis combined with the 2 M and A deals is $154,000,000 to $146,000,000 loss. Next quarter subscription revenue will be flat to slightly up As specific new logo implementations will hit starting in Q4. Services and CarePoint will sequentially increase double digits each quarter As hospitals continue to execute on their capital spend and we execute marketing campaigns for both systems and plans. With visits, since we are halfway through the Q3, we can say that we are seeing specialty visits continue to grow less so with urgent care visits. In terms of distribution of visit revenue, assume high single digits over Q2 with a balanced majority of growth coming in Q4. As Ito discussed, gross margins are expected to temporarily decline next quarter and in Q4 as we have begun to migrate some more complex Clients onto the Converge platform, which will temporarily burden gross margins. In conclusion, we are pleased with another good quarter, Especially noting the positive results we are seeing in our gross margins and operational spend. We're pleased to announce our 2 acquisitions 2 weeks ago and yesterday closing the Conversa We continue to evaluate opportunities to enhance the overall functionality of Converge to deliver full longitudinal and coordinated care We have ample funds to execute on our inorganic strategy. We are happy with the progress of our converged development and rollout And especially the competitive and operational advantages we are seeing steepen the slope of our growth opportunities and expanding our efficiencies. I'll now turn the call back over to Ita for his closing remarks. Ita? Thank you, Keith. I hope today's report further clarified Our unique strategy and the growing evidence for its impact on our current and future growth trajectory and overall performance. And with that, I would like to open the call for questions. Your first question is from Ricky Goldwasser with Morgan Stanley. Yes. Hi, good evening and thank you for all the details. My questions are going to focus on 1 on guidance and second on the margin. So just to understand the second half guidance, I mean, Keith, it sounds like the difference here is around your assumption over the flu. So just kind of like want to compare to think through just better understand your assumptions around sort of the delta variant. What do you think that does to visits, the flu in the visit mix. And also there, I mean, you're talking about Going back on number of physicians because we're seeing less COVID related visits. Do you see any scenario where because we're now seeing an uptick in COVID that you'll have to rehire? Hi, Rick. This is Ido. Good evening. I'll try to answer and maybe Keith will complement my Our change in guidance is exclusively related to visits and very specifically related to cold and flu. The performance of visits from the beginning of the year was exactly According to our modules, as I mentioned, on July 18, the American Pediatric Association Reversed their guidance and now mandates K-twelve masks and social distancing for children. A few days later on July 27, The fee reversed the wrong guidelines and now masks are mandatory in all affected areas, which is about 2 thirds of United States. As you remember, 2nd part of our visit demand in the second half of the year, which is a big part of our overall visit profit. With those changes, we have to take into account a scenario where Flu and cold are much lower than normal flu season that we assumed earlier in the year. At the same time, we cannot automatically assume COVID related increase in visits and that's what's driving our guidance. Obviously, if and then, god forbid, if we see a serious illness coming back, Those dynamics will change and will mandate changes also in our own performance, but more importantly, In our prepared, should we need to increase the availability of more providers in AMG, We are much better prepared to do it than we were last year, both in the way of operationally and technologically. In relation to that, many of our clients are much more integrated and ready to chip in If that emergency should reoccur. So if we If this very recent resurgence continues, should we assume that that would provide upside to the revised guidance that you provided today? That's definitely a possibility. Look, I can tell you, for example, that Given from July to August, we've seen an average growth in urgent care AMG visit of 17%. However, we noticed a growth of 40% in the Southern hard hit states. So obviously, that's an unfortunate situation. If that could continue nationally through the end of the year, That would definitely have a significant effect on demand. It's also possible that The reverse will happen, which is what we see in England. We will see a decrease Of the delta variant and coupled with a removal of masks and social distancing, which is likely going to Create a flu season that is much more prominent. However, we really can't assume that based on what we see right now. And therefore, we had to adjust our Guidance to a scenario that I just articulated, realizing that there are other possibilities that are driven by factors that we don't Okay. And then on the margin, it sounds like you're starting to see at least this Quarter, the benefit from Converge, I understand that Alex in the second half of the year. But I think one thing that we're kind of like all waiting To better understand and we're getting a lot of questions from investors is around the potential benefit from converged to margins on a steady state basis. So now that you've already that you're seeing The benefit in the quarter, could you maybe provide us at least some sort of you maybe help us quantify what that steady state potential incremental benefit from CONVERGE could be to margins? Sure. So here is what we know. We converted, we upgraded 38 Amgel Now Clients, which as you may remember, is the simplest part of our client base in world use case. And we have about 13 100 providers on the platform. What we've learned is that, A, clients love it, as I mentioned earlier. We have reasons to believe that at least as far as Amoil now is concerned, the deployment time is faster, the hosting is super efficient, the support is much better in way of efficiency. And that lead us to believe that as we deploy The rest of the 85% customers, which translate to much larger proportion of revenue, Amun now is a much smaller proportion Footprint of the revenue, because it's a simpler product, we're going to bleed those efficiencies into the rest. More importantly, the impact of converge is not only related to the fact that it's super efficient and modern platform. It's mainly related to the fact that the mix between service revenues and technology revenues is likely To change as clients that appreciate the value of converge are likely to use it more frequently, Increase the scope of use, use it for more things and increase the reach. We also Functions and capabilities with apps, modules and programs that are much better integrated into converge. We are going to report as we deploy we plan to report a sizable amount of to upgrade a sizable amount of additional clients Already this year and complete the lion's share of our clients by the end of next year. However, it is a little bit too early To extrapolate from the AmmonNow installed base into the full installed base, the news will be positive and meaningful, But we'd like to take a few more quarters in order to quantify it for our partners. Okay. So just lastly, before I go back to the queue. So if we think about the 600 basis points in gross margin expansion, what percent of it was The Google relationship versus Converge? I mean, we're not it was material. I mean, you had Google, you had Operational economies of scale efficiencies on the AMG providers, we've been talking about those operational economies of scale for a while Those are starting to come to fruition or are coming to fruition. There's technology enhancements within the AMG side that we're better utilizing You know those higher specialty doctors that cost a lot more and then there's the migration over to the Google Cloud and some other leveraging of strategic partners. There's all of those and then we're starting to see early days of the efficiencies coming from the converged platform. So it's really all of those. Okay. Thank you. Your next question is from Charles Rhyee with Cowen, your line is open. Yes. Thanks guys for taking the questions. Maybe first just to follow-up with Ricky on the When we think about the cost related to scaling up with Conversa and Server and Cloud in the back half of the year, recognizing that we're not Getting on the revenue side, can you give us sort of a breakdown between OpEx and cost of goods? Is it mostly in Operating OpEx or how should we kind of split that burden out? In terms of the converge rollout, it's going to hit Both above the line in COGS as well as in OpEx. So we talked about the expansion of R and D. When you get the when you go through the numbers, you'll actually see that we unlocked a fair amount of efficiencies in the In the R and D line, there were certain projects that we've offshored. We thought we were going to keep those in house. We've been able to leverage some of our strategic partners for other aspects of converge. So we actually decreased on our R and D spend quarter over quarter. As we migrate the more complex customers onto the converged platform, there is going to be a higher level of customer support. I mean, it has to be seamless. And the functionality that they're going to be able to utilize on the converged platform is much more than The current platform. So the level of customer support is going to be higher. So you're going to see it, to answer your question on both sides, 1, in the gross margins And 2, in the OpEx. Although I will say, the company has been very focused on this and you are going to see when you go line by line through the OpEx, We have been able to unlock and we're proud of the efficiencies that we think are going to continue below the line. Thanks. And actually I might have misspoke, but what I was asking was with Conversa and Silver Cloud, you talked about the $10,000,000 EBITDA burden On the back half of the year, what is that also going to be kind of split between the 2 COGS and OpEx or is that No. So it is Actually, because of this thing called deferred revenue write down or haircut, it's a nasty thing with acquiring tech companies. The gross margins actually could be negative for the business because we get to recognize Little to nothing in terms of revenue. They have a significant deferred revenue balance that you're going to see when you look at the Q3 balance sheet. But all the OpEx is there. So the majority of it, far majority, almost all of it is OpEx. Both companies Are growing over 100% year over year. So they were building up all aspects of their business to support that massive growth. We have to absorb that for the remainder of the year. Going into next year, obviously, being on the platform, they're going to realize that we're all going to realize they're part of the family, Efficiency is by combining the businesses, but that $10,000,000 burden is coming from both those businesses for remainder of the year when we bring them on the platform. Okay. Thank you. And then just sticking with Converse and Silver Cloud, can you talk a little bit more about Obviously, you've worked with these companies prior to acquiring them. Can you talk about sort of the customer overlap between the to between them and yourself at Amwell. And how are you thinking about cross selling opportunities, particularly Into either clients of convergence of the cloud that might not be Amyl clients? And in that case, what are those clients currently using as a virtual care platform? Thanks. I mean, Charles, it's a great question. The Venn diagrams get us very, very excited. I mean, when you look at Silver Cloud, Silver Cloud, we're going to treat like a program. And 75% of the revenue is currently coming from the They have the NHS contract, which was one of the larger behavioral contracts in that part of the world. So we don't have business in that part of Europe. We do have a significant presence in Israel, but we clearly have been talking to customers over there and buying Silver Cloud really is going to open a number of doors Organically and inorganically, we are very focused on expanding the footprint into Europe as well. When you look at Conversa, Converza has a fantastic customer list in the U. S. Many of those customers are already our customers. I mean, that's how we really were able to I mean, we did both of these deals simultaneously, fully diligence, Converse quickly alongside of SilverCloud. But The neat thing about Conversa is it really automates the delivery of all of our products, our virtual care. And when you talk to the customers that they do have It overlapped with us. It really becomes a companion with the patient as they're on their healthcare journey. So buying both deals simultaneously was intentional Because Conversa identifies a number of situations where the patient or member requires behavioral intervention. And so, When you look at the Venn diagrams, we do see it opening a lot of doors both domestically and internationally, but Silver Cloud internationally gets us really excited. Great. And then one clarification, the $30,000,000 contribution next year, that does not assume any cross selling? No, it does not. That is a GAAP number. So there is deferred revenue going into next year. Assume the full $30,000,000 in your model, they're actually going to do somewhat better. Great. Thanks guys. Thanks Charles. Your next question is from Eric Percher with Nephron Research. Your line is open. Thank you. I'd like to double click on R and D expense. I know as we came into the year, you spoke about increased support for CONVERGE, and I recall roughly $36,000,000 It would be helpful to understand some of the components back in that expectation and where you're able To outperform or expect to outperform? Sure. So As you as like many companies, we basically decentralized our development and our service oriented architecture allowed us to do that. We have teams today working really around the globe from Israel to Mexico to India to Eastern Europe and all over the United States. That type of development, which was new to Amuel, is now really our mainstream way to operate, And it does drive enormous efficiency. We're able to recruit anywhere. We're able to get Great quality. It's a much more different price. You might see some of it in the R and D Earlier this year, I'd like to, at the same time, point out that we still have very aggressive plans Between now and the end of the year, that should basically account for our spending plan. There is a possibility that it will end up being a little lighter than our original plan because of the efficiencies that I just mentioned, But we're not prepared to make any significant change right now. Eric, the efficiencies that we've identified We believe we're going to continue or incorporated the $12,000,000 benefit into our adjusted increased EBITDA guidance. Right. So they're part of that as well as the upside from the first half of the year? Correct. Okay. And then along the similar front, when we think about some of the benefits of partnership, you called out Google sales teams and it sounded like sales effort on both sides. Can you give us A little more insight on what it is that the Google teams are able to do today. Sure. I mean, we have three levels The relationship with Google, one relates to the migration to Google Cloud that I've discussed already. The other one relates to Technology collaboration, Google, as you know, powers and has vast relationships across the healthcare ecosystem in the United States and globally. But We focus on United States. They are fairly effective in increasing Our channel, our pipeline in the sense of helping us get access to other qualified opportunities. And some of their products complement our products for certain clients. The marketplace that I've mentioned allows people to go online and basically reach Amol products through the marketing machine Of Google, so it's both a technological effort and a personal effort through the sales executive We will really down the United States and hopefully in the future beyond the United States. So they basically sell our technology, our services. And as we create more solutions together, We are really cross selling each other's solutions in the marketplace. Does it feel like you're still early or was your comment this Period to suggest that there's some increasing momentum there. We are pleased with the momentum of the Google relationship. It's a great And the momentum is growing. It's nowhere near its full potential. We believe there is a lot of room to grow In what we can and we'll do together. Your next question is from Jaylindra Singh with Credit Suisse. Your line is open. Yes, thank you and hello everyone. I joined the call a little late, so apologies if this has been addressed. But following up on Charles' question earlier on Silver Cloud and Converge. From the customer's point of view, will there be any heavy lifting for integrating these new solutions? Or will all of that come through a single integrated product with Converge. Maybe any color would be helpful. Hi, Jeanandra. Good to hear your voice. As We discussed we have as you can imagine, we made a significant plan for integration for both companies. The integration is a little different. Converza will become part of the core of Amrel by the end of this year. This plan was thoroughly reviewed before the transaction, obviously, and is very much on the way. So it's not something that we are concerned about or have any ambiguity about, and it's not a heavy lift. It's something that we it's an effort, but it's not something that we can do or expect any difficulties doing. The Figuero Cloud is a wonderful module that Keith mentioned that will be added to the converged engine that is built To get more than that, we added into it. So then again, it's not a very large heavy lifting to expect Since the technology is designed to accept these type of add ons. Fair point. Just a quick follow-up. I was wondering if you could spend a little time on how you're thinking of opportunities or capabilities from chronic care, RPM point of view in the health system space. 1 of your competitors has highlighted multiple chronic care agreements with health systems. Just wondering if you are having any discussions in this area with any of your clients? Oh, absolutely. It's a very, very important area right now that also connects to home care and other Similar adjacent territories. The whole effort that we are making is really designed to bring together a singular platform that includes there's not even That includes does not ignore physical care. Virtual primary care referrals is a good example of that, but rather integrates Into physical care, which really allows for the full spectrum of chronic care from primary care, acute care all the way to different types of Virtual Care, the ability to meet those different providers online and not only in person. And very importantly, also, automatic longitudinal care. So the ability to collect data from sources like remote patient monitoring that You mentioned labs, many other data sources, analyze it and then create the right intervention This could be a physical visit with a clinician, an online visit with a clinician, but very importantly and growingly, Also a set of automated highly efficient interactions that really complement into an omnipresent healthcare Experience. We believe that the benefactors of this platform are 1st and foremost Those chronically inpatients that require care that it stands over continuously over many years. Yolandra, if you were late to the call then, I mean, I in my prepared remarks, I talked about that the majority of revenue from these companies comes from the health Systems and that was very important to us. So by being integrated on our platform and the fact that both of these companies highlight and insert The health systems own providers when appropriate and when there's an opportunity, we see a massive opportunity there. So when we were looking at the landscape And knew that the areas that we wanted to enhance inorganically, both of these really differentiated themselves by Creating a product that worked really well in the health system space. So both of these assets were intentional for that aspect. Great. Thanks, guys. Your next question is from Sean Wieland with Piper Sandler. Your line is open. Thank you. Keith, what's the ramp on that $30,000,000 in 2022. When do you think you're going to begin actually recognizing GAAP revenue? In Q1. I mean, it's probably halfway through Q1. On a standalone basis, they would have done 15 this year. You take 4 12s, you can know what they were going to do roughly given the ramp. That's going to continue throughout the entire year on a I would say somewhat exponential basis. Okay. So what's the how much of the deferred revenue write off Into 2022. I'm just trying to get a sense of what that ramp should be. Well, I gave you the GAAP number. So the GAAP is $30,000,000 So I did the math for you. So that assume GAAP $30,000,000 contribution to AmWell next year. So it just backs out. It alleviates the need to figure out the deferred revenue. Okay. Awesome. Can you comment on how many installs you've done so far on CONVERGE and how many people are live? Sure. So we've done hi, Sean. 38 Amun Now clients, 1300 providers. I don't have the exact number of patients that are Associated with that, but it's not a huge amount yet. It translates into about 15% Of our installed base, but a much smaller number as it relates to our revenues because Amo now is much less expensive for that with much simpler use case. All right. And then last one, I'm paying attention to the Non AMG visits, 975,000 if my math is right. How much of that decline It's a tough comp and how much of this is a read through into utilization of the software? I would say it was Either. I mean, it's Q2 is always one of the lower months and it's all really in urgent care. So if you look at the revenue per visit, mean, we were $73 on average last year. In Q1, it shot up to $83 We guided to $80 across the board for the entire 2021. We're already at 85. So the decline is solely in urgent care visits, the specialty, especially behavioral, But other specialty areas continues to increase. So on the unpaid visits, the customer visits being conducted on the platform, Those were mainly urgent care. So it's just typical summer months and then we did see and at one of the conferences we mentioned that There was this and thank goodness this COVID passing euphoria where people, the weather was Good. People were putting off receiving healthcare, just celebrating what we thought was the passing. So, it's typical Q2 declines. It was isolated in the urgent care area. Specialty continues to increase, thus the $85 now revenue per visit. Okay. Thanks for that. Thanks, Sean. Your next question is from Ryan MacDonald With Needham, your line is open. Hi, thanks for taking my question. Ito, first one for you. Last quarter, you talked about with Converge As you continue to get the installations going and building the ecosystem, a key aspect of the monetization strategy was the app marketplace and getting developers Continue to build apps there. Just curious how that's trending in terms of starting to get interested developers to start building some of those apps and sell out that marketplace? Hi, Ryan. So there is a healthy appetite and interest in those And now also with writing their programs with our new capabilities. As I mentioned earlier, we don't Expect to open the app store before the end of the year. We may introduce other apps For the year, it's not through the app stores. However, we believe that the cohort of innovators It will become a very important part of the value proposition of Ambrell, whether it's external third parties or even our clients and partners In 2022 beyond. Excellent. And then for Keith, as we think about the acquisitions And the impact that they have on 2022. I'm just curious what you think your thoughts on sort of the margin impact and Particular adjusted EBITDA margin, not I guess asking for guidance today, but would you generally expect them to be neutral or Slightly dilutive to adjusted EBITDA next year? It will be neutral EBITDA, but the gross margins are 70%, and that's on a GAAP basis. So includes all the deferred revenue and includes, Well, the deferred revenue. So on a gross margin basis, it'll be accretive, dollars 30,000,000 70%. On an adjusted EBITDA basis, we need to continue to make them more efficient And capitalize on using our platform. So it will be neutral next year to adjust to EBITDA. Understood. Very helpful. Thanks for taking my questions. Thanks, Ryan. Your next question is from Ravi Misra with Berenberg So I guess, Ito and Roy, I want to kind of touch on CONVERGE and the And how do we think about that with the kind of ACV expansion that it seems like you're seeing right now? So Maybe you can start on that latter point first. I think you said ACV around 700 That was in now in your kind of health plan segment. How much of that is being kind of powered by this move To converge in the near term or is it really an issue where your clients are adding more modules? And kind of how should we think about that as the base running forward? Is this kind of a one time thing or the kind of new normal that should be fueling our expectations going forward? So Ravi, I'm not sure as we are prepared to talk about next year guidance yet, but I can definitely talk about the Trends. The increase that you see relates to many things, but the kicking of the converged yet, You see a lot of existing modules, things like virtual primary care and also specialty care and other services And technologies that we provide. Converge has carries a very large promise For upselling in multiple way that are not yet quantified. So the efficiencies and the progress that you've seen actually relates mostly to other efforts that we've done throughout the company, And we are still waiting to begin to see a converge upsell impact. Although when we talk to our clients and partners, we are very encouraged by their reaction. People are beginning to plan quite Strategically. An interesting activity is that we found out that the larger, more complex the clients are, The greater the value of convergence. So we expect to see deals that are probably going to be bigger in size Because of the many capabilities of Convergent, the value of 1 stop shop, a single integrated modular scalable platform For a large organization is very apparent. Great. Maybe just pushing on that one a little bit more. Okay. You're going to have about $800,000,000 or so cash on the balance sheet, roughly speaking, after the deals close. And you're talking that this is going to be firepower to go after more complex accounts with Converge. So how do you guys think about maybe kind of the allocation of capital when it comes to going That opportunity out there versus kind of acquisitions. Like, why wouldn't you, given how exciting this seems to be and kind of our check suggests the demand for something like this, Why wouldn't you kind of invest much more upfront to kind of drive this growth? Thanks. Well, we are investing quite significantly already. I'm not sure if it's little or less. In our opinion, it's quite This year, time to market is very important and completing Everything we need to build is very important. We are trying to create the best combination Between organic investments and inorganic investments. For example, we were really thrilled to find the ingenuity Of converge and the quality of the technology that fits so well in the core of Amwell. We also realized that behavioral health is incredibly important not only for behavioral health patients, but really as Part of any program that anyone would want to create, and that's why Silver Cloud fit so well. We're going to continue in the same fashion to look for ways to further improve the value for our clients, whether it's But also inorganically by finding the same technologies mostly that make Converge better. It makes our platform better for our clients. It's not that complicated to imagine what I'm talking about. We focused on one very powerful program now, a program engine, if you will, that Really amplifies the value of each therapies with the SilveCloud, other therapeutic areas where such examples could be very, very helpful. And we want to give our clients and partners the full flexibility to use our, if you will, native apps, Many programs that are available as part of converge built in and ready to grow or for others that have other assets to incorporate their own assets Should that be a palatable for them? When you go down market to smaller organizations, they like it's more likely that they would want The complete offering provided by us, when you go up market to organizations that already made significant investment in different assets, The flexibility of converge to take into account what is already there and embedded seamlessly in one cohesive offering is very helpful to them. From a cash perspective, you're right. We have slightly north of $800,000,000 We're going to be able to execute on both Work as fast as we can to migrate all of our customers over on the converge, while equally continuing to execute our inorganic strategy. The environment has changed. People are no longer delusional. Both of these assets we acquired are perfect and really highlight Advantages of operating in the converged environment, stay tuned for more. We are very focused both on converged and on our inorganic strategy. Operator, can we go to the next question, if there are any? Definitely, sir. Our next question is from Donald Hooker with KeyBanc. Your line is open. Great. Good evening. So I think you guys in the past have talked about, I'm going to put my luck here and see if you're going to kind of Share any changes to the sort of can you talk about sort of the cadence from your base for 2021 to that point? It sounds like there's a lot of moving points, the moving parts with Some of these acquisitions and GAAP accounting and the deployment costs of Converge, as we exit 2021, should we assume kind of a linear Progression EBITDA breakeven as you grow You broke up a bit there, so I didn't get the whole question. You wanted to break apart the EBITDA enhancements or the increase to our guidance for EBITDA. So the increase to our guidance for EBITDA, on an organic basis, we bettered The guidance by $12,000,000 And when you net the $10,000,000 burden from the M and A transactions, it Arrive at the range of $154,000,000 to $146,000,000 instead of or I'm sorry, dollars 157 to $147,000,000 Instead of $154,000,000 to $146,000,000 So it's going to be better than linear because These efficiencies that we are unlocking for all the different examples, the strategic partnerships with one of them being Google, The economies of scale and the technology enhancements within AMG, once the R and D spend for converge So, besides, we are still we have a path to what our target margins were. You add all those together, We continue to march toward the path to profitability. Got you. And I'll just ask one follow-up real quick. So it sounds like There are material costs deploying converged across the client base. Does that sort of equally extend into 2022. I'm just sort of wondering if we're going to have a snapback in gross margins. I mean, you're telling us that gross margins will be weak in Q3 and Q4. Does that kind Bounce back to maybe, 2019 levels in 2022? We do have a path to hit the mid-50s With the companies that we are acquiring and the what we're seeing margins could be on the converged platform, we see past 2 Even better than that. But we do have a path and are confident in getting back to what we told investors at the IPO. Okay. So that won't happen definitely out of the gate next year. In terms of timeline, we do have to migrate our customers over onto the converged platform. The next two quarters, you are going to see a dip for the reasons that we talked about earlier on the call, the increased customer support That will continue into next year as we continue to migrate the customers over. Okay. Thank you. Your next question is from David Larsen with BTIG. Your line is open. Hi. Can you talk a little bit about the platform Subscription revenue growth, I mean, up 9% in the year. I think you said it would have been up 20% except for those 2 clients that were acquired. Can you give any more color around that acquisition process? Were those hospital customers or were they health plan customers? And any sense for what telehealth platform they switched to? Just any more detail around that line item Growth in that would be helpful. Thank you. Yes. The one company was MD Live that was acquired. So it was Their acquirer was a customer, so they are on the MDLIVE platform, although we still do business with them To a small degree, because we do things differently. We offer different functionality than MD Live. The other one was a large hospital system that was acquired that has not Chose in their telehealth platform yet. So they are using a hodgepodge of different platforms. There were 2 very large health systems that were bought together that we Talked about during the IPO, those are the 2. Subscription growth was 15% on a normalized basis, If you remove those 2, 9% sequentially. And the reason is just the additional programs and modules being Sold on the platform. So when on the health plan side, there's been a increase in the number of programs that Have them subscribed for their members. And then on the health system side, equally, there's a lot of modules that we're seeing nice increases. The different EHR integrations, telepsychiatry, behavioral health, Amwell now, and then all the carts that are sold require modules as well. So All of that goes into subscription, other than obviously the capital spend for the cards and those are the reasons for the increase. Okay, great. Thanks very much, Keith. Your next question is from Alan Lutz with Bank of America. Your line is open. Thanks for taking the questions. Keith, you mentioned Conversea and Silver Cloud are going to grow about 100% next year. Can you talk about the line of sight into that revenue growth? And what percent of that is already contracted today? Thanks. The new thing about wholesale companies, which gets us really excited to put them on the platform is their net revenue retention is 140%. So they signed a contract and then it grows another 40% over the following year. The contracts are anywhere from a year to 18 months. So there's significant line of sight for the $30,000,000 that we guided to. On our platform, we're pretty excited talking earlier about the Venn diagrams. There's a lot of customer opportunities, especially in the UK. But to answer your question, given the 140% net revenue retention, there's a significant line of sight. Got it. Thank you. Thanks, Alan. And your last question is from David Grossman Mr. Stifel, your line is open. Thank you. So in your prepared remarks, you spoke of good momentum with Cerner. And I'm just curious, now that there's more stability in the health system, kind of end markets, if you will, Any updated thoughts on how the relationship with Cerner and the other major EMR vendors with large health systems evolves over time? Hi, David. Good to hear your voice. Cerner has been a terrific partner for Amwell. And you're right to assume that as both companies matured in their thinking around digital care delivery, The partnership became better and better. Our relationship with Thermi is different than our Ability to integrate with the likes of Epic and Adepts. We do integrate with long list of EMRs, But the difference is that with Cerner, we do that very proactively in order to create a much seamless experience For the Cerner clients, we also have much bigger investment in the sales force training And go to market efforts between our team and the Cerner team. So Cerner went through quite a bit of change recently, as I'm sure you know, but it's been Stabilizing again. Because we knew them for so many years and we worked together for so long, that change does not have any impact on our relationship. It is It's as strong as it was. And as I mentioned, we begin to see really good momentum. Converge on the Cerner platform works really, really well. And it's well received by the clients and prospects All the Surna. And you're seeing anything in terms of the others like in EPYC where Clients are contemplating whether to upgrade to that platform and if they're running on Epic And the cost and complexity of doing that, does that enter into the equation at all? Well, Epic, as you know, has an ability to do video conferencing today inside the EMR. When someone buys Amwell, they basically buy it for a long list of other reasons and that we have many Epic clients. Epic on converge is a big upgrade to the previous Epic integration. We have native fire extensions. We have lots of Technical details that will probably bore most of the people on the call that make it work faster and better and in the most seamless way Than before, it's therefore a very, very good option. We plan to grow in both Epic and Cerner accounts, Probably a little faster with Cerner because of what I mentioned earlier. Great. Thanks for that and good luck in the back half of the year. Thank you, David. We appreciate it. And that concludes the question and answer session for this conference call. I will now turn the call back to the Chairman and CEO, Ito Schomburg. Thank you, Paul, and thank you, everyone, for joining our call today. We look forward to continuing reports on our progress On our next call and in the formal calls that follow. Have a nice evening. Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect. Stay safe and well. Have a great night.