Hey, good afternoon, everyone. I'm Craig Hettenbach. I cover the health tech and provider space for Morgan Stanley. Very pleased to have Amwell with us, so CEO and CFO here. Just before we get started, for important disclosures, you can find them at the Morgan Stanley website, www.morganstanley.com/research/disclosures. I thought I'd kick it off with you. If I think just how the company has evolved the last few years, kind of growth through COVID, coming out of it, and how the business model's evolving, I thought it would be a good chance to kind of just a refresher in terms of the business. You know, what are some of the core value and driver propositions for Amwell's services that you provide?
Absolutely, Craig. Yes, the information did not change much. We are in the business of enabling access to quality care that is technology-driven. In other words, technology care enablement. Our core focus is something we continue to invest in, which is this experience of more and more people that are going online. We try to get them a reproducible experience that is phenomenal to help understand what their issue is and match them with the right clinical program. We have our own clinical programs in a long list of areas, including urgent care, virtual primary care, behavioral health, lactation, nutrition, and many other things, and a growing list of partners, third parties with other clinical programs. Essentially, by having one experience, we are creating a very efficient customer acquisition cost to the sponsors and customer experience that is a whole person-based.
We are able to go back to the sponsors and have one set of reporting as it relates to creating and documenting clinical and financial outcomes. That's really the heart of what we do. We do have a similar business, but I think that they all pale in comparison to that important focus.
Okay. If we touch on just kind of the core, you know, the strategy shifting more towards software and subscription business, what that means to the overall health of the business, marketing profile, growth opportunity. I know it's a very big undertaking in terms of what you've done and what you're looking to leverage from that.
By creating a strategic focus, we are also able to significantly improve our growth structure. Essentially, our value proposition is in technology-enabled care that is proving better financial and clinical outcomes. The software that we use, the platform that we developed, is really the main differentiator that creates those outcomes, assuming that good care is available through many modalities. For customers that have access to care services, they only buy the software. A good example is the Defense Health Agency, the U.S. military, their own physician, and they only need the technology that we offer in order to get better access and better financial and clinical outcomes. Others, like large payers, large employers, really need the combination of the software and the clinical services to reach their goals.
Our gross margin growingly represents the value of the technology innovation in technology-enabled care, where the proportion of ratio between care providers and patients is growingly increasing by allowing a hybrid mix between more technology and less very precious and limited provider time.
Got it. Maybe we can take that and just kind of get into the competitive backdrop, telehealth more broadly. Your business has evolved. Are you competing against some similar competitors in the past? Are there other companies? How do you view as you go out for RFPs?
Sure. Telehealth evolved much in the past few years. It used to be a service that is an add-on to the main pathway of care. People continue to see their doctors and from time to time went online to get a prescription or other convenient care options. Growingly, what we see is that technology-enabled care, which I think is a better name maybe for it, is the main pathway for care. People go online before they do anything else. While there are a lot of vendors that offer specific programs in well-defined different therapeutic areas, there is an unmet need to create a whole person launching place where I get a phenomenal experience. It's highly personalized.
It's all about me understanding my condition and my benefit and financial reality, and it matches me up with the right clinical program, with an ability to refer from one program to another and an ability to arm the different programs with information that they need in order to avoid replicating it in a clinical intake that is fairly repetitive and error-prone. We built an infrastructure that ties together those different clinical programs into really one cohesive platform. As a result, the overall experience is much better, and the outcomes that we're able to achieve are significantly improved versus a standalone array of different programs. Not many people spend the last five years spending many hundreds of millions of dollars building such infrastructure.
We were lucky to benefit from the COVID-related environment that allowed for raising a significant amount of capital and investing it in creating this holistic infrastructure that now can pull in a lot of vendors together to create a cohesive whole person experience. This offering resonates really well with very large customers, people like Elevance, the U.S. military, many of the Blue Plan, and many others that are growingly understand the value that we provide and in many ways are trying to shy away from offering a highly fragmented array of a program, but rather want to own a white label, consistent, singular experience. In that way, I believe Amwell is very unique.
When we look at AI, and I'm sure you're going to ask about that, AI is an opportunity to greatly improve patient experience, to improve the quality and scalability of the different matches between the different programs, and very importantly, the analytics that proves the outcomes that were generated by the different vendors. We believe there is enormous upside in the significant market share that we have for same-store growth in the next few years as it relates to such an offering.
Great. Can we touch on just the importance of partnerships, third-party ecosystems? Like you said, you have a number of different applications that kind of plug in to your system. How is that resonating with your partners and your end customers?
Healthcare is very much around diversity. People want different programs for different needs, for different goals. We embrace this diversity. Instead of trying to go and offer a set of fixed programs that are trying to be better in all areas for all the people all the time, we created this unique open infrastructure that allows each payer, for example, to choose the programs that are right for them or to continue to use the programs that are right for them, but envelop them into one experience, one cohesive data structure, and very efficient handover of data and services in this singular experience. That worked quite well for us.
Great. Want to shift gears to kind of the DHA, which was a very important contract and really also get behind the point, you know, to win things with the government in terms of how rigorous that process is. Can you just discuss kind of how you were positioned for that in terms of what helped that and probably more importantly, what that means more broadly for the platform and opportunities beyond the DHA?
The government space is very unique. We are talking about a very large scale and a very long list of very clear requirements. It takes a lot of effort, a lot of time, and a lot of investment to comply with the many requirements of the government and really understand that unique cohort, which is really different than many commercial cohorts. We were lucky enough to get chosen early on to go through this process, and we learned a ton. Right now, our platform, luckily, is deployed around the globe for all the men and women in uniform in the U.S. military and their families. It's a great privilege. We are very grateful for that. We went through this learning process. Our technology is implemented in the GovCloud and checks all the different boxes that are required. Luckily enough, it's already generating very good outcomes for this client.
This kind of environment is very typical to many other government entities that could easily follow up following this initial investment that we made. The next client in this environment is going to be much easier, we believe, and much faster to deploy than the original one. Although I'm proud to say that as it relates to the Defense Health Agency, we were one of the few vendors that delivered on time and on budget quite quickly for this very, very large cohort.
Got it. You did get a one-year extension for the contract, although there were a couple of modules that are not included in that. Can you just maybe give some background there in terms of where things stand and what that might look like going forward?
After we delivered everything on time and on budget, and we know that many of the KPIs, if not all of them, were met or exceeded for this client, we were part of a much larger group together with Leidos, Oracle, and many others that had to extend the vehicle that was used in order to continue our agreement. All partners in this vehicle received an extension of one year, and we were the same. I don't think it necessarily means anything good or bad about any participant. It's just a government general decision that relates to negotiation dynamics. The programs that we implemented in addition to our platform that relates to certain services in behavioral health and in automated programs were deployed successfully in five demonstrative sites but did not extend into enterprise.
This year, although we're very proud of the results that we generated, the government chose not to extend those services to enterprise, I believe, driven by financial considerations. We believe that the fact that it was delayed is not indicative of this to not be available long term. We believe there is still a good chance that when budget will be found and in a different climate, those very valuable services could be incorporated for these government customers and certainly for others as well.
Got it. You mentioned it's a very different kind of go-to-market and process with the government versus commercial. How do you think about just kind of security, compliance? What were some of the unique things that you maybe had to do for this business?
We're talking about national security. We're talking about men in uniform, in combat, and things of that nature. Anything you can imagine is still valid. The information privacy, cybersecurity, readiness, availability, performance, demand are as extreme and demanding as you can imagine. I can't even imagine a more demanding customer. We are pleased that we worked really hard and are very proud of our team that were able to meet those demands, not only once that we deploy. We are tested on this every day, all the time. It's been quite a while, and the systems are good. It's working well in production, very, very large scale. I'm sure that if we need to expand and deploy additional similar environments, we'll be up to the task.
Got it. As this business continues to ramp, what are some maybe KPIs and metrics that investors could kind of look at and say they're getting the traction that you want to see for the business?
This specific customer is very careful about sharing information. Of course, we will never change that. In general, I would suggest that government clients are really not different than commercial clients in the sense that they understand the value of technology-enabled care. They do that because it's a very efficient tool to improve access dramatically, to create traction that, at the end of the day, improves clinical outcomes but also creates significant savings. I can share that all our customers, and the Defense Health Agency is no exception, are seeing very good results and KPIs that relate to those metrics.
Got it. Just beyond the Defense Health Agency, within the government more broadly, are there opportunities or things that you say now that you've done this that you can maybe capitalize on? How do you think about that?
Absolutely. There are many organizations that are structured very similarly to the DHA that have a shared set of requirements that have very similar needs. Their technology environment is very similar. We believe that the barrier for entry into the government is enormously high, but once you're there and you're performing, expanding it are real opportunities that we are definitely going to benefit from in the not-so-distant future.
Great. We can bring more into the discussion. I do want to talk about kind of the path to profitability. I know you guys have done a lot of work in terms of reducing costs. Can you just talk about, give some background on that, and just what's your visibility like? What are some milestones that you kind of need to hit to get to profitability?
Certainly. Craig, back in Q1 of 2024, the company stated that they would achieve break-even at some point in 2026, and we're wedded to that mandate. The focus for the company has been to concentrate on that core area that Ido referenced, payer, positioning both private and, of course, government. When you think about the concentration of our clients today, over half of our business is with two significant payers, and the remaining part of the business is where we think the greatest growth opportunity is. We need to resource for that. We're investing significantly in AI on the part of providing both front-end and back-end services to replace what we've had as a cost structure for many years now.
We have been an innovation shop for many years, but that innovation was at the cost of several hundreds of individuals who were with us for certainly half a decade or more. When we started this year, we were at over 1,000 employees. We're currently at about 650. We continue to see areas of opportunity in limiting that cost structure and, most importantly, growing the book of business at a far lower cost and having a far stronger ROI.
Got it. That sounds pretty clear in terms of the opportunities where the growth is. How do you think more broadly about just the trade-offs in terms of the investments that you're making, the return you want to get? How does that all factor in?
I think technology and now the opportunity to bring artificial intelligence in the front end of the administrative side of not just onboarding and then engagement with particular members, it completely changes the calculus and gives us opportunities for ROI expansion that we had not previously seen. That resonates well with both prospects and existing clients. We know, certainly, moving forward, we don't have that same cost ratio for each variable dollar of revenue that comes on. It's much more promising as a result of the opportunities that we have in bringing on this innovation, and we had to continue to go through cost-cutting measures that were necessary to reduce this cost base to where we need it to be at the end of next year.
Great. We touched on some of the third-party solutions. How important is that just from a margin mix or contribution margin? How should we think about that as some of those potentially ramp?
Yeah, it's one of the more significant contributors to our goal of break-even. Those third-party programs are extremely important in both amplifying the need to bring on our platform into the new client. It makes us far more appealing to those clients when they can actively pursue a number of solutions through one vendor. Of course, our margin on that is a revenue share, a component of which generates a margin profile that's very similar to SaaS software. You're looking at, you know, 90+% margins, and that helps us generally move towards that far greater contribution of software type of revenues as compared to the pure AMG services.
Got it. Ido, maybe if we take a step back, a lot of change for the industry, for Amwell in terms of positioning this company, getting the needle for growth. How has the organization responded? How do you feel today in terms of the kids that you have in place, and how has the organization responded to all this change?
It's very interesting. Look, we went through so much, all of us in digital health in the past few years. There was a time where people took a lot of risk and placed many bets. That's good. Some of those bets paid out quickly, and others would have taken much longer to pan out. The current environment is such that there is no ability to place many long-term bets. You need to choose. That discipline actually is a blessing in many ways because when you get to make some hard decisions and focus on a very, very clear, well-defined mission, you also get a lot of clarity and enthusiasm by the team members. We have a very clear role. We want to create the most phenomenal experience for consumers that we possibly can that are also patients.
We want to match them with the best set of comprehensive clinical programs and help generate very significant savings, clinical and improved clinical outcomes and financial savings, improve it, and document it for the different sponsors. That's it. That's all we want to do. That's much narrower than the conversation you and I had only a while ago, where we had many more ancillary businesses that we de-emphasized over time. I think that the entry of artificial intelligence represents a super exciting opportunity for our companies, like many other companies, in really realizing our mission in a very different way. Suffice to say that our smaller team is more excited than I ever remember. We see a lot of bright eyes. People get really, really excited around our roadmap. We have a very sophisticated and meaningful client base.
We bring to them very important KPIs in a large scale, in a reproducible way every day. We get to do that with a very modern platform that we invested a ton of money and time in building. Overall, in many ways, I think that the morale in the company and the excitement is as high as I can ever remember.
Great. Just building on AI, I know you have a new CTO from Amazon. When I think about just convergence happening between healthcare and technology and a lot of big tech companies getting into the field, what are some maybe insights he's bringing to Amwell? What do you see in kind of his role in terms of, you know, what he's going to be kind of performance-based?
Yeah, Dan Zadanski is a wonderful placement in Amwell. He's EVP for Product and Technology. He's also brought another very talented guy from Amazon to be our CTO, Roy Schoenberg, and there are quite a few others. We have people that are joining Amwell today from the best of AI healthcare in America. I know that sounds like somewhat of a strong statement, but it's still true. People really get excited about what AI can do in the clinical field, which is a field that is very, very complicated, fairly risky in some ways, but we've been around for a long time, and I think we found a way to do it in a responsible way.
Overall, those people are able to match well with a deep institutional knowledge around clinical in Amwell, but they bring innovative abilities that relate to AI to create a perfect hybrid between what technology can offer and safe care can offer to try to solve things that were not possible to solve only a while ago, like finding a way to really change cost in healthcare, changing cost of visits, changing the cost of clinical programs. Those innovations will be apparent to everybody in the roadmap that you're going to see in the next 12 to 18 months. These are things that are coming down the pipe that all our clients and the general public will be able to see and witness. I don't think we were able to do it without the newcomers.
Nor were the newcomers able to do it without the veterans of Amwell that are so familiar with all the challenges and risks associated with providing reliable, trustworthy care. The combo is fairly unique.
Got it. There is a lot of excitement in terms of the efficiencies and making kind of run leaner. You mentioned from a clinical perspective. How about just roadblocks, right? Because when we think about healthcare and AI, you know, are there still things that have to be kind of solved that kind of get this off the ground more broadly?
Oh, absolutely. I don't want to make it sound easy or obvious or trivial. There are really serious challenges that relate to AI. AI has limitations. AI is not accurate. It's not always dependable. Many things that people think AI can do, AI cannot do. Healthcare is an era where there is zero tolerance for any type of mistakes. Trying to understand the benefits of the tool, the places that they can reliably generate an outcome, and the places they cannot has been the focus of Amwell in the last few years. We believe we figured out a safe and reliable way to do it very carefully, very responsibly, but still in a way that will create very significant outcomes in a place that we believe is the most important.
I mean, making care much more easy to access, making care much cheaper, and much more effective is something that requires some transformative innovation that AI can deliver on.
Great. I want to turn the focus just to kind of some recent results on the back of your earnings. You talked about kind of Florida Blue Plan, just some wins. What's really resonating with your recent wins as well as prospective customers out there?
Absolutely. Sponsors understand the value of technology-enabled care. It's very apparent to everybody that the right way for patients to go is to go online with a place that knows everything about them, to match them with what they need, and make sure that we improve this offering again and again and again in order to provide the best return. In many ways, we see that many payers today are really embarrassed by the sheer number of different clinical programs and what it takes to manage them. When you think about it, each clinical program needs to acquire the consumer again, and they need to prove the outcome in their therapeutic areas, and someone in the sponsor and the payer space needs to stitch all this information together and go back to the sponsor to prove an ROI. That's a very, very complicated task.
We have a platform today that allows you to have one consistent experience that is very, very simple to all your different clinical programs and one set of reporting, and that really resonates. That's fairly unique. Very few companies that I'm aware of are doing that today. We're not only doing it, we are going to, as I mentioned earlier, we're going to do it in a highly improved way with some new technologies that I think will further distance our differentiation from other actors in the market today.
Got it. Payers in health systems have their own set of kind of challenges that they're navigating too. How is that influencing kind of your go-to-market and sales cycles, things like that? How's the macro backdrop today?
I think that people are incredibly sensitive today to ROI. If in the past you could offer some bold ideas and visionary investments, I don't think the environment can tolerate that today. You need to come with a plan that has a very well-defined timeline to KPIs, delivery, and ROI, and return on investment. The fact that we are a very trusted and proven asset in the market is extremely helpful. When there is a new Blue Plan that wants to buy Amwell today, they know that there are tens of other plans that have tried that before, and it's delivering for them. There's very little question marks about the way that we are going to perform.
The fact that we are offering new technology, but from someone that has been in the market for many years and deliver again and again and again, I think is a source of great differentiation and comfort to existing and new customers for Amwell. I think that's important. The fact that we are no longer emphasizing other bets that are less clear is also very, very helpful. It's easier to explain today the value proposition of Amwell to our customers, and it's even easier to go and realize their expectations in a fairly expedited fashion.
Got it. If we think longer term, we talked about kind of the path to break-even, which is very important, and you guys are progressing to that. How should investors think about the opportunity set, whether it's size of the market or potential growth, margins on a longer-term basis?
We are now experiencing a revolution in many ways where technology-enabled care is becoming more and more available to everyone. More and more people are going to go online to seek healthcare before they do anything else. The original method of healthcare is really being replaced by technology-enabled care for a lot of good reasons. When we look at the size of the population that has access to Amwell, we're talking about 80 to 90 million people. That's a lot of Americans. Only a fraction of them are benefiting from the many benefits of going online and getting technology-enabled care. The growth of Amwell is first and foremost going to be through self-stored growth. More and more people in our payer customers are going to go online to seek care, and our ability to offer them more and more services is going to grow exponentially over the next few years.
Their experience is going to be dramatically improved, and the data that we can provide the sponsors for the entire orchestration is going to be better and better. They are going to develop a healthier appetite to invest in more and more engagement and enablement and coverage of our services. The fact that this is a fairly close community means that the success we're having with existing customers is not going to be a surprise to newcomers, and you're going to see more logos both in government and in commercial space. I don't think we need to do anything else than our core focus, which is a phenomenal experience, very good matching to a long list and growing list of clinical programs with very clear ROI that is demonstrable and documented.
There is plenty of growth if you do that and you do that well over the next few decades, in my opinion.
Got it. Not to get ahead of ourselves, but getting back again to kind of break even and how important that milestone is, it sounds like the message is very clear in terms of your strategy, what you're looking to execute on. In an environment where you become profitable, how do you think about whether capital allocation or their organic, inorganic investments that could further your position in the marketplace?
We landed in a very, very clear place. We know exactly who we are. We know exactly what we want to do. As I mentioned earlier, we could see a very clear path for growth doing what we're doing. When we get more resources and we become more and more profitable, we're going to reinvest those resources in exactly the same thing. If we have today a very simple way that allows our parents to go online and navigate and get what they need, if there is a way to really help our clients generate better savings and better clinical outcomes, we're going to invest again and again in doing exactly the same thing organically.
Of course, if we stumble across people that can help us do that, with the same goal and the same mission, we may acquire them, but we are not going to do anything else but what I just said.
Understood. Just going back to your organization, and bringing executives in from companies like Amazon, what are some of the things, sounds like maybe it's the mission, but what are other things attracting them to Amwell in terms of where you are at this stage of the company, what the opportunity looks like?
We may be small, but we want to change the world. We really have an appetite to democratize healthcare. The mission of Amwell is the reason why people leave jobs that are far bigger and in an area that is so hot like AI and others and join Amwell because they understand that with their work, they can help millions of Americans and maybe people even outside America get the care they need in a fraction of the time, in a fraction of the cost, and get better. That is truly difficult to match. We can really do that. Those very serious people joined us recently. The wonderful people that have been with us for two decades are united by that vision and ready to do whatever it takes to help realize it.
Great. As you kind of wrap down here coming up in the last minute, what are some things maybe investors should watch for the next 6 to 12 months, whether it's milestones or things to kind of keep an eye on to see the progress of how the strategy is working out?
We are laser-focused. It's not hard to follow what we do. You can see that we are making some serious steps in focusing the company and dealing with our cost structure. You are going to see some serious innovation that will result in further, more and better delivery and outcomes for our customers, existing and new ones. We don't need to wait long to do that. We have, in the next 12 to 18 months, a lot of change that people are already seeing in Amwell is only going to get clearer and clearer as we seek our goals that we outlined earlier.
Great. I think we'll wrap it there. Ido, Mark, thank you so much for your time and sharing your insights with us.
Thank you, Craig. Thank you for having me.
Appreciate it.