Great! Well, good afternoon, everyone. My name is Craig Hettenbach. I follow the digital health space for Morgan Stanley. I'm very pleased to have with us Amwell today, CEO Ido Schoenberg, and CFO Bob Shepardson. So welcome.
Thank you for having us.
So, I know we'll spend a fair amount of time on Converge, and the platform, and transition, but maybe just before we get into that, taking a step back in terms of Amwell, kind of where you're at, and particularly for telehealth, right? There's a lot going on. Just kind of how you're differentiating in this space today, and then we can kinda dig into Converge.
Sure. So the space has changed pretty dramatically in the last few years. It's really hard to follow. People forget that, pre-COVID, and a couple of years ago, telehealth was about access to urgent care that is fairly simplistic, as a replacement for my doctor. Since then, it was very clear that the healthcare experience is going to migrate to become a digital-first experience, always on, where people are going to go online and really do everything from that point on, have a physical visit, a virtual visit, or an automated envelope. We saw strong adoption by the key players, especially payers and providers, in a number of areas. Providers, hospitals, are looking to
for digital care enablement to improve, staff retention, to improve patient experience, to improve efficiencies, which is fairly dramatic in what it can do, and growingly, to really reinvent their business model and go well beyond their catchment areas. And payers are looking to really enable the digital-first experience, to allow members to go to their site or another digital door and really understand their options, in a completely, hybrid way, that allows them to connect with people that they trust, but have the service available in a fraction of the time, in a much more available, sometimes much even cheaper, way, without compromising on, quality.
We saw this a couple of years ago and really transitioned the entire company, not only the technology, to try to help our customers realize that type of change, this profound change, that we saw in healthcare in the last two years.
So maybe just building on that, right, in terms of how the market has evolved, and Converge has been a huge undertaking, a lot of investment you've put into it. And so what are some things or capabilities you have in the platform that are differentiated from a lot of different offerings out there?
I thought you'd never ask. There are quite a few. I'll just give you the headlines. One is, we decided, quite ambitiously, to create one platform for everybody. No one does that. So Converge is operating for payers, and providers, and innovators, and consumers, and each player is able to extract a lot of value from the platform, but they are also able to interact with one another. So Converge is really a network... That's not working. Can you hear me now? Sorry. I'm sure you heard me before, but anyhow. Converge allows for any provider, for example, to interact with a payer in order to realize value-based care, and that's very, very important.
Craig, the patient is the same person as Craig the member, is the same Craig, Craig the employee or even the consumer, and we're able to really use virtual tools to create something that is truly enabling and fueling the full continuum.
Got it. So let's dig into a little bit just this product transition. This is a year of transition, right? As you're kind of-
Sorry, Craig, I missed a few key points. Can I-
Sure.
Can I elaborate on the first point? Because we talked about the one platform thing. The second point is that it's integrating into most of the EHR, most of the devices, things of that nature. And integration is critical in order for providers, for example, to adopt it in way of a workflow. Converge is very, very large, but it's modular. You can buy what you need today and have the peace of mind that you have what you need for a tomorrow. It's also an open platform, so we can allow third parties to have AI-driven or other types of longitudinal programs and solutions embedded in the same experience. One of the biggest challenges in healthcare is the fragmentation that creates many evils, but one of them is a very large customer acquisition cost for each vertical.
The fact that you have one digital door and one experience that is able to integrate everybody is very, very, very helpful and fairly unique. There are very few platform that cover the software element, the service element, and the device element like Amwell. There are very few, few players that don't think about only urgent care, or Telestroke, or Telebehavioral Health, but really the full continuum from prevention all the way to catastrophic care in one platform. That's very important because investment in a platform like that requires a lot of integration and training, and once you did the heavy lifting, you really want to make sure that you can utilize it in multiple way, and we can. Lastly, I promise, we have what many believe is the largest ecosystem of users of the platform.
It's CVS, it's Elevance, it's tons of Blues, various other large payers, 2,000 hospitals across the United States. That's really important when you have a platform that can allow them to connect with each other. So our starting point is very sticky, and unique, and some of the newcomers that are joining the story are now able to utilize it in new ways. I'll give you just one example. We have a company with Cleveland Clinic, and for the first time, Cleveland Clinic, using their own Epic instance, can reach out and provide second opinion services to small clients like Elevance and Optum. Optum and Elevance are using our platform, and it's very natural for those employees in national accounts to begin to get those services in their native environment.
It doesn't require a new app or a new door, in order to do that. Of course, there are many other examples.
Great. Well, appreciate that, the overview there. If we can just touch on just how this transition is progressing, right? And again, it's a big change in terms of customers migrating the platform. So what are some things investors should be watching for in terms of new bookings activity? And if we can segment it by the providers, which have been early, and then what we can watch for from the health plan perspective, you know, next year.
So we began to dream about Converge about 4 years ago. With, with your help, with Morgan Stanley's help, we went public, and Bob's help, it was in Morgan Stanley at the time, and we raised about $1 billion. And we used a very big part of those proceeds to build the platform that I described earlier. This platform has been very recently concluded. When I say very recently, I'm talking August and September of this year, so it's, it's fairly, fairly, fairly new. While we were building it, we were able to release components of it to our install base, and about 50% of it, 50% of our volume is already on Converge.
Many of our delivery network customers are already on Converge, and early next year, we are now implementing a lot of payers, but their cycle usually drives a start point of early next year. Many of them, some large ones, including Elevance, are going live on Converge. So by the end of 2024, we will be in a situation where most of our customers, if not all of them, are on the new platform. That's very important because we didn't see any churn in the new platform. People are extremely happy. The NPS is the highest we had in our history. The uptime and other many other KPIs and metrics are very, very high. More importantly, we have a tidal wave of proof points in way of efficiency, client retention, provider retention, and things of that nature.
You can read some of them on our website. I'm saying that in answer to your question, because those proof points are critical for bookings and revenues. We are in a very conservative market. This is a mission-critical application. It's not a sidebar. It's something that you need to rely on when you think about your business. Some of the largest, most sophisticated customers voted on Converge and are going to be on Converge. That's a fact, this, at this point, and that is really important for many of the newcomers. When I look at growth and revenue, the low-hanging fruit is traction. Any, and so far, customers that we brought to Converge began to use the system more often and began to give it to bigger audience, more patients, more providers and so on, which are revenue drivers for, Amwell.
The second element is scope. Typically, the use cases on legacy were fairly limited to urgent care or behavioral health. These are components, two or three components. Converge has 72 components. There are so many other things you can buy and do on Converge, that we believe many of our existing customers will do. The next opportunity for us for growth in 2024 and beyond are very, very large containers of healthcare services and risk. So the large payers, like CVS, are the example I'm talking about, but there are others that we don't yet have, and these people are extremely sensitive to downside.
They want to make sure that whatever they do meets their enormous list of requirements and is going to be really safe and secure and reliable as it relates to performance, cybersecurity, privacy, compliance with regulations, and a million other things that they deeply care about. So we believe that when we look at our growth, that's going to be an interesting element of it. Sales cycles are longer, deployments are longer on this thing, but they are very sticky and very meaningful financially. The second area of opportunity for your question, I believe, refers to payers. Payers are all understanding that the ability to control the member experience is existential for them. Many public CEOs have been talking about it for a while.
The ability for them to implement Converge is the infrastructure under their many digital doors that allow them to offer members a terrific experience while controlling their utilization in some ways, and reducing cost is very meaningful. We believe that as it relates to delivery networks, we are seeing some improvement in their macro mood, if you will. We are beginning to see recovery, financial recovery. A few months ago, it was not as good, but we are not sure how long or how material that recovery is. We believe we are going to focus on ROI-driven sales with them that meet their needs. So to give an example, when we look at people like Northwell, they have 35 automated programs with us around different specialty area. One of them, for example, is colonoscopy.
They said we don't have enough of those cases. We implemented an automated program through Amwell, and we're able, in a relatively short period, to generate 800 more use cases and generate $1 million just from this singular longitudinal experience. So packaging and solutions for delivery networks that are going to expand through areas of saving and staff retention and diversified growth are going to be another and last element that will drive our growth going forward. Same-store revenue is showing faster because of revenue recognition.
New logos are going to take more time, but we are pretty encouraged by the very strong feedback and the initial patterns that we see with Converge, that lead us to believe that the replatforming period is very much behind us, and the company is very well positioned to resume growth, especially considering also the deep changes that we made in both our delivery organizations and our growth organizations to meet the new reality that is very, very different than our legacy offering.
Got it. And you alluded to this, the macro and some signs of financial recovery. You know, when I look across more broadly across tech sales, right, the elongated sales cycles, how has this year evolved, and how is that influencing kind of customer appetite for some of these projects?
Yeah. So essentially, our company was laser-focused on finishing the most competitive, meaningful, valuable platform we could. That was our effort. It was very much in-house. The second effort was to make sure that we race in order to maintain our client base. When you replatform, it's a very vulnerable situation, very, very risky. Only then, and we did quite well, we did better than we expected in that area, and as I mentioned, we believe that that entire effort, both the development and migration, will no longer be an issue by the end of 2024. When we look at the sales, same-store growth is a no-brainer. When you already are installed with something and I'm bringing you something that will save you money, grow, create more value, and so on and so, you're very likely to adopt it.
It's a very relatively easier sale. For new customers, the modularity is our key to deal with the macro dynamics, in the sense that I think the times where people are ready to take a very large, multimillion-dollar bet on a potential future are over. People are coming to us with very clear list of requirements. I have nurse shortages. I have a problem with behavioral health deploying psychiatrists. Readmissions is an issue for me. Outpatient procedures are a problem. Navigating my patients as a payer to the most appropriate intervention and reducing costs is another problem.
We are able today, with a very vast platform, to truly decipher the priorities and the pain points of our customers, custom build the solution that they need, present it to them very, very quickly in an affordable price, and feel that when we realize their wish list, we are a very good candidate to come back to the well and buy more, from, Amwell, and we really, earn our place of trust as a partner, which is very different than a vendor. All that, I think, is directly related to the macro changes, where people are incredibly focused on return on investment and value.
Got it. So how do you think about, on a longer-term basis, just kind of the growth trajectory and what are some puts and takes? You know, we talked about maybe land and expand, our customers adding more modules over time, but how are you thinking about growth? And then maybe, Bob, we can segue into just the path to prof- to break even.
I would say that there is a growing reality and understanding that digital care enablement is something you need to have. It used to be the case when I was coding EHRs, that I wrote my own database. Nobody does that anymore, right? You buy from Oracle, from someone else. You need a database. You're not inventing that at home. Until recently, some of our customers did try to develop hybrid care enablement platform at home, and you know who they are, and they failed miserably. We were able, through decades of investment and very intensive capital investment, to build something that actually works and works really well. Our ability to sell it going forward, therefore, is fairly obvious in my opinion. Once you sell it, the opportunity to grow from it is a relatively interesting in number of ways.
One is, people usually start with a subset of the capabilities, and they need more, and we are getting paid for it. As the market moves to digital interaction, we're going to see more traction that is driving more revenue. And very importantly, the open nature of the platform allows us to tax or participate in value of others that are coming into the same experience. So that's a very important future revenue stream that we began to see already now in a small scale. Lastly, the realization that the platform that you just implemented to solve some key pain points for your organization is the same platform that will allow you to reinvent your business model.
As an academic medical center, suddenly you can actually serve a lot of national accounts in your area and some of the payers in your area. You can reach new consumers, you can offer home care services around longitudinal program for chronic patients. That's a big deal. When you're a payer and you wanted to partner with providers forever in order to create value-based care, but you never had the technology infrastructure to truly dialogue with them and be in the room with them and compensate them for creating those savings and improving those outcomes, well, now you can, because the platforms are connected through Converge. There is value in that intersegment connectivity that we believe is going to be very meaningful in fueling our growth longer term, now.
So Craig, you know, our customers represent, just to build on what Ido was saying, about 100 million covered lives and 2,000 hospitals. And so talking about this, it's a great market position that we have, but I think really early days in the market evolution of digital first. We've done some external work that validated our belief, that our revenue share with that customer base, while it's a terrific starting point, is somewhere in the low single digits in terms of what we could be making, in terms of ultimate what their spend is in our area. And so, you know, that kind of expansion opportunity is dramatic.
And, you know, we, we-- And when you think about where we are with just our largest, you know, customers, CVS has only been live with us now for nine months, eight months. Elevance has not yet been transitioned onto Converge. We're in process now. So the fruits of actually going and getting all of the increased functionality that Ido's gone through are really to play for starting next year. We just talked about, on our Q2 call, another strategic that we implemented in the Q2. Again, a starting point with huge upside. And that upside is from higher utilization, but, more importantly, expanding within those complexes into all of the other verticals that they have and need to connect.
So the expand opportunity is one that we're obviously super focused on, along with the white space opportunity. And you wanted me to go to the path to profitability, I think after that?
Yeah.
So, you know, as we think about that, we've put out a new target for that of around $400 million. That $400 million off of $260 million this year, we get to profitability. You know, we get there in a number of ways. The first and largest bucket of improvement is really around gross margins. As we grow and take advantage of this expanded opportunity and the white space opportunity for new logos, that's largely gonna be software-driven. Software is 70%-75% margins against visits, which are in the 25% area. That's gonna drag our gross profit margins up from around 40% today to 50%+ at that $400 million level.
That drops a lot of operating profit, you know, or gross profit down incrementally. And then when you think about what we've been over the last three years, which is basically a construction site, you know, the R&D spending that we've been enduring here in developing this cutting-edge platform is abating, right? And so we're gonna see Q4 to Q4. Last Q4 was our peak spend. This Q4, the decline rates are gonna be in the mid-20s. And that's gonna continue for the next couple of years to the point where we're gonna be running R&D budgets that are in the 25%-30% of software revenues area. Okay? That's another big area of a big chunk of that getting to profitability.
And then lastly, when you, when you look at our, our SG&A, you know, we're running at a level today that is about the level we're gonna need at that 400 level. So said a different way, I expect to see SG&A levels to probably come down a bit as we go forward here, and then maybe ramp back up to an absolute level that we are seeing today at that level. Okay, so those are the components of getting to profitability at that 400 level.
Now, from a timing perspective, I'd be, I'm not gonna put a date out there, you know, that lines up with that $400, but you can look at a number of external estimates for growth in our platform, software platform area, and they're in the low- to mid-teens, okay? And we think with our platform and the customers that we're doing business with and the starting point, the breadth, not just the concentration at the high end, but the breadth of it, we can grow faster than the market over the long term.
So, you know, we're bullish on our opportunity to really mine this expand opportunity and take our footprint even broader than it is today. And getting from where we are today to that 400 level at break even, at any reasonable level of growth in line with that context that, you know, I threw out on the third parties, leaves us with a very nice cash cushion at that 400 level as well.
Great, thanks for that context. I do wanna spend a few minutes on just technology and AI investment, and I feel like, if anything, with all the buzz in AI today, you guys were early when I looked back a couple of years ago in terms of buying Conversa, buying SilverCloud. So, you know, what did you see then in terms of some of the things that you thought were important from a tech perspective, and how are you utilizing that in terms of for the strength of the platform?
Well, it won't shock anyone to say that we agree that AI is incredible and is going to change all our lives. That's a true statement. AI is also immature and potentially dangerous in some cases, and need to be done very carefully. There is rightfully a lot of pushback and skepticism as it relates to AI in healthcare, because there is a chance of mistakes. Strategically, one of the benefits of Converge and Amwell in general, is that we can couple innovation with conventional trusted sources. It's one thing to get diagnosed and have a dialogue with a bot as a means to treat myself. It's a completely different thing to use AI that is chaperoned and monitored by my trusted provider. So the fact that we can now blend together trusted sources and AI, is very helpful for Amwell.
Very specifically, as I mentioned earlier, Converge is open. So we are able to experiment responsibly with a lot of options, with AI, to truly improve the effectiveness and efficiency of care and many other things. We don't have enough time to go through all the opportunities. I'm going to give you just a few in way of an example. As to the product itself, obviously, AI can really help improve workflow. You think about the triage of a patient, the pre-visit flow, if you think about the decision support for a provider, if you think about the post-visit experience and the space between the visits, like Silver Cloud and Conversa and so on, all these opportunities could really benefit from such technologies. In addition to that, another example would be audio-visual.
Pretty amazing when you think about the fact that you can diagnose some illnesses based on voice alone today. There is tons of info through audio. There's also ability to understand a picture. So if you think about the shortage of nurses and fall detection, for example, that's extremely powerful. You can use less nurses to monitor many more rooms. Lastly, in way of product, we are used to ask the system questions about data and then, hopefully, get the answer. A predictive AI can actually give you answers to questions you can never ask, to show some interesting trends that you didn't really think about. So the ability to analyze the data is very powerful, and a lot of data is flowing through the veins of Converge, and it's real-time, and it's in the room during care.
So there are many things that could be done with that. I would just end by saying that our own operations are benefiting from AI. We are writing some of our code with AI. We are changing our support methodologies with AI, and doing some quite a few other things as it relates to processes like RFPs, and interactions with the market, leveraging the enormous power of AI. So like many, we're going to, I think, benefit from it. But as very typical to Amwell, we have our customers' interests first. We are very conservative to make sure that whatever we do does not harm the patient or does not harm the customer. And in healthcare, there are many ways for that to happen, and that's a really big concern that we are very focused on.
Understood. As we wrap here, we've covered a lot of ground on Converge and the migration. If we fast-forward to 12 months, what are some important things you wanna make sure you execute and deliver on, going forward?
So, as I mentioned earlier, now that our platform heavy lifting development is behind us, migration is our number 2 task. I can't wait for the day that everybody is on Converge. While we do that, the next task would be to prove the value, and there is really a tidal wave of examples coming fast and furious to us from the clients that already migrated. And as a result, I believe that we will gain the recognition that us and our clients and partners deserve to understand the magnitude and the value of what we've created, that may be less clear in the early days of this deployment.
Understood. Well, Ido and Bob, thank you so much for your time this afternoon. We appreciate it.
Thank you, Craig.
Thank you, Craig.
Thanks.