Good afternoon and welcome to Amwell Third Quarter 2021 Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. Leading today's call are Dr.

Ido Schoenberg, Chairman and Chief Executive Officer; and Keith Anderson, Chief Financial Officer. Ido and Keith will offer their prepared marks and then they will take your questions.

The Amwell press release and webcast link are available on the Investor Relations section of Amwell's website Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating Amwell's performance.

Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation thereof can be found in the press release that is posted on our website.

Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the results for Amwell to differ materially from those expressed or implied in this call. And now, I would like to turn the call over to Dr. Ido Schoenberg, CEO of Amwell..

Good evening and welcome to our third quarter earnings call. In the past quarter, we registered $62 million in revenues, reflecting stable subscriptions to our legacy platform and steady paid visit demand.

The reception to our next generation platform Converge is significantly better than we hoped as we are seeing clear signals of strong demand to our new platform from existing and new clients.

Overall, we continue to believe Converge will growingly fuel our results in 2022 and beyond as more revenues generated from existing client expansion and as new clients complete their deployments and begin using Converge.

We are also pleased to note that larger than expected number of clients have already committed to upgrading to Converge, but some are waiting to expand their purchases and usage of additional Carepoints, modules and programs until their transition to Converge is complete.

As for our clinical services, we experienced some increase in visits quarter-over-quarter as the Delta variant led more people to use our urgent care services. However, at this point, we are maintaining a conservative view on Q4 visits, assuming relatively soft cold and flu demand due to masks and social distancing.

While we are confirming our overall range of visit volume expectations, we are seeing this proportionate contribution coming from urgent care, lower fee visits due to the Delta variant. Because of these dynamics, we are setting our final 2021 full year guidance to a range over $246 million to $253 million.

In Q3, our gross margins were 43% reflecting the continued costs of supporting our legacy platform and also commencing the conversion of our clients into Converge and benefiting from initial efficiencies associated with this transition. Provider adoption growth on our platform is stronger than ever.

These total active providers grew from 71,000 in Q2 to 80,000 with AMG active providers steady at 4,000. We are also seeing a great expansion of the use cases on our platform across the continuum way beyond the urgent care.

We expect our rapidly growing provider base to become a major catalyst of scope and frequency expansion as Converge deployments continue. We also saw a significant increase in the number of visits per active patient compared to Q3 of last year, which we believe indicates the growing demand for longitudinal care and virtual primary care programs.

Most of our visits in Q3 were scheduled versus on demand demonstrating sustained adoption by providers who are making telehealth a key part of their practices. Converge platform completion and deployment is moving rapidly.

Together with HIMSS analytics, we completed the survey of key decision makers in healthcare organizations and found that 56% of health systems plan to invest more in virtual care over the next two years.

Health plans also plan to increase investment in virtual care with 88% of health plans intending to add more programs focusing on a range of needs from virtual primary care to be behavioral health and chronic condition management.

As we continue to rollout our first products on the Converge platform, we are noting that healthcare organizations are increasingly looking to consolidate their virtual care investments onto one platform.

As demonstrated in the survey, health systems focus most on patient satisfaction and provider adoption and we are seeing positive feedback on both metrics with Converge. Over 4,000 providers have already used the Converge platform during its initial rollout.

With 43 enterprise clients now successfully using Converge, we have collected excellent feedback on our new offering and its significant value. For example, clients appreciate that our new platform video connection time is twice as fast on Converge versus our legacy platform.

Most of these clients are using Converge through their use of Amwell Now, while growing number are using Converge EHR. At this point, we converted all Amwell Now enterprise users to Converge and have begun deploying Converge EHR with health systems, focusing on Cerner and Epic clients.

As a reminder, Amwell Now is our entry level simplest product that has minor contribution to our revenues as a standalone offering. It does however share the common Converge platform and we are encouraged to see it functioning so well in fully operational live environments. These successful deployments demonstrate the new platforms' robustness.

They also serve as an important foundation for future same-store expansion. Converge enables innovation agility and faster speed to market with greater efficiency. For example, the level of effort in time and resources to release new software versions of Converge is less than 5% of the effort required to release new versions of our legacy platform.

The integration of Conversa and SilverCloud onto Converge will enhance our already powerful and comprehensive digital care platform and enable hybrid delivery of physical virtual and automated care.

These two companies bring important assets in data science, AI tools and best practices in automation to drive proven clinical and financial outcomes optimization.

Both feature important capabilities to enable our clients and partners to create and share chronic care behavioral health and other longitudinal programs while significantly expanding the reach of providers and greatly improving their efficiency and impact. The integration of both companies with Converge is progressing well and according to plan.

Already in Q3 alone, we've seen cross-selling within both our customer bases. In summary, the receptivity to our new offering is excellent. Clients with relatively modest needs appreciate Converge's simplicity, reliability, and most of all extensibility.

Large enterprises value the comprehensiveness of our platform and its ability to integrate well with their existing assets. We believe that all entities will value the open nature of our platform and its ability to facilitate a diverse array of apps, modules, and programs from Amwell, our clients, partners and independent third parties.

Investments in digital health solutions are a historical high driving a tidal wave of innovation. The need for a common integrated platform to host, show case and enable broad spectrum of digital products is bigger than ever before, especially as it will streamline exchange of data services and capabilities across the ecosystem.

Many customers and prospects commented that Converge flexibility and openness make it a smart future ready investment. While other telehealth vendors focus on virtual care service provision and compete with payers and providers, we focus on enabling, empowering their offering while promoting inter segment connectivity.

Together, we offer consumers a single, simple, delightful and cohesive healthcare experience. With that I would like to introduce you to our new CFO, my friend and partner, Bob Shepardson, who many of you already know from his previous ventures. Bob joined Amwell on October 31st.

I would also like to use this opportunity to thank my dearest friend, Keith Anderson, who will be departing at the end of the year for his exceptional service and important contribution to Amwell over the past income credible three years.

Keith?.

Thanks, Ido, and thank you everyone for joining us on our third quarter call. For Q3, we've reported total revenue of $62.2 million, an increase of 3% over last quarter, driven mainly by increased visit revenue.

Total subscription revenue in the quarter was $26.7 million, flat over last quarter, and close to about 10% increase compared to the third quarter of last year if normalized for the two customers' loss due to M&A that we discussed on previous calls.

Average contract values continue to be significantly above 2020 levels with health plans at the $700,000 level and systems above $300,000. Total visits conducted this quarter on the Amwell platform was $1.4 million with AMG performing 360,000 of these visits.

The increase versus last quarter was mainly due to an increase in COVID Delta related urgent care visits while maintaining similar levels of specialty visits.

Our clients continue to deliver significant care on the Amwell platform as 75% of visits were delivered by our customers own providers, a metric that has remained consistent over the last six quarters since the COVID spike in Q2 of last year.

Total visit revenue was $30 million this quarter, a 9% increase over last quarter, but a noteworthy 6% increase over the third quarter last year. Unpacking the mix, AMG specialty volume has continued at 50% higher levels over last year, but sequentially was outpaced this quarter by urgent care visits due to the Delta variant.

This visit type mix shift toward urgent care has resulted in the revenue per visit metric migrating closer to $80 per visit versus $85 per visit in Q1 and Q2 of this year. This dynamic has also continued so far – fourth quarter.

Services and Carepoints revenue decreased slightly to $5.4 million from $5.9 million last quarter as several health systems worked through their government grants that this time around are not time bound. In other words, they don't have to be spent before a certain date.

Additionally and similar to the dynamic Ido earlier discussed a few health systems have pushed out new hardware deployments until they have been fully migrated onto the new Converge platform.

While these minor delays have so far continued in the early part of Q4, we are seeing the hardware pipeline continue to build strongly due to this dynamic and are confident in the ultimate conversion into revenue of these Carepoints once the health systems work through their grants and separately are up and running on Converge.

Gross margins remain relatively flat at 43% of revenue this quarter versus 44% last quarter and 33% last year. Both of these comparisons are important and noteworthy since as compared to last year we actually have slightly increased visits as a percentage of revenue while significantly increasing margins by over 1,000 basis points.

This is counterintuitive given visits are a much lower margin business. So said differently, visits made up 48% of revenue this quarter versus 46% in Q3 2020, yet our gross margins were 43% this quarter versus 33% last year. Now add on the burden of increasing migrations of customers on to Converge, Amwell maintaining this improved 43% gross margin.

This has been achieved through continued technology and operational efficiencies unlocked in the AMG business as well as early aspects of the efficiencies achieved on the Converge platform.

As a reminder from our Q2 earnings call, the migration of some of our more complex customers on the Converge would be getting Q3 and Q4 this year and would take additional resources to ensure the migration is seamless.

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-50% range and with continued mix shift over time, eventually even higher margins as our subscription business, our core business, is currently in the 60% gross margin range.

But again this will take time as we must first migrate our clients onto the Converge platform, execute on the pent-up demand for our programs and module subscription business and the related Carepoints. Moving on to OpEx, we have also achieved similar efficiencies within our company operations.

R&D expense in the third quarter was $27.4 million representing 44% of total revenue. While this is above spend levels in Q1 and Q2 of this year, as we continue to develop and rollout converge, we believe the overall development cost to Converge will be less than originally estimated based on three quarters of development.

We do expect Q4 R&D spend to increase versus this quarter Q3 due to the additions of SilverCloud and Conversa, but we continue to achieve better R&D efficiencies through continuing to leverage our strategic partners and the development of Converge, and also offshoring more aspects of engineering that we originally thought to keep in-house.

Sales and marketing spend increased to $16.4 million versus $14.8 million last quarter and was mainly due to an increase in in-person conferences and clients ramping up marketing programs for the virtual care offering.

G&A expense was $33.7 million for the quarter, an increase of $9.5 million over last quarter, mainly due to the fees associated with our two M&A transactions, the hiring of our new Chief Growth Officer and some executive stock vestings. These one-time M&A expenses in stock-based comp have been excluded from our adjusted EBITDA calculation.

We are reporting an adjusted EBITDA loss of $31.5 million, compared to a loss of $23.7 million last quarter with the majority of the increased loss coming from increases in our R&D and sales and marketing spend and the executive hire that we previously discussed.

We ended the quarter with $790 million of cash that includes payments made in Q3 for the acquisitions of SilverCloud and Conversa. In terms of active providers, we closed Q3 with 80,000 active providers delivering care on the platform, which is a dramatic increase of over 10% in just one sequential quarter. AMG providers remain constant at 4,000.

So, all of the 9,000 provider additions came from our customers, adding their providers to the AML platform. As Ido explained, this is a clear and important indicator of strong provider adoption among our client's own provider groups.

Regarding our guidance overall revenue growth in Q4 is expected to come primarily from increased subscription revenue, but also services and care points.

This could have been even higher without the Converge transition dynamic, but as Ido discussed earlier, we are seeing a deferral of new customer deployments and a same-store growth, as a few customers are waiting to fully transition on to Converge to expand their module subscriptions and related purchases of Carepoint’s.

Similarly, some new customers are simply waiting for the completion of certain Converge components, so to go live completely and wholly on the new platform.

Despite this familiar and normal dynamic, we are expecting subscription revenue to grow about 15% sequentially quarter-over-quarter and services and care points to grow about 50% sequentially quarter-over-quarter from Q3.

We are forecasting visit revenue in the fourth quarter to be flat versus the third quarter, due to the shifts we are seeing within the visit type mix resulting from the Delta variant. Throughout 2020 in the beginning of 2021, we saw behavioral visits correlated with COVID.

But toward the end of Q3 and continuing so far in the fourth quarter, we unexpectedly observed a decoupling of this correlation with urgent care visits, continuing to expand while growth in specialty and behavioral visits less so.

This unexpected decorrelation was also observed by the CDC, who recently published these observations and findings in their October 8 MMWR report.

Accounting for this unexpected and significant decorrelation, we are confirming the overall annual visit volume to be within the updated range we provided last quarter of 1.4 million to 1.5 million visits, but at the lower quartile of that range and at an average annual revenue per visit now in the low $80 range versus $85 range, we were previously expecting.

Recall that except for last year's COVID spike in the second quarter, our fourth quarter is typically the largest all year for visit volumes. So, this change has a magnified impact on overall revenue.

Taking all this into account in terms of overall full year revenue guidance, we are reducing the midpoint of the range by $7 million, while at the same time narrowing the range as we approach year end from $252 million to $262 million to now $246 million to $253 million to account mainly for this unexpected mix shift within our visits.

In terms of adjusted EBITDA, a we are favorably increasing and narrowing our range by $10 million to an EBITDA loss of $143 million to $136 million from previous guidance of $154 million to $146 million due to this visit mix shift to higher margin urgent care visits, as well as for other efficiencies unlocked to within gross margins, continued favorability within R&D spend and sales and marketing.

In conclusion, we are pleased with the continued progress of the development at Converge and the migration rollout to our health system clients. We're excited for our health plan customers to also experience the benefits of the new platform.

It is especially encouraging to experience the competitive and operational advantages we are seeing in all of these situations where the advantages of Converge are one of the primary reasons for our win.

Further, our customers are adding 9,000 providers to the platform, in just this past quarter alone, shows we are on the right track with provider adoption as providers are increasingly making tele health a key part of their practice. Operationally, we are encouraged by the positive results we are seeing in our gross margins and operational spend.

On the M&A front, we continue to evaluate opportunities to enhance the overall functionality of Converge to deliver full longitudinal and coordinated care. With almost $800 million in cash in our balance sheet, we have ample funds to execute both on our inorganic strategy, as well as to fund our path to profitability.

As this will be my last earnings call with AMWL, I want to publicly thank Ido and Roy for the opportunity to partner with them and to finance the realization of their vision.

I also want to thank the Board, the other executives, the entire Amwell family, but especially my heads of financial planning, accounting, and M&A, and their respective teams who work tirelessly to prepare Amwell for the IPO process. And then ultimately had to execute the IPO remotely as our physical office was shut down due to the pandemic.

It was never lost on us that in the end, we are a healthcare company that empowers healthcare providers to deliver their care remotely to their patients. And during COVID, this remained our primary focus. I'm now handing the reins over to a tenured executive who knows Amwell extremely well as Bob was my banker counterpart on our IPO.

He is a good cultural fit with Amwell and a well-known figure on Wall Street, who I'm now trusting to lead my teams. I have complete confidence in Bob and wish him all the best as this is truly a unique and fantastic opportunity. I'll now turn the call back over to Ido for his closing remarks.

Ido?.

Thank you, Keith. By now all of you realize the enormous transformation in Amwell, and with our clients and partners. We have never been more bullish or excited about our future. Our incredible effort to streamline our platform transition to Converge is going very well.

We are seeing clear signs supporting our strategic path and look forward to sharing more proof points with you when our clients and partners permit.

And now I would ask the operator to open the call for questions operator?.

Thank you. We'll go first to Eric Percher. Your line is open..

Thank you. Excellent to hear the client feedback on Converge.

Is there any in perspective you can provide on maybe headwinds, tailwinds and acquisitions as we exit 2021, and think about beginning to model 2022? And I'm thinking specifically the demand for Converge and the reasonable view on impact to subscription as well as the impact you're seeing on urgent care on volumes?.

Thank you, Erick. It's good to hear your voice. As usual your questions are so great that I wish we had an hour to answer them. But I'll do my best to give the group the headlines. I think in summary we see some dramatic changes in market that luckily for us sit very well with the mission and purpose of Converge.

And I'd like maybe to give you a number of examples. And then if time permits, I'm happy to explain in more detail how those tectonic market changes are being addressed in the new platform. So essentially the name Converge is very appropriate because we all witness some serious market convergence in many ways.

The first area is the area of segments starting with payers and providers. We all know that very large pay organizations are definitely going and owning more and more provider assets, United is a great example with their 60,000 or more providers that are a part of their group.

And also, providers are taking more and more risk and offering risk products. Manta, UPMC and many others are great example to that. In any event, even if those entities do not share both tasks, the future of any entity is dependent on its ability to become collaborative.

There are very few platforms, if any, that have very strong footprint, both in the provider, in the payer space, and very importantly, enabling connectivity Converge does that. The third segment that is converging into this mix are innovators. We're seeing historical phenomena.

I think you alluded to that in your question with digital health innovation. This year alone showed more than $20 billion in new digital care investments, up from $14 billion in the previous year that was about double the year before.

So, you can only imagine the confusion and complexity of decision makers, CIOs, Chief Accounting Officers, actuary officers, I'm sorry that need now to try to prioritize and embed all those solutions into their ecosystem.

The role of Converge is to really allow for a consistent middle tier that brings together all those three segments and really align those organizations to growingly behave like population health services organizations, which is really combination of care services and risk management, and to try to reimagine the future, not as the replacement of physical care into equivalent digital future, but rather total reimagination of a new, single better healthcare experience.

I would also suggest that the Converge includes a new focus and clarity as to what's important by many ecosystem players.

There is great focus on improving of clinical and financial outcomes, there is clarity that the mark is shifting towards risk and value with great importance to digital tools that are now moving from sidelines into center and rear stage.

Everybody is comfortable in understanding the importance of omnichannel and no one suggests that there is any other solution, but a hybrid solution that brings together physical, virtual and automated care, including a liberal use of AI, of natural language processing, and many other technology.

Productional is working together with longitudinal not only for acute care or urgent care, but really across the full care continuum addressing the full person.

And these types of tools are very, very, are effective to help contribute to network optimization, referrals, steward, things of the nature, and also allow for extensibility bringing insight and services into the last mile.

Lastly, there is growing recognition and acceptance of the great importance of the consumer experience and the provider experience.

And getting a great experience is practically impossible without unified identity, without creating a unified profile for both those entity, which Converge allows and allowing for consistent engagement of these important players.

So, I probably a mouthful pretty long explanation, but we were lucky to think about those requirements a few years ago when we started to bring Converge into the drawing board.

And that really explains the extremely favorable, almost surprising, very violent market positive reaction to the platform that we are deploying from small players and large players, existing clients, and very important sophisticated new ones..

It's a vivid description. If I can pinpoint the question, are we to take from your commentary that the adoption and response is running better than you anticipated, I think, was your comment. And more than offsetting any delay as there as there's any pause on purchases until Converge is rolled out..

So yes and no let me explain. There's no question that what we see in the market is much better than we expected or even there to hope. Unfortunately, as you know, we don't share those things. We let our clients use our platform as empowering their business agenda and they will share that when they're ready.

As far as the impact of platform transition, I'd like to really explain it a little bit to the team. This is something that is not surprising that we expected and is baked into our guidance. But it's something that basically happens each time you do such a major move.

So, when you announce a platform and we wanted to announce it early to really make sure that our existing clients and new ones really understand where we are going and to allow them to participate and plan on what's coming. So, if you remember, we reshared a Converge in April of this year.

And when that happens usually as Keith said, and I said as well, usually more and more clients, especially when the components delivery nears, prefer to delay little bit extensions to their upgrade to the platform. The same is true with new clients in many ways that really are excited about the what's coming.

The nature of Converge favors the large complex clients. So, add to that, the fact that those wins usually come with a very, very large deployment cycles that take a little longer to begin to play out. So, there is an impact on revenue growth when you transition one platform to another it's not negative, it's normal, it's expected.

And it's something that is completely not seen in the numbers that we shared today..

Thank you..

And our next question will come from Ricky Goldwasser of Morgan Stanley..

Yes. Hi good evening. And Keith it’s good working with you, and good luck in the future, and Bob looking forward to working with you more always enjoyed that. So, two questions here, one clearly, we’re only in November here, so still early, but maybe if you can sort of give us a sense of the headwinds and tailwinds for 2022.

And then, Ido, just to clarify, as we think about clients sort of delaying their expansion of the platform or those new large complex client sort of delaying decisions.

Do you expect to see those clients committing in 2022, or should we think about the inflection point in 2023, once the Converge platform is fully rolled out and deployed?.

Sure. Hey, Ricky its good your voice say. I want to point out very clearly and early on that we don’t see the dynamics of any delays in decisions on the country. I just mentioned that clients are ready to make decisions. They are making decisions, existing clients and new ones, and these are very favorable positive decisions.

This time it would take for these decisions to play out into our revenue really depends on things like the delivery of Converge a component and the sequence that they’re released.

When we look into a 2022 and beyond, we really see in greater conviction and greater clarity, the dynamics I was talking about in previous earning calls, which is that we plan to basically convert and upgrade the line share of our clients through that yield.

As we convert those clients, we also expect to see same-store growth, and we also expect to begin to see new clients kick in. So all these things are very positive and obviously, and we – in the same time we’re going to growingly obviously retire our legacy platform, which would leave us with something that is very scalable, very efficient.

And we believe to see – we believe we’re going to see a very strong a growth drivers is this trend develops.

So, when I look at tailwinds, I think, I mentioned them in my reply to Eric, the main tailwind is the transformation in the market, the acceptance of digital formulary, digital capabilities into the main care pathways into the mainstream of healthcare. And we have the technology that fits that very strong brand.

In way of – I would say headwinds, I think the market is overwhelmed. I think that people are confused. There is so much innovation. There is so much investment in digital health that people really need to take their time, and understand what’s working and what’s not working.

And one of the benefits that we bring to the table is to create a platform that allows you to experiment very, very quickly with those solutions without a giving up on common reporting, on common engagement capabilities, on identity management, the lower, more fundamental elements that are required to really streamline the new model of care while relying on innovation that is probably very necessary in order to truly realize optimal outcome improvement..

So Ido, just to make sure that, that I understand correctly, because to your point, you said, it’s not that that clients are delaying their decisions, they’re making decisions, but should we understand that the contracts are being signed? They’re just a greater lag between signed contracts in implementation.

And if that’s the case, does it mean that you now might have better visibility on sort of, kind of like the revenues that you are expected to come in within the next 12 months to 18 months?.

I would say that we have much greater conviction in the trend that we were talking about, because we see the very important component, end user reactions, sponsors reactions, clients, and partners voting for Converge. This is a serious decision. So, when you look at especially very large organization, this is not a one year decision.

This is a decision for a platform that may be their platform for the next five or 10 years. So my conclusion is driven not by a quick event that happened recently, but in many cases we were looking at RFP process in diligent cycles that took a year or a year and a half and are now behind us.

So, that’s a very thoughtful, meaningful decision by those very sophisticated buyers to side with us. Obviously that trend does increase our confidence in our ability to grow revenue in 2022, and very much so beyond is, what I was talking about play through..

Thank you..

And next we will take a question from Charles Rhyee of Cowen..

Yes. Thanks for taking the questions. And Keith good luck with everything. And it was great to work with you. I guess my question, is kind of following up a little bit, obviously good to hear some positive feedback on Converge.

Can you talk about, I might have missed it, but what percent of your clients have now made the switch to Converge? And then secondly, can you talk about what other telehealth platforms, some of these clients may have been using and have you seen a concerted effort by these clients to consolidate all of their virtual capabilities solely onto Converge?.

Sure. So hi Charles, good to hear voice. So, as I mentioned earlier we have 43 enterprise users of mostly Amwell now that are now on Converge. As I mentioned in my prepared remarks this really demonstrated the heart of Converge is working very well.

But these are to be fair use cases that contributes very little to our revenue and are the simplest type of use of the Amwell platform. Converge, obviously more in the next phase, you’re going to see also payers and really go for our entire client base. So, counting the number of accounts may not give you the right answer in way a number of accounts.

If you’re talking with couple hundreds, you get the proportional client, but you need to take into account also a complexity. What we do see, which is not reflected in this number is the reaction of clients and the readiness to embrace Converge.

So many more clients obviously are raise their hands and make the decision to upgrade to Converge or buy Converge as the new clients. And that’s a very meaningful decision. Of course, as Ricky mentioned, there could be a gap between this decision and the actual deployment and it impact on revenue that you need to take into account.

The excitement of my team and in our clients and partners really relates to that type of decision. Now, when you look at those clients, obviously almost all of them have different solutions running in a parallel.

What we see quite frequently are different video conferencing solutions from teams to Zoom and in other tools, none of those companies necessarily see us as competition. We happen to work with Twilio but that type of activity really resembles a little bit what we have in Amwell now.

And I don’t think they even Aspire to do the many other things that I explained earlier on this call. What we do is pretty unique. It’s extremely complicated, and thankfully now very highly appreciated. And I think that the difference is that we are very likely going to become part of the care pathways.

So it’s no longer going to be a situation where telehealth is promoted as a side event, but rather digital interaction, not only video visits, but everything else that we do, including automated programs, and interconnectivity of information and insights that is designed to improve the outcome is really going to become part of the healthcare.

That’s a very big lift. They took us 15 years to develop. We invested more than a $1 billion and we’re still investing heavily. It’s enormously difficult to recreate. And now it’s a very, very relevant. We don’t feel threatened by these types of companies.

At the same time, I would suggest that people like Epic are definitely trying to raise their way into this space, by working on a pivotal care and things of the nature and programs. We have a different view into how to reach that.

We see enormous progress of Microsoft trying to enter into healthcare from a different angle, but again, very dissimilar to what we are trying to do. So based on the market reaction and based on where we are, we feel pretty confident about our ability to maintain and even significantly grow our market share in the not so distant future..

I appreciate that. If I just one follow-up to Ricky’s question, I think when you announced Bob joining Amwell you made a comment around expectations of well over $300 million for next year.

Can you comment on that? Is that still sort of the target for next year, and any way to maybe frame out what well over could entail we’re talking, significantly over or is it just, a little bit over, just any ways to maybe frame what maybe well over names? Thanks..

Well, we are going to continue and grow next year and the years after. We are going to dedicate our next earning call to talk about our focus for next year. And you’ll have your answer. I promise, I don’t want to give unclear since this point, such a dynamic market.

And I want us to be very thoughtful and take our time, but directionally we see very positive encouraging signs..

Great. Thank you..

And our next question will come from Sean Wieland of Piper Sandler..

Hi, thank you very much. So, I’m just generally confused on what’s going on with visits. Maybe if you could just take another crack at it starting with last quarter when urgent care visits were weak. Now they’re strong in relationship with margins and how they factor in of paid versus unpaid.

Like where are these – where’s this mix shift shine up in the model?.

I’ll take that one. Hey, go ahead, go ahead Ido..

Thank you. And I can complete my answer. So, we all confused. I mean, COVID and Delta are very, very confusing, but let me maybe walk us through the visit dynamics, and try to bring some order to understanding it.

So in general, a clinical services and AMG visits are very important in supporting our technology, and they’re important in at least two ways. The first one is obvious. They are – we are checking the books on urgent care, convenient care availability. Everybody needs that in the market.

And we offer shortly times and scalable solutions today in a very efficient way, we focus on quality, and safety and regulatory compliance, and all those things that as in many other telehealth vendors they are doing. The more important pile over our network is designed to really help improve outcomes.

And what they mean by that is that these services are not only embedded in programs and clinical pathways. So for example, our ability to use AMG in beautiful primary care to our programs, like the one that converse to head in chronic care programs is here to stay.

Unlike the previous article that you eventually we believe will fade out is many of those a transient or transactional providers are going to really be replaced by your doctor. So, the ability to use our network for specialty visits and choosing our visits is important.

And it’s also helpful because the way that you create demand for the second category is much more efficient than the first one. As you probably know, customer acquisition costs for various reasons is much, much higher today.

So when companies try to sell urgent care visits, the margins are fairly depressed and the customer acquisition cost is very high. It’s becoming a really not as optimal businesses because is before.

The demand that if for embedded clinical services is really coming from your doctor and from your hospital and from clinic care pathway, and that’d be something that is much more natural and we – it’s going to grow.

So the customer acquisition cost is much lower, but it’s also bringing much higher value because it’s connected to much more important outcomes. And now for what’s happened this year in way of visits.

So of course, the year before we had COVID, everything showed up quite dramatically and in general demand for an urgent care; it came down slightly for us in many, many others, versus the peak over the last year.

We – so much is softer, or we predict much softer, a cold and flu season, and because of masking, because of social distances and because of hygiene. And that’s one was the – some of the reasons why we adjusted our guidance for visits in our previous call. What you saw now in Q3 was surprising and interesting.

So if you look at the dynamic in the CDC gave very good data that you welcome to really look into it. At the beginning of the year through Q3 there was very clear correlation between COVID and the overhead visits. So as COVID showed up, the demand for be able to health, anxiety, depression, things of that nature shook up as well.

And that also contribute to the mix of specialty business and we already reported.

In Q3 that broke, we saw the delta variant go up demand for be able to help actually break or separate from that correlation, and while it's anybody's guess to really understand that hopefully it's good things, people get more comfortable in these with COVID, in a different way that creates less reaction or emotional reaction.

We had to adjust our focus for Q4, which is a very important quarter for us in real visits because of the seasonality in urgent care visits during this quarter. Keith, I only, if you have anything to add..

I mean, Sean, I think your question was more dynamics, I'm happy to give some math, I guess, to just confirm for the models that the adjustment and guidance is just focused on the visit line.

We're going to hit where in the beginning of the year, we targeted for the subscription line, as well as in the services and care points, but for visits, given all the reasons that Ido said that we were observing toward the end of Q3, and we're still continuing to see this play out in the CDC predicts, this will continue through the end of the year.

We are adjusting our visit forecast. I guess before I end, Ricky and Charles, thanks for the kind words and look forward to working with you again in the future..

All right, I'll leave my question there. Keith best of luck to you in the future and thanks for taking my questions..

Thanks, Sean..

And next we will take Ryan MacDonald of Needham..

Thanks for taking my question. Ido, maybe for you on the first one of the 9,000 provider that you added with clients, obviously some great progression there.

Just curious what you're seeing in terms of activity from those providers that that have joined Converge and perhaps what you're seeing from a mix of specialty versus urgent care use cases so far?.

So hi, Ryan. So that's a really good question. So all of them, materially all of them are not AMG providers. They're all client providers. As you know, our clients typically are academic medical centers, larger IBN and so on and so forth. So most of these visits actually are all over the place, and we will be specialty.

This change really use a demonstrating a secular clear trend that we see or growing adoption of digital virtual connectivity between our clients and their patients that are not in the room is from their EMR, from the EHR. So this is really covering the full spectrum of the care continuum, and very rarely if at all is a primary care or urgent care..

That's helpful. And then maybe one for Keith on gross margin, obviously you talked about some of the great progression and efficiency in the model despite sort of this mixed shift back towards visits.

As we think about next year and the continued progression there with converting some of the benefits, how should we think about that progression? Is this – are we at a point now where we can get back to say pre-pandemic levels when thinking about sort of the gross margin range? Thanks..

So, I mean, given what we've seen, we're now supporting two platforms as we migrate customers over on to the new platform that converts platform, we have to maintain the old platform until all the customers are over on the new platform.

So what we saw this quarter and you should read into it, it's really exciting because we started in earnest in Q3 and its continuing in Q4. Starting to migrate some of the more complex, larger Amwell customers onto the platform. We were expecting gross margins to hover around 40% in Q3 or Q4, maybe even go below 40%. We ended up at 43%.

Part of that is the mix shift, urgent care visits we do generate higher margins for those and specialty, but also just the continual unlocking of efficiencies within the AMG Group that we've been talking about all year, as well as technology margins continuing to expand by further leveraging our partners and partnering with them.

So I think we're going to end the year, right around the 40%, 41% mark which is above where I thought we were going to be, you know in the beginning of the year when we announced Converge. We're really pleased with what we're saying or what we're seeing.

We now have, you know, a significant degree of confidence getting back to what we said at the IPL of the mid 50% range, our subscription business, you know, generates margins in 60s and not at the lower end.

So it's just a matter of finally getting all of the customers migrated over onto the platform, continuing to unlock the efficiencies within our services side of the business, the AMG bit, and then for other partnering and capitalizing on the partnerships that we have – we've established with some other technology players..

Thanks. Best of luck in the future..

Hey, thank you..

And now our next question will come from Jailendra Singh with Credit Suisse..

Thanks. And thanks for the question. And Keith good luck for your future. I joined a little late, so apologies if you already if you already addressed.

But can you update us on any traction you're getting the right sort of plan and how should we think about that opportunity within the context of converge? I know you guys have really small business, direct-to-employer market, but as you go-to-market for virtual family care, will that strategy evolve in any way where we might see you guys potentially in market more direct to employers?.

Hi Jailendra and congratulation for your recent wins. The virtual primary care or digital first is going to be a common way that people interact with healthcare rate in the future. I think it's very clear right now. And of course it is very important capability of converge. We don't necessarily see it as an independent program.

One of the models, one of the capabilities and we believe based on what we see that is going to continue to grow and become a very popular rate capability. As you know, we are very loyal to our partners and believed that they are the right channels to manage services with the employers.

And we don't expect any change in these strategy in the near future. What we do right now is try to inform them. Obviously we serve very, very large number of the employers that seem to be very comfortable with the growing quality and capabilities that are offered to them by their payers.

The sophisticational payers they could be very helpful as soon floors by basically now allowing connect to care and other analyses with the providers that we enabled connectivity too.

And that is the type of service that individual employer, maybe hard-pressed to pain alone is not their day job quantifying risk and that is part of the reasons for a strategy in maintaining this..

Thanks. I think we're done. Thanks for the comment.

And my follow-up, I was wondering if you could provide updates on your Google partnership, in addition to the capabilities captured in the converge platform, what are some of the areas we are partnership has helped the two companies and any other areas where you think that opportunities are still untapped and will be future opportunities for you guys?.

Yes, absolutely. So – if you remember there's a number of areas of collaboration, our growing number of components from Google that are integrated into Converge. Many of them are an option for clients to choose from, and then they're very powerful in the capable somewhere announced and some are in play are in process.

We are also enabling more capabilities on the Google Cloud, which is working well both financially and operationally for us. And the last MMS is relates to our collaboration around distribution as we know we will refocused on the U.S. market today.

Google is a global company and growing we built Converge, so it could be a relevant in the full global TAM where Google has some really interesting aspects. And that's pretty much what I can say at this point. I would summarize if you're thrilled by this partnership and it's just beginning to really, I would say develop – very strong full potential..

Thanks for taking questions..

And next we have Stan Bernstein of Wells Fargo Security..

Hi, thanks for taking my questions. First, I guess I'd like to echo my sentiments towards Q3. I guess the question on the wellness for clients to be first movers onto Converge.

Is the expectation for larger clients to be first movers or for smaller clients to be first movers as you're thinking about the separate cycle?.

Stan, that's a great question. You've asked me this question in April, I would definitely say that probably smaller clients would be really to jump in more easily. It's less complicated it could be less perceived risk.

Interestingly enough, what happens right now is that we see just very large clients jumping in early because they probably realize the enormous value that could extract from the platform. And a lot of it is fairly special and unique and could provide them a special advantage.

I'm really looking forward to the data that could be more specific when these entities will be comfortable sharing their business strategy that really relies on Converge. But to be fair, we don't have any difficulty not with small or big clients. There are different advantages with disadvantages for each.

Even small clients love the idea that there is a very, very big engine under the hood, even if you only use Amwell. Now, you can really grow it to your hard content in a very diverse way when you're ready, coupled with the fact the experience is pretty awesome.

I mentioned earlier that the super fast video times, there are many other attributes that really delight both providers and patients even in the simple use..

Got it. That makes sense. And then I guess there's obviously a lot of moving pieces here. You have the upgrades, you have cross-sells you launched a new product converged.

Just thinking about it from a sales standpoint, what is the focus for your sales force over the next 12 to 18 months given all these moving pieces?.

Sure. So our number one focus is our existing clients. We have a very large market share today, and we are laser-focused on streamlining the upgrade process as much as possible.

To white gloving it, being very attentive, getting feedback as quickly as we can and implementing it as fast as we can to really make sure that our very vast installed base is happy and ready to take advantage of numerous new options that the new platform is bringing.

At the same time, we are also looking to expand our market beyond our current market share. And naturally, we're looking at the big clients first. Because they represent an enormous disproportionate part of the ecosystem, and as you know, the number one priority for Amwell is providers.

We really want to make sure that through those very large entities, we get as quickly as we can to as many existing providers. So they become part of our virtual network because we believe that's the most sticky, most relevant way to really create enduring impact on consumers and on clinical and financial outcomes..

Got it. Got it. That's helpful. And I guess maybe just 1 quick housekeeping question. I was surprised to see the non-AMG providers were up this quarter. I think the expectations were probably to see some more slippage.

Anything to call out where those providers came from, why the sudden uplift?.

Sorry, do you mean.

Do you mean active providers? Or do you mean non-AMG visits providers?.

Yes, providers..

Yes, the non-AMG providers went up 9,000 in just 1 quarter. I mean that's a significant uptick sequentially in just 90 days..

Yes. My question is, I believe the expectation was for that to be a negative growth this quarter or maybe still kind of light because I think there were some COVID-related on-boarding last year that you saw that would possibly flow off the platform this quarter.

So I'm just curious, what actually ended up driving the uplift in providers and non-AMG providers this quarter?.

So, we tend to talk about our new platform Converge and all tend to discount the fact that our contact for legacy platform working very, very well in the market. And so many people are using it and things of that nature.

So that growth is really secular growth and said optional providers and embedding the digital connectivity is part of their work flow. You’re right technically that we saw an enormous surge before. And I’m sure we lost a lot of those providers, but we want to make many more.

So actually the 9,000 you’re right to point out is really a reflecting, even bigger a change. If you take into account those one and done COVID related provider is now clearly out of the mix.

I would strictly suggest that we – what to see is historical, if you see is very dramatic in the sense that digital tools are now becoming part of the main part of healthcare. And a lot of it will be on our platform..

Got it. Thanks so much..

And next we will go to Ravi Misra of Berenberg Capital Market..

Hi good evening. Thank you for taking the question. So just on the first one on that subscriber business, I think you’ve mentioned average contract values over 700K in the health plan and maybe over 300K in health systems.

Is that kind of on an organic basis since that seems to be trending in the right direction? Or is that, is there anything from the acquisitions that, that’s pulling that up.

And then maybe secondly, and I’ll just ask my second question upfront, more of a, maybe just like an operational question, the visit business has been, I don’t know, how to put it mildly, but it’s caused a little bit of a variance in kind of forecasting here. And I appreciate there’s a lot of mix shifts going on.

There’s a lot of new providers being added, but what gives you the confidence maybe, looking into 2022 without giving us numbers that you have, the understanding that you need to kind of limit the volatility, I guess in that space? Thanks..

So it’s all organic on the subscription side. I mean, we just closed those two deals at the end of – at the end of the quarter.

So in terms of, the subscription and the growth there, or that is it building nicely, by our current and new customers? In terms of the visits, we went public in the middle of the pandemic and we knew that, the visit component of our revenue was going to be volatile.

I mean, it was a pandemic that nobody had a crystal ball, and we said those exact words, when we went public and that’s why we compartmentalised, the visit revenue in the visit part of our business, from the rest of the models. So when we went public, we gave a number, and in the beginning of this year.

We confirmed the same number in Q2, the Delta variant hit, and many different sources as well as us, we’re expecting a lower flu season. So, we had to adjust when we started seeing that, and then the significant unexpected decoupling of behavioral to the spike in COVID visits.

We started seeing that after the call, in August, which was halfway through the Q3, and that’s why we’re adjusting it as well. So, again, we’re not adjusting any of the subscription expectations we had in the beginning of the year, nor the services and care points.

It’s just this visit component that, COVID is still happening and there’s still dynamics that, people are discovering how it spreads, through society.

So, we’ll continue to isolate the visit part of our business and continue to talk about, that the subscription technology aspect of our business, the subscription line, as well as the services and care points that also feed the subscription line..

Great. And then add just one quick follow-up. I appreciate the color there, as we hopefully soon get out of COVID whenever that may be, do you think the kind of variance in that visit fee business should kind of normalize to, what your expectations were prior to COVID maybe help us think about that. Thanks..

Sure. I mean, yes. Ido, you can take that..

No, no please go ahead..

Absolutely. I mean, this is, we have a deep analytics team that that is all that they do. They look at the different sources. We are able to look to the Southern Hub Hemisphere as a leading indicator for flu season. We also monitor what’s happening with the CDC, as well as, you know, other telemedicine companies.

We also get feedback from our customers, the health systems, and we can see the volume, we can see the dynamics, of how their providers are delivering care, to help forecast with a degree of accuracy, what’s going to – what’s going to happen with our AMG business.

What’s interesting is, for the first two quarters and all, toward the end of last year, the specialty business was continuing to grow nicely as a greater portion of our customers, doctors were delivering more and more urgent care. Remember that urgent care aspect is the core business of some of the other telemedicine companies out there.

And we do see that continuing shift to, doctors delivering that type of care to their patients. So it’s nice to see the continued expansion of specialty.

It is still growing in Q3, and it’s still growing, slightly in Q4, but there’s a decoupling, it’s not following the dramatic steepening of a slope of urgent care happening, toward the end of Q3 and continuing so far, halfway through Q4..

So Ravi, maybe just to add the color on what Keith just said. We’re going to – and answer to your question is yes. We are going to have much more, a reliability or predictability going forward for the following reasons. The most important reason is that growing part of our business will be sticky ARR.

So very large clients, that use our technology in a very integrated way for their day job business for their main business. So this is something that very much like, like a big epic implementation. Once you do it, you stay with it for a really long time, although we are very, very different from ethics. So that’s the only analogy here.

The second point that increased reliability and predictability of services of the part of clinical services relates to the fact that we believe that the urgent care component, the one and done business is going to basically the flat or even the much smaller, then the growth of prescribed services that’s all part of programs.

So think about the SilverCloud based program. That includes a lot of automation that prescribes now a conversation with a therapist to the psychiatrist, to the psychologist. The likelihood of that visit of happening is much, much higher.

Then it complain over an employer or a payer suggesting that you should try to talk to a psychologist, which we know is very expensive in a very inefficient.

So as digital will become part of the mainstay of healthcare, the ability to predict volumes is going to become much easier because unfortunately we are not, healthcare works all the time, and it’s pretty consistent to show, to see the demand for those types of services.

And that’s what AMG and APC our networks are going to do growingly next year in the years to come..

And next, we will go to a Donald Hooker of KeyBanc..

Great. I think wanted to – thanks for taking my question here. I’ll just stick the one here.

But obviously we’re all seeing and hearing about labor shortages and wage inflation’s across to the health care system, and I’m just wondering if that could, do you see that potentially creating a scenario where sort of AMG sort of demand for outsource visits might increase around some of the lower acuity you might expand that business in a way that you hadn’t contemplated before, or is that not the case?.

Well, it’s hard to tell a, it doesn’t make sense, obviously. But to be fair, I’m not sure what proportion of the healthcare demand is this type of relationship can solve, your point – this is very, very doable. And I would say that the answer to this is make sure that there is appropriation of care.

So navigation for the most appropriate intervention, its reviews to primary care and things of that nature is a very good step in the right direction.

And the use of automation, the use of programs like the SilverCloud programs that is deployed with 80% of the members of the AMG it’s very, very, a big deployment there and was proven over many years to really dramatically increase the reach or therapist is saying it another way you have very few therapies that treat many more patients, much more effectively by the appropriate use of tools like AI and conversational, a mitigation and things of that nature that the only hourly automated, I believe that the technology to far outpaced the availability over urgent care networking will be helping this problem..

Don, where we are seeing it continue to exacerbate is on the psych side, psychiatrist there, the shortage in the U.S. continues. And there are increasing visits happening, in the emergency room. So, that was the whole thesis, why we bought a line telehealth a couple of years ago and that thesis has been, very accretive to our business.

There’s so many of our health system that just don’t have the staffing to meet the demand that they’re experiencing of people showing up in the emergency room, so that business is performing nicely..

Okay. Super. Thanks so much..

And now we will go to Allen Lutz, Bank of America..

Thanks for taking the questions and for squeezing me in, I guess, going back to AMG and more of a conceptual question, I guess first are the amount of customers using AMG increasing, and then is there any way to kind of frame what visit growth would look like in a normalized environment? You kind of mentioned that urgent care expect that over time to be kind of flat to down.

Maybe you were speaking more about the industry as opposed to the AMG business, but just trying to get a sense of how to think about both urgent care and behavioral going forward? Thanks..

Sure. That’s a great question. Again, deserves a really long answer, which I wanted to share with everyone, but in a nutshell, there are two types of visits, right? There is the visits where I couldn’t find a doctor and it was very convenient and impossible to find a really simple a provider online to prescribe whatever I need.

I believe that there is value in that type of service. And it’s very, very convenient. It’s not going to die out. Obviously people, they need that, but as more of my doctors, my trusted environments are going to be more and more available digitally.

I believe the public will always prepare those trusted, their relationship with full access to your record that you can see in person and so on and so forth.

On the flip side, what we, the growing a use of longitudinal programs that heavily used automation and things of that nature that are based on very sophisticated collection of insights that can engage the consumer and providers continuously.

There is a need for if you will cloud the availability of clinical services, both urgent care and specialty services. And there is a place for these types of services.

Imagine a group of experts around COVID or not another special topic that are available internationally and are making their services available to everyone, including primary care providers in their offices and their patients say when needed, that’s not going to go away.

So the redistribution of services, including cloud availability to clinical services, in my opinion, is here to stay that business is very, very important because it can really contribute to closing gaps in care that cannot be closed by automation alone or by existing relationships alone.

So but that’s a very, very different type of business is just beginning to grow a right now. To sum it up. I believe that overall, the AMG services are not going to die out.

They’re going to replace their purpose and they’re going to grow, but they’re going to be growing less fast and in a less impressive way versus the technology, which is really the main contribution, that we bring to the new model of care..

And that’s why we’re so focused on the specialty visits. Because specialty, again, our mission is to supplement, rather than, replace so supplements, the capacity of our customers, own doctors to deliver care to their patients or their members. So specialty in so many situations is more supplemental than, being the primary, deliver of that care..

Great. Thank you..

Thanks..

And your final question will come from David Larsen of BTIG..

Hi, I just have a quick one. Can you talk a little bit about your relationship with Anthem obviously has a digital first plan design is American. Well, the telehealth solution that will basically power a big piece of that virtual first plan design.

And then can you also talk a little bit about your relationship with Walgreens? They’re obviously investing heavily into Village MD. How many Walgreens stores are you in and what could that increase up to? Just any color around those two relationships would be very helpful. Thank you..

David. You know, us really well, you know, that we never ever talked about client projects and we’re not going to change our way today, I would always suggest that our relationship with, Anthem is very important relationship for a Amwell it’s been going for almost a decade. And it’s, it’s very, very strong. We’re doing different things with them.

They obviously do other things as well. The digital activity in Anthem is vast and impressive and we’re very proud to contribute to it. I will not say anything beyond that..

Okay. Appreciate it. Thanks very much..

Sure..

Thanks, Dave..

And with that ladies and gentlemen, that does conclude today’s conference call. We’d like to thank you again for your participation. You may now disconnect..