Good evening. My name is Savannah and I will be your conference operator for today. At this time, I would like to welcome everyone to the Amwell Q4 2022 Earnings Call. [Operator Instructions] Thank you. And I would now like to hand the call over to Sue Dooley, Head of Investor Relations of Amwell. You may begin.

Hello, everyone. Welcome to Amwell's conference call to discuss our fourth fiscal quarter and year-end of 2022. This is Sue Dooley of Amwell Investor Relations. And joining me today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Bob Shepardson, our CFO. Earlier today, we distributed a press release detailing our announcement. This release is posted on our website at investors.amwell.com and is also available from normal news sources. This conference call is being webcast live on the IR page of our website where a replay will be archived. Before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the course of this call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in our filings with the SEC and actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of our GAAP to non-GAAP financial measures is provided in our posted earnings release. With that, I would like to turn the call over to Ido.

Thank you, Sue and hello, everyone. I'm pleased to report that in Q4, we successfully capped off an important and strategic year for Amwell. On many levels, it was an incredible year. We rallied as a company and executed well, making meaningful progress in the transition to Converge, our software platform that we believe will enable and empower the future of hybrid care and which has already been embraced and implemented by some of the most demanding and innovative health care organizations. I would like to begin by reviewing a few highlights of the quarter. Then I'll take a moment to discuss the market for our solution and describe key priorities for 2023. After that, Bob will review some key metrics, our financial results and our 2023 guidance. Then we'll be pleased to take your questions. To begin, here are some highlights. In Q4, we had another great quarter for client migrations and Converge is scaling well. Specifically, visits on Converge continue to rise and grew from 16% of total visits for the quarter in Q3 to 28% of total visits in Q4. In fact, all of our key operating metrics are trending favorably and we'll let Bob review that in a moment. Our solution is resonating across all segments of the market. We continue to strengthen our relationships with strategic clients. In one standout example of this from Q4, we formally extended our long-term strategic partnership with Elevance Health. We are proud to be an important part of their digital platform for health which aims to attract, engage and retain more clients while also achieving operational goals. We believe this validates the benefits of Amwell as the strategic partner that can empower and enable the future of care and we look forward to the future of this important relationship…

Thank you, Ido and hello, everyone. I'll start with a review of our operating metrics and financial results for the fourth quarter and the year, then I'll discuss our outlook and guidance for 2023. I'm pleased to report that all of our key operating metrics are trending in a healthy direction. Active providers is an important metric of the sustained value our clients see in our platform. We ended the fourth quarter with over 107,000 active providers, representing growth of over 11% compared to a year ago. As a subset, active providers employed by our clients grew 12% versus last year. We anticipate that our number of active providers will continue to rise as we migrate and implement existing and new clients onto our Converge platform. Another important metric is our average annual contract value or ACV which is a good indicator of the value we are delivering to our clients and the success of our land and expand strategy. Health plan ACV increased over 19% to $863,000 in 2022 compared to 2021. ACV for health systems saw a 13% increase to $401,000. This is in line with our expectations during this time of the Converge transition as clients focused on migrating to Converge. We expect ACV to continue to expand as we look to grow our footprint within existing clients and add new clients over time. Total visits were approximately 1.7 million in the fourth quarter, an increase of 10% compared to last year. Urgent care visits drove most of this increase in what was the first real flu season since the onset of the pandemic. This surge in on-demand urgent care visits resulted in scheduled visits being 63% of the total, down from a prior range of 70% to 75% over the last couple of years but still…

Thank you, Bob. Before we conclude our prepared remarks and take your questions, I want to take a moment to thank our teams. They dedicate their talents to developing and deploying our solution, extending our market reach, delivering thought leadership around our mission and finally, contributing to our unique company culture. In closing, we have driven every day at Amwell to continue along this path to achieving our goals and pursuing our mission. Our solution is in high demand because it solves important problems for innovative health care organizations seeking to evolve to hybrid digital care. We begin 2023 on strong footing. While there remain broader environmental uncertainties in our world today, it's early days for digital-first health care. Our role is unique and differentiated in the opportunity before us has never been brighter. With that, we are ready to conclude our formal remarks. Thank you for listening today. Operator, we are ready to open the line for questions. Thank you.

[Operator Instructions] And our first question will come from Craig Hettenbach with Morgan Stanley. Craig, your line is open. And we will move on to our next question from Charles Rhyee with Cowen.

This is Lucas on for Charles. I wanted to dive into the 2023 revenue guide implies growth that's a bit lower than we had expected. Obviously, it's well documented the difficulty that health systems are dealing with right now. I kind of wanted to dive into conversations you guys are having with your customers? Is the -- is there something slowing with the migration to Converge our customers to link things on their end? Is it more of customers pulling back or are they just putting projects at hold for second half? If you could give more color around that, that would be great?

Thank you, Lucas. I appreciate the opportunity to talk about that. As I mentioned in our prepared remarks, we are actually executing very much exactly or even better than our plan. 2022 was a year of transformation, where we replatformed our major offering. This is a high-risk time for any company and the risks include the potential churn, the delivery of the new platform, the ability to migrate clients to the new platform to name a few. As I mentioned before, we did that in some [ph]. We finished the year with a solution that is ready for prime time. And not only that, we were able to convert 28% of our traction into the new platform that is dramatically more efficient, more sticky and more expandable with very significant wallet share same-store growth opportunity going forward. Because of the initial -- and very importantly, maybe to add, we did that while retaining the lion's share of our customers and practically 100% of our strategic customers which is far from obvious. In addition to that, we're able to have some very sophisticated large clients like CVS, Elevance and others that we did not disclose yet make a long-term decision on the new platform. So looking back, we couldn't have asked for a better outcome for the year. At the beginning of the year, we were able to part ways with an army of contractors that help us create the core components of the platform that is already now being deployed, adding to the efficiency. Because of these dynamics, we always knew that '23 will be a muted year only because you are unable to sell a platform that is not yet finished and all the dynamics that I just shared. Adding to that, there were 2 trends, headwinds that I'd…

Okay. Yes, that's helpful. And then in terms of your profitability guide, it seems like OpEx is going to be in a similar range to our expectations and the Street's expectations. I wanted to hear if we should still think about adjusted EBITDA breakeven by year 2025 and if that expectation has changed at all?

Lucas, I'll take that. It's Bob. So just taking the opportunities to rewind the clock a little bit to about a year ago when we put out that guidance, there were -- there were 3 kind of core assumptions underlying that path to profitability framework. And all of them at the time had different degrees of risk. The first was a continued strong demand for digital care enablement. And as we sit here today, we believe that the market opportunity is only better than we thought a year ago. And large strategics are voting with their feet on that. The second one -- second key assumption underlying that model was that we would deliver Converge and migrate customers -- begin to migrate customers over 2022 to get us on a path to where we can sunset the legacy platform and realize the efficiencies associated with that. The proof in the pudding there is from a standing start, we went to 28% of our visits this quarter -- or this past quarter on the new platform and that's continued to trend higher. So I think that's a check there, too. And then, on the last key assumption there was that once we delivered the core components of Converge that R&D would normalize. And that's happening. You'll see that in the first quarter, start to present and it will continue to get better as we were able, as Ido said, to sunset the contractors that had really been the backbone of a lot of that incremental spend on Converge. So all of that kind of provides the foundation for bookings and revenue acceleration and our margin improvements. And as we sit here today, visibility on all of that is much better than it was a year ago. But there are things we don't control like the macro that Ido just went through and that can influence the pace positively or negatively to when we get to that breakeven path. If there is a delay, we're certainly well equipped to handle that. We've got the balance sheet to weather that. And also, now that we've got a commercial platform in the market, a lot of our spend, you could consider discretionary. And we have much -- a lot more levers to play with than we have over the last couple of years when so much of our spend has been driven by delivering Converge. So in summary, we can get there. But if we're delayed, we don't see any change in the fundamentals.

And our next question will come from Ryan MacDonald with Needham & Company.

This is Matt Shea on for Ryan MacDonald. I wanted to follow up on the '23 guidance and start with -- start with the revenue. So we were a little bit surprised to see platform revenue decline sequentially in the fourth quarter. And then based on some of the building blocks for '23, it looks like it's going to come in lower than expectations in '23 as well. So just curious, was there a churn in the quarter that caused the sequential declines or the outlook for '23 or is this solely just a bookings timing consideration? And then maybe you could remind us what the bookings conversion cycle looks like for Converge bookings to revenue?

Thanks. I'll take that, too. I think what you ended with was really the most important aspect of the answer to the question. Again, this is -- 2022, very much a transition year and with it brings challenges beyond the macro. We did see customer churn at the low end, especially at the low end where the switching costs are a lot less in the market. And beyond that limited amount of churn that we saw at the low end, customer expansions are by their nature with the replatforming delayed and new prospects want to evaluate the new platform before they sign up for multiyear contracts. And so that dynamic is very much evident in -- really, we've been living with that for a lot of the last almost couple of years at this point. We're now at a point where we have a commercial platform in the market. And that plus a lot of tools in the toolkit for our sales force, we think is going to allow us to really start to inflect on the bookings side which is going to drive, obviously, revenue growth. To give you a sense for the time from booking to revenue, it really depends on how large the customer is and how complicated the implementation but a reasonable expectation there, taking into account scheduling on the customer side, our side and then the work is probably 5 months to 6 months on average. So you can imagine with bookings building over the course of the year and then revenue starting to present from that more in the back half of the year and then driving really growth into 2024, the -- that's the dynamic going on with what's perceived to be, I think muted guidance for the year on the top line.

Got it. That is super helpful. And then keeping in mind, it sounds like same-store growth is going to be a big focus and you guys have talked about some of the changes to the sales force to align with that. And previously, you've talked about maybe a cadence of 15 weeks to 20 weeks [ph] where a customer comes on to Converge realizes the value and then you guys can upsell additional modules. Have you guys seen some clients complete this journey? And if so, what does it kind of look like? Maybe what are they -- what modules are the highest demand for them to upsell to? And how do you see that trending going forward?

Sure, Matt. So it's hard to compare Converge to our legacy platforms. Converge is so much bigger, can do so much more and has so many modules that really cater to a very wide spectrum of needs. Of course, not all our clients need everything at once. It's very common that they focus on the pain points that are important to them today but they take great comfort knowing that they can really expand in a very material way to many, many directions. Another trend that is very apparent is our success with very, very large customers. Those customers usually buy from the get-go many, many use cases, although the deployment is stage, they throttle up. It's not binary. They don't do everything at once just because of operational reasons. But they do have a healthy appetite and the ACV in those clients is significantly higher than what we've seen before. Our -- when we think about it, we really want to make sure that we maintain our very large footprint in the U.S. health care that we had before. And that certainly seems to be the case and they all look better and better every day and really establish a trusting lifelong or at least very, very long relationship with those clients is we serve their needs as a partner as the need really involves. Saying it another way, if you think about digital care delivery, it's really hard to overstate the proportion and the importance of that transformation in the proportion of business of our customers. So the net of it, it really depends on different clients. We see examples all over the spectrum. We believe it's a timing issue. Some of the larger organizations, especially payers have the capability to deploy more and the need to differentiate…

[Operator Instructions] And then our next question will come from Craig Hettenbach with Morgan Stanley.

Can you hear me okay?

Yes, Craig, good to see you.

Craig, yes.

Great. Apologize for the audio issues before. Just wanted to follow up on the comments around ACV and the growth that you saw this year, particularly as you kind of play out this year and going forward, just how you're thinking about the momentum behind ACV in any particular modules that, that you would call out, whether it's an update on the behavioral health side or saying that you feel the most, where you're seeing the best customer response?

Well, just on the -- Craig, I'll just take a little bit on ACV and then Ido can address maybe some of the specifics around modules and behavioral. But we did see, especially on the health plan side, very nice growth in ACV driven -- actually both by existing customers taking more, so same-store sales and new logos. And so that's very much in line with our plan and what we expect going forward. On the health plan side -- I'm sorry, on the health systems side, a little bit more complicated of a story, still a nice tick-up there but there are a number of moving pieces on the health systems side. We had some benefit from consolidating a full year of revenue from SilverCloud and Conversa for their customers on the health systems side. We also, unfortunately, did see some churn at the low end, as we've said a number of times here and Ido did mention that we're starting to see some come back but that did impact positively because we lost some small inputs to the average, the ACV there. So puts and takes there and obviously, some movement around upsells as well was helpful but it netted out to a reasonably attractive growth on the ACV side for systems. And again, we expect with bookings and revenue growth on the health systems side, the bookings more this year driving revenue growth in the second half and into next year that also tick up. So, we expect growth on both. It's a key driver for revenue growth for us, along with new logo signings. And so I think that's really, I think an explanatory around the movement this year. Ido, if you want to provide some color around where that growth is as Craig is asking, we expect that to come from, from a module perspective.

Absolutely. So essentially, there are many areas of unmet need for the U.S. patients or really patients around the globe. Our unique approach is not to try to fix it with the service ourselves but rather enable the connectivity to the trusted sources of care and empower them to focus their time significantly more efficiently. You raised a really important therapeutic area which is behavioral health and unfortunately, we see a full-fledged crisis. And now in the United States that drives different types of demand, including rise in out-of-pocket DTC payments for different modalities of care with mix results. We have a clear vision on how this should play out but essentially, the method is similar to any other therapeutic area that we enable which is to take the -- to leverage the trusted providers that we know that are integrated in our normal main path of care and just allow them to be dramatically more effective. So a good example, case in point, in SilverCloud that we acquired last year. SilverCloud, as you may remember, was able in the U.K. to dramatically increase the ratio between the number of therapies and the number of patients that they can care for more than fourfold, more than 4x. And as a result, a dramatic decline in the cost per intervention. And we did that not by hiring an army of psychiatrists and psychologists but rather empowering the existing therapies to be much more effective with their time by automating a lot of tasks. That's the Amwell way in many ways. We see very strong demand for behavioral health enablement and efficiency and we definitely believe, as you rightfully guessed that this is going to be a very high demand module as Converge is being deployed this year. There are many other examples beyond the plans we have out there.

And our next question will come from Jack Wallace of Guggenheim Securities.

Just want to ask the ACV question as it relates to the guide just a little bit differently. It sounds like you don't expect many new logos this year. It's an expansion in the client base here. Within that expansion, my sense is that this is mostly upsells versus, say, intensity of use or your clients using the core platform across whether it's more facilities or more settings. Is that the case?

Not at all. I'm not sure how you got this impression, we maybe weren't clear enough. We see extraordinary demand for Converge by both existing clients and new ones. The decision to migrate is not an obvious decision. It takes time and integration, training and things of that nature. The fact that in these uncertain times, we see such strong adoption for the new platform is very encouraging. But CVS definitely was not alone as the new organization that understood the value of the Amwell, the new Amwell platform and we definitely plan to see others. The guidance is focused on revenues, not on bookings. We definitely see that as a year of significant acceleration as it relates to bookings, the recognition of which is dependent on various factors, including the macro and the pace of our customers that we need to be careful in predicting. But I would love for all of you to be with us to hear what the Converge clients are saying these days in the level of enthusiasm and encouragement and that's true not only for existing customers but definitely true also for new ones.

And our next question will come from the line of Hanna Lee with Bank of America.

This is Hanna Lee on for Allen Lutz. Just I was wondering if you can provide additional color on the composition of revenue growth for 2023. Is it primarily coming from subscriptions or visits?

We -- Hanna, thanks. We provided guidance for visit -- for the number of visits that we expect for AMG, for Amwell Medical Group. So you'll see that, that is fairly conservative relative to what we posted this past year primarily because we don't want to aggressively assume that we again see COVID spikes as well as early and severe flu in 2023. So I think we've been conservative there. And then, on the -- I guess we would expect -- I would give a little bit of guidance that we would expect that our software line item, subscription revenue would grow faster than the overall revenue growth that is assumed for the entire organization. So I think that gives you a sense as to, I guess, what's going to drive and what the components of it look like.

And our next question will come from Jailendra Singh with Truist Securities.

This is Jay [ph] on for Jailendra. I kind of want to touch upon CVS there. So it is clearly a huge implementation. So I'm wondering if you can talk about what kind of contribution is assumed in your guidance? And additionally, anything to share in terms of how the rollout has been so far? And how do you think about the opportunities this might open up to CVS on additional areas?

Sure. So as many of the participants know, we are very careful not to talk specifically about our customers. We are an enablement platform that participates in realizing important business goals for our customers and they usually like to share it when they're ready. We -- CVS already shared that we are the backdrop of the very large cost company initiatives for digital care enablement and we can't be more grateful. Our relationship with this partner is very strong and we are very optimistic about its future and its potential for expansion. I would say more generally and not necessarily about them but really true for many customers, especially the bigger ones. Usually, our business model is such that there is a start-up recurring fee for the baseline and then as more traction, more use, larger addressable audiences participate and the client throttle up, we are increasing our value and revenue capture from there. And really, there is no traction to this business model. The potential for the likes of CVS to grow within their own very large footprint already and even impact the entire ecosystem in various ways could not be overstated. However, we cannot automatically assume anything. And our guidance per design is really assuming things that we have extremely high visibility to -- there is nothing unnatural in our guidance and the visibility is only for things that we think are extremely likely to happen. Although there is enormous amount of upside that we believe in, we're just not sure exactly how it's going to play out in real timing and RevRec [ph].

And our next question will come from Eric Percher with Nephron Research.

This is Dolph on for Eric. All my questions have been asked already. But with respect to the services revenue expected to go to 10% of revenue this year. I just want to gain an understanding of how temporal in nature that is and how much continues -- would be expected to continue into next year?

Dolph, I just want to make sure I'm understanding the question. Are you asking a quarterly question or is it how much -- are you asking how the quarters lay out? I'm not sure. I'm not so sure.

I'm sorry. I think I caught that services revenue were expected to be 10% of total revenue this year. Is that -- did I hear that? Is that -- so if we think about what's driving that revenue, is that something that we would expect to continue to grow in future years or is there any kind of lumpiness to this year versus future years that we should be kind of considering?

Well, it was -- I guess, in 2022, it was more than 10%. And there was some lumpiness in that. We -- and the lumpiness really is mostly attributable to large complex custom integrations that we take on. And so pegging when those are going to happen or how often they're going to happen is difficult but that's just a component. It kind of drives up or down the percentage of revenue. The other components of it, obviously, are Carepoints which have kind of an attach rate to how we're doing on sales to or bookings to health systems. And then, there's also some marketing campaigns that we help out on for our -- for a number of our clients. Those have been a very regular component of our revenue through the years as well. So the marketing revenues and the Carepoints revenues, I expect those to continue much as they have in the past. And then the implementation type revenues, lumpy, tougher to predict very high value as they're really indicative of a good forward indicator of revenue to come but I can't really give you much beyond that.

And our final question will come from the line of David Larsen with BTIG.

It's my understanding that Converge is a very comprehensive platform. It is a full digital-first solution. That's one of the reasons why CVS selected you to be one of their key vendors going forward. I agree with that strategy. Can you maybe talk about how many sort of different kinds of modules beyond sort of pure telehealth are now part of Converge? So like is there like diabetes, cholesterol and mental health? Are there may be like 10 or 20 additional sort of digital health modules that have plugged into Converge? And then is there a higher price point depending on how many different modules your clients select? And just any color around sort of the incremental revenue contribution for those would be very helpful?

David, you're absolutely correct. There are really 2 things here to bear in mind. One is Converge is indeed a platform and it's a very open platform. And it's designed to really bring together the patients, providers, other participants around the entire spectrum and types of care that are physical, virtual and automated but also across the entire care continuum in an integrated way; so it's quite a task. Obviously, we don't expect ourselves to offer all those services nor do we think that's the right way to go at all. But rather, we are enabling the connectivity, the integration, the orchestration more than anything else. In that way, Amazon is much closer to Amwell than Epic, for example, in the way of -- in the way that we operate. Converge is very easily open to third-party, whether it's medical devices or different type of programs and so on. We don't count them anymore if they are in the hundreds of more of those packages, if you will. Many of them are made not by Amwell. They're made by the like of Sword and TytoCare and the Cleveland Clinic and really many, many other entities that want to participate in the integrated experience. The integrated experience is extremely important for our buyers. CIOs today struggle with enormous fragmentation and everybody else is suffering, including patients and providers by needing to log to multiple apps and services, these are often not connected, the source of errors and cost in customer acquisition and in other ways. As we grow, we definitely plan to include some anchor application, some services like automated vehicle health which we think are very, very important or second opinion through our JV with Cleveland Clinic is great examples and use cases for the ecosystem. But we fully expect a really limitless amount of programs and services to be offered by others. We definitely plan to monetize the value of integration, both by the impact it has on risk bears on the one hand and that's the important part but also by allowing access to different vendors and innovators that really dramatically reduce their entry point into the covered services in the audiences that our clients represent. I hope that's a little bit clear.

And that will conclude today's question-and-answer session. Ido Schoenberg, I turn the call back over to you.

Thank you very much, operator. Thank you very much, everyone. We really appreciate your support of Amwell and our journey to Converge. And we look forward to talking you -- with you again soon. Have a nice evening.

And this concludes today's conference. Folks, you may now disconnect.