Talkspace, Inc. (NASDAQ:TALK) Q1 2024 Earnings Call Transcript May 7, 2024
Talkspace, Inc. beats earnings expectations. Reported EPS is $-0.00224, expectations were $-0.02. TALK isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Benjamin, and I will be your conference operator today. At this time, I’d like to welcome everyone to Talkspace First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Jeannine Feyen, Director of Communications. Please go ahead.
Jeannine Feyen: Good morning, and welcome to Talkspace’s earnings conference call for the first quarter of 2024. I hope you’ve had the opportunity to access the press release be posted on Talkspace’s IR website and the presentation of our earnings results. We’ll use the presentation to walk you through today’s remarks. Leading today’s call are our CEO, Dr. Jon Cohen; and our CFO, Jennifer Fulk. Management will offer their prepared remarks, and we’ll then take your questions. Certain measures we’ll discuss on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of one-off items. Reconciliations of these non-GAAP measures are included in our earnings release and on our website, talkspace.com.
I also want to remind you that we will be discussing forward-looking information today, which may include forecasts, targets and other statements regarding our plans, goals, strategic priorities and anticipated financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. Important factors that may affect our future results are described on our most recent SEC reports and today’s earnings press release. For more information, please review our safe harbor disclaimer on Slide 2. Now I will turn it over to Dr. Jon Cohen.
Jon Cohen: Thanks, Jeannine, and thank you all for joining us today. We began 2024 with another strong set of results, driven by continued execution across the business. This quarter, we delivered revenue of $45.4 million, up 36% year-over-year and an adjusted EBITDA of $800,000, which marks our first quarter of profitability in the 13-year history of the company. This is a testament to the focus and dedication of our team. The continued momentum in our top line and our continuous rigorous focus on our cost structure provide a strong base to build upon, and we are confident in our ability to maintain profitable growth going forward. Let me cover our progress in the first quarter by strategic priority. First, in our payer category, revenue grew 92% year-over-year.
This growth is the result of our focused efforts to expand our covered lives, increase capture rates and increased utilization. Our expansion into Anthem commercial lives, which we announced last November, contributed to our strong revenue growth in the quarter and is progressing as expected. We also continue to see favorable member acquisition metrics from our marketing investments and our product work to enhance both capture rate and utilization. In addition, we have entered into strategic conversations with other payers regarding value-based arrangements. The Talkspace platform was built to continuously improve quality and increase efficacy in the delivery of mental healthcare, our ability to measure these parameters and report them as a competitive advantage as we discuss value-based arrangements.
Medicare, as we mentioned, is a significant opportunity with 65 million lives. We expect to go live in multiple states later this month within traditional Medicare, representing more than 10 million lives at launch. The reception from payers has been very positive, and we are in advanced discussions to expand within their Medicare Advantage networks. We continue to expect to be in network with Medicare in all 50 states by the end of the year, further cementing our position as the behavioral health company with the most covered lives across the United States. With Medicare, we will continue to lead as the platform advancing affordable behavioral healthcare. We’ve also expanded our brand and referral partnerships significantly in 2024. Notable collaborations include our new partnership with 30 Madison, a specialty telemedicine company operating [indiscernible] and NRx and an expansion of our provider directories on ZocDoc and health grades.
Additionally, we launched our health collective marketplace, offering members access to a comprehensive and growing suite of whole health digital providers and services. This platform will provide members with clinically vetted and curated resources and member benefits across the entire health spectrum with the goal of expanding accessibility to high-quality and holistic care. Some of those first partners include Aura, Evernow, Conceive and Fit On. Moving to direct to enterprise. We are encouraged by the early progress of our offering in New York City and Baltimore launched in Q4. Results on the first months around engagement and effectiveness indicate that we are reaching diverse populations as well as previously underserved communities. Many thousands of kids have already received help from their Talkspace therapists, and we know that our suicide risk alerts are working as intended.
We also know of several occurrences where therapist intervention for teens in crisis has made a dramatic impact on their lives. We are very proud of the impact we are already having on these students. These two partnerships, the first of their kind, exemplify our commitment to addressing the teen mental health crisis. We believe providing teams with access to quality care through a platform that meets them where they are will drive better outcomes for all. The reception and inbound interest we have received from other public health entities as a result of these initiatives has been high. On the employer side of our DTE category, while we did have a number of renewals and new wins in Q1, we also experienced headwinds with respect to account attrition.
This was in part due to businesses continuing to review their budgets in the current inflationary environment as well as an increased competition. We believe our ability to demonstrate value for employers is a meaningful differentiator. And last month, we released our ROI calculator aimed at doing just that. This independently validated tool provides enterprises with the ability to measure the impact of offering virtual mental health services and validates potential enterprise savings in 3 areas: medical savings, time savings with respect to employee commute and absenteeism savings related to the number of workdays missed by employees due to depression. We are also investing in new technology and digital capabilities to further enhance the offerings and features of our platform for the DTE category, specifically focused on the teens market.
I’d like to call out that our platform remains attractive to partners for their members because of the comprehensive nature including psychiatry and therapy across all stages of life, including teens, couples, soon to be seniors, with multiple modalities, leading with text-based therapy and live video and audio so that their members can use Talkspace from anywhere, anytime for any need that comes up. We are excited about our growing DTE pipeline, particularly when it comes to the teens vertical and look forward to sharing more throughout the year. Moving to our provider network. We continue to build out our network of providers and ended the quarter with over 5,600 therapists, up 6% sequentially. We continue to see strong demand to join the Talkspace network and believe this is a testament to the investments we continue to make in our platform to enhance the provider experience and deliver exceptional clinical outcomes.
These outcomes were recently highlighted in a study published in the Journal of the American Medical Association. Using machine learning, researchers from Talkspace and licensed analyzed more than 20 million de-identified messages between therapists and their clients to find that more supportive, empathetic and warm the therapist was, the stronger the patient’s outcomes and the higher the satisfaction with therapy overall. This supports what we know, that the higher the quality of the relationship with the provider, the better the members’ experience and outcomes. We also continue to focus on the innovation of our platform for the benefit of both our members and providers. During the quarter, we launched an AI capability that generates a comprehensive, succinct summary for the provider, a smart note, which reduces the administrative burden on clinicians.
The initial response from our providers has been exceptionally positive, and we estimate that it is eliminating for our full-time providers up to 4 hours per week of administrative work, optimizing the time they could spend on therapy with members. The AI team is working on multiple other features to improve the therapist workflow and enhance our ability to deliver better clinical care. While we are committed to continuing to invest in new tools such as these, we will, of course, do so in a clinically led, responsible and secure manner that protects the privacy and data integrity of our members. Investments such as these not only expand provider productivity, but also improve the member experience and are emblematic of our commitment to innovation and operational excellence.
In addition to these new AI initiatives, we will continue to make technology enhancements supporting payer captur rate and utilization and investment in DTE digital capabilities to increase the value proposition of Talkspace’s offerings. Before I turn the call over to Jennifer, I’d like to note that May is Mental Health Awareness Month, and we join others across the industry to underscore the importance of self-care and making quality mental healthcare more accessible. This month, we have unveiled a new brand identity on our corporate and investor websites. Our new brand is a bold, design-forward look and feel that captures the company’s core beliefs that therapy and mental health support should be a routine positive part of anyone’s life and that everyone deserves access to high-quality mental health services.
It is my belief that complete health is both physical health and mental health. As everyone should have access to a primary care physician, everyone should have access to a mental health therapist. You will see that our Mental Health Awareness Month campaign encourages people to talk it out through therapy. The campaign features our own members telling their stories of the pivotal and profound insights they gained while working with their Talkspace therapists. You will also see our new TV spot, teaching the relationship with the therapist and member and highlighting a key differentiator for us, which is that our therapists have, on average, over 10 years’ experience. With that, I’ll turn the call over to Jennifer.
Jennifer Fulk: Thank you, Jon, and good morning, everyone. We are pleased with our first quarter 2024 results, which reflect continued strengthening of financial performance as the result of execution across our company priorities. My comments today will be based primarily on the first quarter results on a year-over-year basis, unless otherwise noted. I will cover highlights from our financial results and then give more details on our outlook. Total revenue for the first quarter was $45.4 million, a 36% increase from a year ago. Adjusted EBITDA was approximately $800,000 in the first quarter, marking our first quarter of profitability on this basis. Moving to results by category. Payer revenue was $28.5 million, a 92% increase versus the prior year period.
Payer sessions completed by behavioral health and EAP members grew 14% sequentially and 65% year-over-year to 284,000. And unique payer members completing sessions grew sequentially by 9% and year-over-year by 39% to 86,000. As Jon previously highlighted, the first quarter benefited significantly from the December launch of the 18 million incremental covered commercial lives. In addition, compared to the same period last year, there was an 11% growth in the same basis capture rate and a 19% improvement in the utilization of sessions per member. These gains were primarily driven by continued upper funnel marketing and media optimization as well as enhancements across the product. In the direct-to-enterprise category, first quarter revenue was $9.9 million, up 14% from last year and 11% sequentially, primarily due to progress in our recent team launches last quarter.
As Jon noted, these new launches were partially offset by attrition of legacy accounts. In the consumer category where members pay out of pocket, revenue was $7 million for the first quarter. This was a 14% sequential decline and a 29% year-over-year decrease. The decline primarily stemmed from the substantial increase in covered lives during the fourth quarter, which will have more members to qualify for coverage, thereby reducing their need to pay out of pocket. While this shift has impacted consumer category revenues, it aligns with our strategic focus on increasing coverage, drives higher conversion rates and creates greater long-term value from payer members. Moving to gross profit. Our first quarter gross profit increased 30% versus the prior year to $21.7 million.
Gross margin for the first quarter was 47.8%, lower than last year as expected due to further net revenue mix shift towards the payer category, which has lower gross margins than DTE and consumer categories. Turning to operating expenses. Our GAAP operating expenses for the first quarter were reduced 9% year-over-year to $23.4 million. Excluding stock-based compensation, our Q1 expenses amounted to approximately $21.2 million, reflecting a reduction of $2.3 million compared to the same period last year. Over the past several quarters, we’ve made significant strides in optimizing our cost structure. This includes enhancing organizational efficiencies across all departments, which has improved our operational agility and reduced overhead costs.
Additionally, we have strategically invested in our marketing initiatives to align with our growth objectives, focusing on high ROI activities that enhance brand visibility and member acquisition. We have also invested in scaling our platform capabilities, enhancing its robustness and scalability to better accommodate growth and expand our service offerings efficiently. These improvements reflect our ongoing commitment to fostering a lean and responsive operational framework, supporting sustained growth and operational excellence. Moving to profitability. GAAP net loss was $1.5 million, a $7.3 million improvement versus the same period a year ago. Adjusted EBITDA was $800,000, an improvement of $7.2 million year-over-year. Adjusted EBITDA in the first quarter did benefit from a few immaterial non-operating accounting items.
However, excluding these items, we would still have achieved a positive adjusted EBITDA in the quarter. Turning to the balance sheet. We had $120 million in cash and cash equivalents at the end of the first quarter, down $3.6 million sequentially from Q4 and driven primarily by the payment of corporate employee bonuses from 2023. Finally, we remain confident in the financial guidance we established during our fourth quarter commentary and continue to expect revenue between $185 million and $195 million and adjusted EBITDA between $4 million and $8 million for the full year. We remain enthusiastic for our payer business as we continue to bring on more covered lives through both commercial plans, government and Medicare. And in DTE, we are encouraged by the ongoing value of our employer pipeline and our potential to expand within the teens vertical, supported by the early positive impact from our initiatives in New York and Baltimore.
The timing of converting and implementing these prospects to revenue-generating clients remains quite variable quarter-to-quarter, and as a result, we now expect adjusted EBITDA to be more heavily weighted towards the second half of the year. To summarize, today’s, discussion reinforces our enthusiasm for the strategic direction of both our payer and DTE categories. The growing demand for affordable, accessible and high-quality mental healthcare, coupled with the significant operational advancements we’ve achieved in recent quarters bolsters our confidence in the long-term profitability and sustainability of our business. With that, we will open the call for questions.
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