Talkspace, Inc.

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Talkspace fourth quarter and full year 2022 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Janine Fyand from Talkspace.

Good morning, and welcome to Talkspace's earnings conference call for the fourth quarter and year-end 2022. I'm Janine Fyand, Director of Communications. I hope you've had the opportunity to access the press release we posted on Talkspace's IR website and the presentation of our earnings results. We'll use this presentation to walk you through today's remarks. Leading today's call are our CEO, Dr. John Cohen, and Jennifer Falk, Chief Financial Officer. Management will offer their prepared remarks and will take your questions at that point. 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, TalkBase.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 in our most recent SEC reports and today's earnings press release. For more information, please review our safe harbor disclaimer on slide two. Now I will turn it over to Dr. John Cohen.

Thanks, Janine, and welcome to Talkspace's fourth quarter and full year 2022 earnings call. Thank you all for joining us today. As this is my first full quarter earnings call since becoming CEO back in November, I want to reiterate my continued optimism about the current and future state of the business. As you will hear on this call, our positive results from the last quarter, the sustained trajectory through January, and our positive guidance for 2023 confirms my impressions on the positive future of this business. I'd like to spend a moment discussing how awareness for mental health has drastically changed in the short term and the positive tailwinds we continue to see for the industry. The federal government, multiple states, large employers, colleges, and grade schools have all announced new funding initiatives in support of mental health services. Barely a day goes by when there is not some news event highlighting the need for enhanced mental health services in the country. Talkspace was created as a technology-driven platform to address the fundamental lack of access and the significant stigma related to mental health care. The initial market growth was accelerated by the COVID-19 crisis when we saw incident rates of anxiety and depression rise significantly. Telehealth solutions were significantly accelerated by COVID, and telehealth mental health emerged quickly as an effective system to deliver mental health services. Two weeks ago, Talkspace released our early findings that text therapy was highly effective for frontline healthcare workers at the onset of the COVID-19 pandemic. Over 600 healthcare workers from major hospitals across the United States participated. We found that 56% of healthcare workers reported clinically significant improvements in their anxiety and depression symptoms with just three weeks of therapy. Our business model allows us to take advantage of the large, growing, under-penetrated addressable market. Our extremely strong brand and success from exceptional outcomes helps bring in more potential users. Our brand strength built on our experience is a fundamental part of our competitive edge in the market. Unlike our competitors, Talkspace is a pure play mental health company. We offer the full spectrum of mental health services, self-guided texting voice live video multiple subspecialties and psychiatric services in q4 very well mind conducted a comprehensive analysis of digital therapy platforms to help readers find options that suit their individual needs to serve as a starting point as to where to begin they awarded talkspace the best large service of 2022 out of 55 online therapy companies evaluated. With that, let me turn to our near-term strategic initiatives. In the past several months, we have aligned the company around our overall priority to achieve profitability while making Talkspace the platform of choice for people seeking therapy, enterprises seeking to provide their constituents access to therapy and to providers. We have developed four specific strategic objectives to focus the management team and employees to deliver on the financial plan. These objectives have a clear operational program and metrics behind them to deliver on that plan. Number one, grow our behavioral health and employee assistance plan member business. The investment of resources to establish Talkspace as an in-network provider has been substantial. and is the foundation of our competitive edge to serve the mental health care addressable market now and in the future. Let me elaborate on some aspects of this important capability. First, we are able to onboard payer lives efficiently while supporting often complex technical requirements when integrating with the payers. Second, we have established vigorous credentialing processes for our clinicians to serve as in-network providers. And third, We have built our revenue cycle capabilities, including real-time eligibility assessments and in-house claims processing to effectively bill and collect from the payers. These are critical competencies that take years to build and help establish our competitive edge in the market. Our specific goals to grow this part of the business include increasing revenue from existing covered lives, adding new covered lives, increasing sessions per day, and increasing therapist ratings. Second, our intention to build a bigger and more focused direct enterprise business solutions. More specifically, focus our sales teams on both small and large companies, universities, schools, and government entities. Our goals include improving and upgrading the talent within the organization and improving the product offerings. Along those lines, we recently hired a new Senior Vice President, Steve Smolich, who brings a wealth of experience to the HR benefits sector specifically and to lead the DTE sales organization. Recent product innovations to help reduce the friction in adoption and usage, including Talkspace SLEC solution. This is our offering for employers who want a low-cost solution to help employees gain knowledge of and appropriately utilize their behavioral health benefits from their employee assistance plans and their behavioral health plans. We help them with two products, Talkspace Engage, a product for human resource executives. Engage is an entire mental health engagement suite that helps HR professionals promote mental health awareness internally and drive employee utilization. It does this via a step-by-step monthly awareness plan to prop their people to take action. A huge selection of live and on-demand therapy workshops and downloadable worksheets with mental health exercises. Next is the Talkspace Self-Guided, a product for the employees. Talkspace Self-Guided is one of the most popular self-guided wellness apps in the market. It provides users with daily reflections, a huge selection of self-guided sessions on topics like burnout, depression, parenting, substance abuse, et cetera, and five live workshops every week, each led by licensed clinicians. Third of our major objectives is to continue to be the platform of choice for providers with the specific goals of increasing the network hours work, improving NPS score, and decreasing monthly churn. Talkspace has thousands of licensed providers across all 50 states. Each of them have a master's degree or higher and have, on average, nine years of experience. And, of course, each is required to pass a thorough screening and onboarding process. For the fourth quarter, we continued to grow our provider network, increasing the total number of providers 11% quarter over quarter. Utilization and productivity from our full-time therapists trended positively as we saw an 11% increase in their billable hours quarter over quarter. Provider retention rates improved as well, as monthly churn has approximately halved in the fourth quarter, versus the prior period. And finally, under the last bucket, we significantly improved our time-to-access metrics with average match times declining by more than 50% in Q4 versus Q3. Fourth objective is, as Jennifer will dive more deeply into, we will continue to work on achieving operational and compliance excellence, which entails focusing more on our cost structure, collection rates, and compliance. As we have previously said, our focus on driving down operating expenditures includes labor cost efficiencies, optimizing market spend for revenue and profit growth, vendor contract renegotiation, sales force productivity, network productivity, and streamlining corporate spend. Going forward, we will continue to adopt a disciplined approach to spending, leveraging the scalable nature of our fixed cost basis, which enables growth at lower cost. And now let me turn to the full 2022 financial highlights, which the results demonstrates that we are delivering on the strategic priorities and business transformation. Beginning with revenue, year-over-year revenue grew 5%. Total B2B revenue, which includes both member payer, which is the Employee Assistance Program and Behavioral Health, and direct-to-employer or enterprise, increased 66% year-over-year, while consumer revenues decreased 26% during the same period. For the year, we grew our covered lives by 33% to 92 million covered lives. B2B payer sessions volume grew 56%, and we grew the B2B DTE account base over 43%. Of note, we ended the year with B2B revenue representing more than half of the company's revenue for the year, an inflection point that started in the third quarter and widened in this quarter's results. So now let me turn to the fourth quarter results. In the fourth quarter of 2022, revenue for B2B, which includes payer, the EAP, and behavioral health, and the direct-to-employer, increased 52% over the same period fourth quarter for 2021, a year ago, and 15% sequentially. In the fourth quarter, we added an additional 6 million new covered lives while also launching another national health behavioral payer. We continue to experience meaningful growth in sessions in the fourth quarter compared to the fourth quarter of last year as well as over the previous quarter. It is important to note that we achieved these strong results in what is traditionally a slower quarter due to seasonality, which includes the therapists going on holiday or decreasing their work hours and users skipping their sessions over the holidays. From a profitability standpoint, you can see the tremendous work the team has achieved in reducing our adjusted EBITDA loss in the fourth quarter as compared to the same period a year ago on the back of our focus on reducing operating expenses that were not driving revenue growth or efficiencies in the business. Jennifer will expand more on our financial results on her section, but I want to note our commitment that we will remain very disciplined in our spending with a focus on efficiency and funding, only our highest priority investments. And with that, let's turn to our guidance. With the disciplined and focused plan we have put in place to deliver on our fiscal 2023 goals, we are providing the following break-even guidance. We will be within a range of $125 to $135 million in revenue with a minus $32 to minus $28 million in adjusted EBITDA loss for the full year of 2023. These guideposts will help mark our progress on the way to break-even adjusted EBITDA with a cash balance of at least $95 million by the end of the first half of 2024. Note that this targeted approach to cash preservation while on our path to profitability provides us with sufficient room for additional strategic initiatives. I will now turn the call over to Jennifer for a more detailed discussion on results and outlook.