Talkspace, Inc.

Good day everyone and welcome to the Talkspace first quarter 2023 earnings conference call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks will be a question and answer session and if you would like to ask a question during this time simply press star 1 on your telephone keypad. I would now like to turn the conference over to Janine Fine. Please go ahead.

Good evening and welcome to Talkspace's earnings conference call for the first quarter of 2023. I'm Janine Fine, 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 Folk, Chief Financial Officer. Management will offer their prepared remarks and will 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 1F items. Reconciliations of these non-GAAP measures are included in our earnings release and on our website, topspace.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 thank you all for joining us today. Before I begin with the highlights of the quarter, I would like to start with a reminder of the importance of our mission to provide access to high-quality, affordable mental health care at scale. We are very encouraged by the increasing focus we see every day by multiple constituency groups across the nation on the need for more mental health care access, and we are privileged to continue to be a major player to help improve our country's mental health fitness. As you may know, May is Mental Health Awareness Month. To highlight the importance of our society's mental health, Talkspace launched a campaign featuring our own members sharing personal stories of how therapy has helped them and published a comprehensive mental health conditions library with vetted, therapist-authored articles that is now available to all visitors on our website. Let me now turn to the quarter's highlights. We began the year with a very strong set of results, driven by solid execution across the business, and we made meaningful progress against our four strategic priorities. Consolidated revenue grew 11% year over year to $33.3 million, or 10% versus Q4. driven by a significant acceleration in our payer business, which registered a meaningful increase in sessions driven by higher capture rates, which represents the number of active members as a percentage of covered lives. The increased sessions are driven by multiple factors, including a significant increase in the number of covered lives, an increase in awareness that people can access therapy through Talkspace at little or no out-of-pocket cost, and and increase in utilization of the service as we continue to make modifications of the product that make it easier for patients to use the service. At the same time, we further reduced our quarterly operating expenses by almost another $2 million. This resulted in a significant improvement in our forecasted adjusted EBITDA for the year and an acceleration of our guidance to break even, as I will discuss shortly. Let me dive into the significant progress we continue to make on our strategic initiatives driven by our commitment to the OKR operational process that I laid out last quarter that focuses on delivering results. Our first priority is to drive payer revenue growth. We are pursuing this by expanding the number of active members who are covered by their behavioral health benefits and their employee assistance plans and by focusing our efforts to make people aware of these benefits. Payer revenue was $14.8 million in the first quarter, up 39% sequentially versus Q4, and up 83% year over year. This is driven primarily by an increase in session volumes, which were up 34% sequentially from 128,000 to 172,000, and up 90% year over year. We are thrilled to have added approximately 20 million covered lives year to date, including 5 million additional lives in the first quarter from expanding our Optum EAP relationship and recently becoming an in-network provider for a new large national payer for all of their behavioral commercial book of business, which is another approximately 14 million lives. This brings the total of Talkspace covered lives to 112 million people, representing growth of 35 million lives since Q1 2022, up nearly 50%. In addition to adding lives, our marketing efforts and product improvements meaningfully increased our capture rate in the first quarter by 26% sequentially and over 60% year over year. For the remainder of the year, we have line of sight for many more additional lives to be added and an active pipeline with several other national and local payers for additional lives as we expect to expand access to an even broader portion of the U.S. population, including underserved communities. We have become highly efficient at adding lives and have been able to accelerate our pace of implementation as new contracts are signed. The size and scope of our payer network is providing us with the opportunity to develop new partnerships with other healthcare provider networks that are looking to add mental health services with payer coverage, such as primary care physicians and large healthcare systems. Our second strategic initiative is to grow our direct-to-enterprise business. Our DTE business was up 53% year-over-year to $8.7 million and flat sequentially as new customer wins were offset by attrition in legacy accounts. One of my biggest objectives when I first arrived was to rebuild a vigorous and experienced DTE team to continue to aggressively pursue this part of the business. I am happy to announce that we added five new folks this quarter, including several seasoned sales executives and someone devoted to the broker consultant channel, which we did not have recently. We will continue to reinvest some of our SG&A savings in this business to grow the top line. This is very much a work in progress. However, our pipeline of new business remains very strong and continues to grow. This quarter, we launched Talkspace Engage, a mental health engagement suite that helps HR professionals promote mental health awareness internally and drive therapy utilization. We are also continuing to evolve our self-guided library, through the addition of new classes and workshops in response to our customers' feedback. Our third strategic initiative is to be the platform of choice for providers. Year to date, we have grown our provider network by approximately 800 therapists, a 26% increase since the beginning of the year. Moreover, We continue to experience incremental gains in productivity as average billable hours for our full-time clinicians have increased by approximately 20% sequentially from Q4. Of course, we remain extremely focused on clinical quality and access metrics. Notably, despite the significant increase in volumes in Q1, our average therapist time to match remained under 10 hours. The investments we have made in our network are paying off. The changes we have implemented to enhance the provider experience, both in terms of training and support we provide, as well as product enhancements, are resonating in the therapist community and strengthening our brand. We have made progress on provider satisfaction and retention, reducing provider churn by nearly half in the last two quarters. Anecdotally, we are starting to receive more inbounds from therapists who want to join our network, and we have also introduced referral programs. Our fourth initiative is to continue to achieve profitable growth by driving operational excellence. The team has made substantial progress in driving cost efficiency, shrinking our adjusted cost base by 31% year over year, while revenues were up 11% in the same period of time. As a result, we were able to narrow our adjusted EBITDA loss to $6.4 million, down 65% year over year. The work to optimize the business platform allowed us to streamline across our entire business and further reduce our labor, media, and vendor costs. I want to mention two of our other business categories. In the consumer category, we observed the lowest pace of revenue decline since we started optimizing our media spend in the second quarter of last year. Despite a 6% further reduction in advertising spend in the first quarter, Our active consumer base has remained nearly flat since December, a notable improvement versus the 14% consumer user decline registered in the fourth quarter of 2022. Our product enhancements and more targeted marketing efforts have led to a 13% improvement in user retention in the first quarter. We believe these initiatives will result in the next few quarters in the continued stabilization of our consumer category. Additionally, we have a fast-growing psychiatric business for medication management, which has significant synergies with our core therapy business. This includes over 230 licensed nurse practitioners and physician providers. We do not prescribe controlled substances and mostly prescribe medication for anxiety and depression. 25% of the U.S. population are taking prescription medications for their mental health and the average time to see a psychiatrist is one to three months. 50% of the U.S. counties have no psychiatrists. Although the majority of our referrals come from the outside of our network, we have begun to develop a process through our large therapist network of about 4,000 therapists to refer to our psychiatry providers for further psychiatric evaluation and prescriptions when necessary. The integration of these two businesses provides a comprehensive suite of services when needed, and we see the psychiatry market as a significant opportunity to grow our business. The result of our strong progress to date has led us to upwardly revise our guidance. For 2023, we now believe we will achieve total revenue in the range of $130 to $135 million up from $125 to $135 million, while narrowing the adjusted EBITDA loss range to $21 to $24 million for the year, as compared to the prior guidance of $28 to $32 million for the year. Based on this, we now believe we will achieve break-even adjusted EBITDA by the end of the first quarter of 2024. a quarter earlier than we had initially expected, with over $95 million in cash on hand at the time of breakeven. While continuing with the urgency of our path to breakeven, we are also actively working on a long-range strategic plan, which includes growth initiatives to further expand our leadership position in the rapidly growing mental health care space. Given the significant cash position, we will have flexibility to seek compelling investment opportunities to continue to build our business and deliver on our mission. Last quarter, I discussed how mental health has entered the mainstream as no longer a nice-to-have, but finally is recognized as an integral part of any healthcare delivery model. We are facing the greatest mental health crisis in history and are witnessing a seismic shift in the way the government, employers, and payers are prioritizing the need for mental health services. However, there remains a scarcity of available resources to meet increased levels of demand through traditional delivery models. Talkspace solves this problem with a scalable, accessible, and affordable model. Our proven testing platform makes therapy available within hours and live video available within seven days compared to wait times of weeks with other players. Talkspace has always been at the forefront of this revolution and we remain committed to advancing our collective mental health solutions, improving our existing products, and creating new products and services to better serve our customers. We believe that mental fitness should be a preventative habit in everyday lives as opposed to being a remedial intervention after a crisis. To conclude, We have made great progress during the first quarter of 2023, building on our strong momentum we established in 2022. Our strategy to shift the business to a B2B enterprise with member growth predominantly through a payer model continues to gain significant traction. With 112 million covered lives, we believe we have the largest payer network for telehealth mental health services in the country. With that, I'll turn the call over to Jennifer to run through the financials. Jennifer.