Talkspace, Inc.

We welcome everyone to the Talkspace second quarter 2024 earnings conference call. 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 star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star one again. Thank you. I would like to turn the call over to Janine Fine, Director of Communications. Please go ahead.

Good morning and welcome to TalkBase's earnings conference call for the second quarter of 2024. I hope you've had the opportunity to access the press release we posted on TalkBase'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. John Cohen, and our CFO, Ian Harris. Management will offer their prepared remarks, and we 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 one-off items. Reconciliations of these non-GAAP measures are included in our earnings relief 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 planned goals and 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. Good morning, everyone, and thank you for joining us for our second quarter 2024 call. We are pleased to report that Talkspace has achieved another strong quarter of results, reflecting continued execution across the business. Before I get into the results, I want to reiterate some of the data we recently released on the new normalization survey we reported on last week. This survey of over 3,000 current, former, and prospective clients of telehealth mental health services found that 85% of people are more open to therapy than they were five years ago. Gen Z and 65-year-olds and older respondents cite loneliness as a top concern for seeking therapy. 99% believe that it should be covered by insurance and that mental health is the number one benefit they want from their employer. This data confirms and supports our continued optimism about the future of the business. Now, turning to results. During the quarter, revenue increased 29% year-over-year to $46.1 million, and we delivered our second consecutive profitable quarter with adjusted EBITDA coming in at $1.2 million. Strong year-over-year top-line growth reflects both the significant demand for behavioral health care as well as the power of the Talkspace brand and our ability to drive new members to use the Talkspace platform. Our continued cost discipline and the benefits of scale are highlighting the operating leverage inherent in the business, which is reflected in our adjusted EBITDA progress. Let me cover our results in the second quarter by revenue category. First, our payer revenue grew 62% year-over-year thanks to our strategic relationships with the payers. This annual growth is a result of several factors. First, our continued expansion of covered lives, which grew from $131 million to $145 million by quarter end. This was the result of adding the first batch of nearly 14 million people with standard Medicare coverage in 12 states. Talkspace launched a dedicated Medicare website where members can quickly check their coverage or get on the list to be notified when care becomes available in their state. We are on track towards our goal of having all 50 states live with Medicare coverage by the year end, in addition to adding several large Medicare Advantage plans, the first of which will launch in Q4. Relative to new payer contracts, we just announced yesterday that we went live with 6 million active military lives through TRICARE with Humana Military, including active duty and retired military personnel, as well as their partners and 13-year-olds and up dependents. Looking forward, we anticipate adding several new blues plans and regional plans by the year end. We expect that within the next 12 months, Nearly 200 million people, almost two-thirds of the American public, will have access to Talkspace through their health insurance. Second, understanding that our biggest opportunity for growth remains increasing capture rates and utilization for the 145 million and growing lives I just discussed, we continue to focus on our product improvement initiatives to motivate members to use and stay engaged on the platform. We are focused on enhancing the patient journey by making improvements to the intake process, therapist matching, and more. Some specific examples include the ability to show real-time member copays, making it easier for people to update to their behavioral health coverage, and developing new navigation features in the therapy room to make it easier to book a next session. Third, optimizing our focused marketing efforts specifically designated to improve capture rates and drive utilization by ensuring that people are aware that care is available through their insurance benefits. The average out-of-pocket cost for those in-network is $15 per session. 60% of members pay $0 and 80% pay $25 or less. Fourth, Our strong payer results were also driven by further developing our relationships to bring referrals to Talkspace. In Q2, we announced a number of strategic partnerships, like our previously announced Women's Health Coalition, that further strengthened Talkspace's brand reach and recognition, which in turn enables us to acquire members cost-effectively. We will continue to announce new partnerships to build this network and drive even stronger awareness of Talkspace as an affordable option. In fact, based on Qualtrics' third-party survey data, the brand awareness of Talkspace increased this quarter to over 30%, a 7% increase versus a year ago, despite less core member media spend, partly as a result of this strategy. It is important to note that a significant differentiator for us in the market is our focus on the quality of care a therapist delivers. Compared to a directory or marketplace of providers, we measure the quality of service, the clinical impact, productivity, clinical experience, and clinical documentation for each provider. We find that this value proposition is resonating with payers as they are less concerned with just securing access to care and more interested in the quality of care. The infrastructure we have built around the clinical network gives us the opportunity to participate in value-based contracts, the obvious direction for most payer-provider relationships moving forward. Moving to our direct-to-enterprise segment, we grew revenue in the quarter 20% year-over-year to $9.6 million, driven by our team's initiatives, including New York City. We announced the early successful results of the New York City Teen Space Program, which now has over 13,000 teens using the service. These results demonstrate that we are reaching teens where they are, on their phones, with 90% using asynchronous messaging therapy. We are also engaging teens that live in diverse and underserved communities that have traditionally been difficult to reach and frequently have less access to affordable care. Finally, we are particularly proud that our therapists, in conjunction with our suicide ideation algorithm, have now identified and intervened in over 180 high-risk student cases. We are continuing to invest in new product features for this population based on feedback we have received from teens, parents, and customers to date. We continue to see a strong pipeline in this segment, driven by our continued focus on the mental health crisis impacting on our youth, and we are encouraged by the demand we see for our key solutions across multiple states, cities, and school districts. We have had recent notable wins with several independent schools as well as another public school district in upstate New York. In the employer vertical, we executed a number of key renewals in the quarter, secured several new client wins, and began testing our new self-serve portal where small business clients can make talk space benefits available to their employees. Our discussions with employer clients have been encouraging, and we expect to share more exciting additions as the year progresses. In addition, we have made significant progress with the broker community, successfully demonstrating our value proposition as it relates to their end clients. Our sales team remains focused on converting our strong pipeline of employer opportunities. Our new wins in the quarter demonstrate the diversity of our pipeline and the team's ability to drive wins across various business types and geographies. Moving to our provider network, we ended the quarter with over 5,700 therapists, up 2% sequentially and 34% year-over-year. We have intentionally slowed the growth of our network in recent quarters, which reflects the success of our initiatives to improve therapist efficiency. while at the same time improving our metrics around the patient's time to access care, all against the backdrop of growing patient demand. BoxBase continues to be a platform of choice for therapists, which is a result of the investments we have made in our provider experience and our overall product quality. For example, our AI Innovation Group will bring to market product features in close partnership with our clinical team, including our new, secure, caption, and translation technology, which allows Talkspace providers and clients to choose to see real-time closed captions during live sessions conducted on our app. At the request of our providers, we have also expanded our AI Smart Notes feature, which helps to reduce the administrative burden of providers and allows us to focus more time on providing care. AI Smart Notes is now live with all providers for both live and texting sessions. In the quarter, Our full-time therapists were the most productive in Talkspace's history relative to the number of billable hours per week, thanks in part to the investments we've made in efficiency tools like the AI SmartNote. In closing, I want to reiterate our unique position in the marketplace, reflected in our sustained momentum over the last six quarters. Our comprehensive service offerings and modalities are built to serve all demographics from teens to seniors. Enhanced by innovation, we believe our capabilities continue to set industry standards validated time and again through our peer-reviewed research. In July, the Psychiatric Services Journal published the results of a trial delivering 12 weeks of asynchronous therapy to Talkspace members with diagnosed depression. Results of this trial, which was funded by the National Institutes of Mental Health, suggest, and I quote, psychotherapy delivered via text messages may be a viable alternative to face-to-face or live video delivery and allow for more immediate on-demand care." This quarter's results underscore our commitment to our mission of expanding mental health access to all. Lastly, I want to extend a warm welcome to two new senior executives who joined Talkspace in the second quarter. Ian Harris joined as our Chief Financial Officer in May. He was previously a partner at Hudson Executive Capital, where he led the firm's investments in healthcare, technology, and fintech. And John Mooney joined Talkspace as Chief Product Officer in June, following senior leadership positions at Neogenomics Laboratories, Bioreference Health, and Care Evolved. With that, I'll turn the call over to Ian to review our second quarter results.