Talkspace, Inc.

and then take your questions. KEEF Technology Officer Gil Margolin will join for the Q&A and Q&A session of today's call. Certain measures that will be discussed on today's call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of one-off items. Reconciliation of the non-GAAP measures are included in the earnings release and on the website, Talkspace.com. As a reminder, the company will be discussing forward-looking information today, which may include forecasts, targets, and other statements regarding plans, goals, strategic priorities, and anticipated financial results. While these statements are represented are the company's best current judgment about future results and performance as of today, actual results are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Important factors that may affect future results are described on Talkspace's most recent SEC reports and today's earnings press release. For more information, please review the Safe Harbor Disclaimer on slide two. Now I will turn the call over to Dr. John Cohen.

Good morning, and thank you for joining the call today to review our second quarter results. We made meaningful progress on several initiatives across the business and added a number of new wins and renewals in the quarter. As I've mentioned before, nearly two-thirds of the American population now have access to Talkspace through their healthcare insurance at no or minimal cost. Recently, we further broadened our reach with the launch of several additional large blues plans to include Texas, Illinois, and Idaho, adding another 16 million covered lives. With so many people now having access, our 2025 priorities have been oriented around bringing more of them to Talkspace and keeping them on the platform. Our strategy in the first half of the year was to increase our marketing efforts as well as to make meaningful investments in our product to achieve that goal. This includes major improvements across the member journey, from increasing eligibility and checkout rates to optimizing therapist matching, streamlining booking and scheduling, strengthening retention between sessions, and enhancing care quality by keeping members actively engaged in their therapeutic journey. As a result of our actions, we saw positive momentum from these investments during the quarter. Unique active payer members grew 10% sequentially, an increase of approximately 10,000 members from Q1. The largest quarterly increase we've seen in two years and an increase of 25% year over year. Building on the momentum in the last few quarters, payer sessions also benefited, increasing 10% sequentially and 29% year over year. We view the strength in these KPIs as indicators of positive momentum heading into the back half of 2025. Earlier this year, we announced that we are live in all 50 states for traditional Medicare, and we continue to be added in network across more Medicare Advantage plans. As with any new demographic, we are being prudent in navigating how to best engage this new population early on, but are seeing the results of our efforts as Medicare registrations continue to grow month over month. On our last call, we also discussed that we had rolled out additional military coverage with the launch of TriCare West. We remain focused on bringing talk space to as many active duty military members and their families as possible, and are pleased with how this population is adopting talk space. Our targeted approach to expanding these military communities has so far proven successful and cost effective. Given the importance of community for military families, we have taken a more localized approach to marketing. We've expanded our digital community grassroots efforts on the ground by working with organizations in areas with high base concentration. Our success in delivering therapy to this population is reaffirmed with our renewal of our separate direct to enterprise contract with the US Navy, delivering services to six naval bases around the country. Our pipeline for direct to enterprise clients remains strong with a number of contracts working their way through, as well as several new wins and renewals, including injury RX, a large personal injury telemedicine platform. On the traditional employer side, new opportunities have taken longer to close in the first half of the year than anticipated, but we experienced a particularly strong quarter for mid-market renewals, which outperformed our expectations. The mental health crisis for youth remains a national challenge and is still a top priority for schools and state and local governments, which is reflected in our robust pipeline. We continue to make progress in this segment. Most recently adding the University of Alaska at Anchorage, Catochee Valley Community College, and the state of North Carolina, each of which will launch in Q3. Our relationship with North Carolina will be to serve as many as 20,000 youth impacted by the legal system, including teens who may have personally been detained or court involved, teens who have experienced living with victims of crime, or who are otherwise identified as at risk, such as those with incarcerated family members. With these numerous recent launches and a promising pipeline of opportunities, we expect to see direct to enterprise grow in Q3 and Q4. As part of our efforts to actively leverage multiple channels to raise awareness and drive members to our solution, we built on our existing partnerships and launched several new ones in a quarter. Specifically, we deepened our relationship with Amazon by launching our integration with Amazon Pharmacy. Now, members can seamlessly fulfill prescriptions from their Talkspace provider through Amazon Pharmacy and get fast, free home delivery, making the process more convenient for the patient and streamlining medication management and adherence support for providers. Also, in July, we announced a new partnership with TIA Health, a women's health company focused on providing integrated, personalized care, establishing Talkspace as TIA's primary therapy partner, whereby we provide integrated mental health care that supports women across all stages of life. Talkspace will be working closely with TIA's primary care providers to ensure seamless and comprehensive care that addresses both physical and mental wellness. This new relationship represents Talkspace's continued expansion into the women's health space, along with our OVF Health collaboration and our existing EverNow partnership. We look forward to continuing to identify like-minded partners focused on the shared mission of enhancing patients' mental health wellness along with physical wellness. This approach allows us to benefit from the overlapping audience to drive awareness and also cross referrals for the continuity of care. Turning now to an update on our many innovations centered around AI. This year, we made meaningful investments in AI across the business, rolling out a number of tools and initiatives aimed at making the therapy journey stickier and supporting our providers and our mission to deliver the highest quality of care to our members. Since the March launch of TalkCast, which is the AI-powered program that generates personalized podcasts for patients, allowing them to reflect on topics they discussed in sessions with their therapists, we are seeing a positive impact. When a member opens a TalkCast episode after their first session, they are 14% more likely to complete a second session and 29% more likely to complete a third. These podcasts keep patients more engaged between sessions, helping them to better understand their therapy learnings. On the provider side, our use of AI continues to drive efficiency gains for our therapists. This quarter, we launched AI-powered Smart Evaluation, a tool that automatically generates high-quality intake documentation for first sessions. This saves providers 10 to 15 minutes of manual documentation and allows them to focus on what is most important, building a relationship with the patient in front of them. In partnership with the AWS Generative AI Innovation Center, we are developing a foundational safety and quality model to analyze therapy sessions for both clinical quality and clinical risk. We've long maintained high clinical quality standards and by integrating this AI with our proprietary risk algorithms, we can now scale those standards even further, adding new capabilities and efficiencies that were previously out of reach. This enables us to deliver consistent, high-quality care at greater scale while continuing to prioritize safety, outcomes, and patient experience. This new safety and quality model creates a durable competitive advantage by combining two of our unique and valuable assets, our extensive data bank and our deep clinical expertise. The combination of expert clinical judgment empowered by vertical-specific AI applied to vast amounts of real-world data will further delineate our behavioral health platform and our network, strengthening our position and establishing a responsible framework for future innovation in behavioral health. We also expect that it will increase retention for our members. We also continue to make improvements to our suicide detection technology, further refining the risk algorithm and expanding it to other areas of concern, such as substance misuse and abuse and neglect. Further, we retrained it on newer data, which is important, so it can stay up to date on how people actually talk. As a result, the new algorithm is measured to be 92% accurate, up from 83%. Last quarter, I announced that we were building a system of foundational large-language models, specifically for behavioral health. Unlike existing horizontal general-purpose LLNs, we are working closely with mental health clinicians experienced with evidence-based therapeutic frameworks, and we are training these models, utilizing our own unique in-house de-identified clinical data set. This is one of the largest mental health data sets consisting of millions of therapeutic interactions that occurred on the Talkspace platform over the last 12 years. Talkspace behavioral health LLNs are being developed specifically to understand the language, complexity, and workflows of mental health delivery. Once up and running, these behavioral health LLNs will be an integral part of how we provide higher-quality care to our Talkspace members. The AI platform will not only enhance existing Talkspace services, but also serve as a launchpad for future AI applications and behavioral health services. Such as risk assessment tools, integrated tools that embed behavioral health intelligence into primary care workflows, structured intake systems, personalized routing to appropriate care levels, and enhanced client engagement tools. Our foundational models will just power the next generation of features on our platform, but will unlock an entirely new ecosystem of applications for mental health. We are making solid progress on this important initiative, and although still in the early stages of development, we expect to have an initial version available later this year. We are very bullish on the prospects of this initiative and are deploying CapEx investments to accelerate our progress. I am pleased with the work our team has done in the second quarter and feel that we've set ourselves up for success in the second half of the year. Now I'll turn the call over to Ian to review the financials in more detail.

Thanks, John, and good morning, everyone. In the second quarter, we saw an acceleration in our payer revenue and overall growth, driven by strong momentum in the engagement of unique active payer members and payer sessions, indicating that our technology and marketing investments early in the year are bearing fruit. On today's call, I'll review our quarterly results in detail, touch on our financial outlook, and discuss some of the assumptions supporting growth in the back half of the year. Starting the second quarter results, total revenue of 54.3 million increased 18% compared to the second quarter of last year, an acceleration from Q1 and a trend we expect to continue throughout the rest of the year. Payor revenue, that is revenue driven by consumers using talk space with their insurance benefits, was 40.5 million, representing growth of 35% year on year and continues to be our primary growth driver. We conducted over 385,000 therapy sessions with our payer members, representing a 29% increase year on year and had over 111,000 unique payer members active in the quarter, which was up 25% compared to a year ago and up 10% sequentially. As John mentioned, the approximately 10,000 additional active users is the largest sequential increase in over two years, reflecting the success we're seeing from our product and technology enhancements, as well as our efficient deployment of marketing investments. Our D to E revenue in the second quarter of 9.4 million was down 2% compared to a year ago. While we experienced better than expected renewal rates in the quarter, the timing of new wins took longer to close than expected. Several large deals we had expected to sign earlier in the year, we did close on in the quarter. However, they closed towards the end of June and into July and will launch in Q3, helping to provide visibility in DTE growth for the second half. Overall, the pipeline remains robust and there's been a notable pickup in the momentum of our discussions. Consumer revenue from people paying out of pocket was 4.4 million in the quarter versus 6.5 million a year ago, as we now cover most Americans via in-network benefits, which naturally shifts checkout mix away from consumer and towards payer. Before I touch on adjusted gross profit, I wanna flag one change in our financial presentation this quarter. Based on SEC guidance, this quarter, we consolidated our depreciation and amortization expense into its own operating expense line, fully removing it from costs of revenues where we had previously recognized certain cloud computing costs. As such, we've reclassified historical periods to be apples to apples with the new presentation. This change does not impact our net results. Adjusted gross profit was 23.4 million in the quarter, an increase of 11% year on year. Gross margin was .1% compared to .7% a year ago, primarily reflecting the continued shift in our overall revenue mix towards the faster growing payer business. In Q2, we also experienced a slight headwind to gross margin as a result of greater than normal hiring in our W2 provider network. New hires carry a cost while we onboard and train the therapist, prior to them having an active caseload with clients. This hiring class was larger than normal, given the increased payer sessions we anticipate for the second half of the year, as a result of our successful efforts in growing our user base. Total operating expenses of 25.2 million increased approximately 600,000 versus the prior year and about 700,000 sequentially. The sequential increase was due mostly to non-recurring items and the year over year increase was driven by a 1 million increase in sales and marketing. As a percentage of total revenue, OpEx represented .4% in this quarter compared to .3% a year ago, demonstrating the scalability inherent in our model. We've been pleased with the performance of our marketing efforts. With the overwhelming majority of our visitors now in network, we saw CAC improve in the quarter, both sequentially and as compared to last year. Gap net loss of 500,000 was flat year over year. Adjusted EBITDA of 2.3 million compared to 1.2 million in the second quarter of last year, an increase of 93%. Turning to the balance sheet, we ended the quarter with 103 million in cash and cash equivalents, including available for sale securities. This was down 5.6 million sequentially as a result of working capital timing, as well as our CapEx investments in our AI initiatives. In Q2, we also bought back approximately 1.4 million of stock, bringing total repurchase activity year to date to 8.4 million. Since our initial authorization program was announced last year, we've repurchased approximately 19.4 million in total. Finally, turning to our guidance for the rest of the year, we are reiterating our full year outlook of revenue between 220 and 235 million and adjusted EBITDA of between 14 and 20 million. Let me provide you with a little more insight into the assumptions supporting our view for growth in the back half. In our payer business, we expect continued annual growth in the 30% plus range. As we've discussed in the past, we've been making significant technology and product investments to improve our member journey, ultimately making it easier to find and stay in care. We've also increased our marketing investments for 2025, where we continue to see efficient spend, as I mentioned. The success of these two work streams is apparent to us in key KPIs, such as unique active users and payer session growth. The Q2 increase in users gives us strong visibility into the second half, given the predictable retention curves and longer tailed revenue profile of a payer user relative to our legacy consumer model. And the product and funnel optimizations will continue to pay dividends and drive new user growth through the rest of the year. As John mentioned, we also added three blues plans recently, representing an additional 16 million people. Blue Cross Blue Shield Texas went live in June, and Blue Cross Blue Shield Illinois went live just this past week. Both will have a positive contribution as we work to engage those populations through the rest of the year. For DTE, we continue to expect growth on a full year basis in 2025. As mentioned, we outperformed our assumptions in terms of renewing with existing clients in the first half of the year. However, the timing of new wins and implementation of those deals were somewhat delayed into Q3 and Q4. Some of the recent announcements we've made of certain large wins like Injury RX and North Carolina are just two examples of such deals, and we expect continued momentum of closings and implementations through the rest of the year, which will contribute both to DTE revenue and adjusted EBITDA. Expanding on EBITDA. As we alluded to in the past two calls, increased marketing investments was expected to weigh on OPEX in the first half. Sales and marketing expense in first half 2025 was approximately two million higher than in the first half of 2024. The revenue increases we expect in payer and DTE should come with little to no incremental OPEX. This will help to drive the operating leverage we anticipate in the second half. Further in June, we implemented a program of further operational efficiencies, which will drive even more GNA savings. The combination of the visibility we have in accelerating top line growth and our GNA savings initiatives gives us the confidence to maintain our EBITDA range. To wrap up, we anticipate that the investments in operations and marketing we made in the first half will translate into continued momentum through the second half of the year. We look forward to keeping you updated on our progress. With that operator, let's open the call for questions.