Talkspace, Inc. (TALK) Earnings Call Transcript

Hello everyone, and thanks for joining Talkspace's First Quarter 2025 Earnings Conference Call this morning. Hopefully, you've been able to look at both the press release available on Talkspace's IR website and the presentation covering our earnings results. That presentation will guide us through the remarks today. Taking the lead on today's call are Dr. Jon Cohen, our CEO, and Ian Harris, our CFO. After management delivers their prepared comments, we'll open things up for your questions. Some of the metrics we'll be talking about today are presented on a non-GAAP basis and have been adjusted to remove the effect of one-off items. You can find reconciliations of these non-GAAP measures in our earnings release and on our website, talkspace.com. I'd also like to remind everyone that we'll be covering forward-looking information today, which might include forecasts, targets, and other statements about our plans, goals, strategic priorities, and anticipated financial results. Although these statements reflect our best current judgment regarding future results and performance as of today, our actual results face many risks and uncertainties that could cause them to differ materially from what we expect. Key factors that might impact our future results are outlined in our most recent SEC reports and today's earnings press release; for additional details, please see our safe harbor disclaimer on Slide 2. I'll now hand things over to Dr. Jon Cohen.

Good morning, everyone, and I appreciate you being on today's call to go over what we achieved in the first quarter. The year got off to a solid start, with revenue rising 15%, session volume increasing 23%, and EBITDA climbing 153% compared with the first quarter of last year. May happens to be Mental Health Awareness month. This year, we're restating our dedication to removing obstacles to care for millions of Americans through our "Let's Face It" campaign, in which we show how Talkspace members rely on our platform to face whatever might be standing in their way. As a top behavioral health provider with considerable scale and reach, we're actively using a number of channels — several of which I'll mention today — to build awareness and bring members to our solution. We see everything we do across every part of our business as pieces of one unified strategy meant to construct the most thorough way of bringing behavioral health care to a greater number of Americans. Since almost 2/3 of Americans can reach Talkspace via their insurance plans or through their Employee Assistance plans, our attention stays on the biggest opportunity, which is increasing engagement among that group. During the quarter, we made important progress optimizing our funnel via various technology upgrades designed to bring more individuals onto the platform; yet even more crucially, we're delivering improved care quality by keeping them involved in their therapeutic journey. To be specific, we upgraded our real-time benefits verification using proprietary algorithms so that user and eligibility mistakes at the beginning of registration could be overcome; because of this work, our drop-off rate at the funnel's early stage has fallen by over 12%, which generated extra new registrations during the quarter. Regardless of how a member pays for Talkspace, they can move smoothly to other payment methods and retain the same provider. Coverage might shift, as frequently happens every January, yet continuity of care with that provider does not. One illustration of this optimization is a new Easy button we built so our EAP members can convert to their employers' behavioral health insurance coverage once they use up their EAP plan session. Users now receive notification when EAP sessions are getting low, which cuts down on friction around checking coverage benefits and switching while staying with the provider they already have. This marks an extremely significant step toward helping our members stay on the platform and toward safeguarding both continuity and quality of care. Those are only a handful of examples of what our product team is doing to enhance our customer experience and to provide care for as long as clinically necessary. We're also unwaveringly dedicated to high-quality care and positive outcomes for Talkspace users. Across our more than 30 peer-reviewed studies, we've repeatedly demonstrated outcomes on par with in-person traditional therapy, which stands as proof of our work showing efficacy and quality across multiple modalities while making sure all of it carries third-party academic review. What sets Talkspace apart as a service provider—rather than merely a listing of providers—is the top-tier care delivered by our therapist network. That distinction matters a great deal to the payer partners we work with, particularly now that value-based contracts are growing more common. As I've mentioned before, we evaluate both our clinicians and our network using qualitative as well as quantitative information and metrics spanning 5 core areas. With those insights in hand, we put substantial effort into maintaining the strongest possible care platform—through demanding standards for hiring and onboarding, thorough training, education and outreach, ongoing network and quality management work, and risk management assistance. In Q1, we advanced our efforts to extend Talkspace's reach as a budget-friendly care choice, and we now serve close to 200 million covered lives. Thanks to our wide member access and the strong clinical quality we deliver, we are collaborating closely with payer partners to embed our solution more effectively within their online member experiences, making it simpler for members to find Talkspace, and I couldn't be happier with how far we've come here; in January, we introduced additional military coverage by launching TRICARE West. All 10.5 million TRICARE members—families and dependents included—are now covered by Talkspace. Our engagement across a range of military communities, achieved through a set of tailored grassroots initiatives, has proven highly effective and quite economical so far, with large numbers of service members and their relatives taking part in therapy. It's clear this audience leans heavily on personal recommendations and trust built through suggestions made within their communities, and they show real openness to therapy. Also in January, we started rolling out efforts aimed at the Medicare population. Consequently, Medicare registrations are climbing; beyond that, we're observing robust patient outcomes among this group, since 84% of Medicare members demonstrated clinical improvement—above the roughly 70% that is typically expected; we'll keep prioritizing initiatives that build organic awareness that Medicare beneficiaries can now get Talkspace coverage. In fact, just last week we revealed that Gary Levingston, a beloved figure from the hit Golden Bachelor franchise, will serve as our Medicare spokesperson as we head into Mental Health Awareness month. Psychiatry, we believe, represents a major growth opportunity for the business. During the first quarter, we restructured a dedicated team to sharpen and reintroduce our psychiatry service for people 18 and older, encompassing medication initiation and management for frequently treated conditions like anxiety and depression. Because it's a covered benefit, we've witnessed a notable rise in demand for this service from our partners and from internal referrals, as our own providers treat therapy members who require this extra tier of care. We also recently broadened our partnership with Zocdoc to encompass our psychiatry service. Our direct-to-enterprise pipeline is still robust, with a renewal from the City of Memphis and significant input from recent additions such as U.S. Rowing, the U.S. Navy, and, most recently, students at the University of Alaska Anchorage. Earlier this week, we shared news of a fresh collaboration with Bark Technologies, which is the top company in online safety solutions for children. Their mobile app and phone together reach 7 million kids. In addition, their software is installed on more than 3,700 school computers, and they deliver safety warnings across 45 distinct categories while examining messages within over 30 social media platforms, web browsers, and e-mails. They have identified and notified parents about more than 2.7 million instances of potential serious self-harm. Talkspace is going to be offered to every user of the Bark Phone and Bark app, and it will be preinstalled on Bark devices, linking teenagers and their parents with Talkspace so they can handle the numerous emotional difficulties young people encounter these days. This alliance with Bark, together with our teen programs involving various cities and schools nationwide, extends our dedication to tackling the teen mental health emergency across the nation. Over the last few months, we've introduced a number of AI tools, among them artificial intelligence enhanced intake systems that identify important symptoms, psychosocial contacts and diagnostic considerations, making client onboarding and clinical assessments more efficient, and also including real-time clinical documentation, summarization and decision support to lighten administrative load. Client engagement tools that boost therapeutic adherence and continuity, such as Talkcast, our individualized podcast offering designed for adults aged 18 and above.

The aim behind this offering is to boost how members engage in between appointments, help them stay concentrated on the gains they're making, and in the end support better clinical outcomes. Within the first several weeks, 6,000 podcasts have been produced, and feedback from both members and providers has already been quite favorable. Over the past several weeks, we've validated a new tool for assessing risk — an algorithm for homicidal violence ideation that is more than 90% accurate at identifying risk of violent behavior, homicidal ideation included, and brings that risk to clinicians' attention in real time. My reason for emphasizing these AI efforts is that leveraging cutting-edge technology to provide improved mental healthcare solutions has sat at the heart of Talkspace from the very beginning, when we created asynchronous messaging as a workable way to deliver therapy. The coming phase of innovation and growth involves deeper AI integration so that mental health support becomes even better. Having spent more than a decade applying advanced technology to behavioral healthcare and holding the industry's biggest behavioral health data sets, we are now hard at work developing a foundational large language model unlike any other. Talkspace occupies a unique position to create this foundational model, trained on de-identified clinical data that aligns with evidence-based therapeutic frameworks. In contrast to horizontal, general-purpose models, this vertical AI platform will do more than improve current Talkspace services — it will act as a springboard for upcoming AI applications and behavioral health services, opening fresh possibilities in clinical innovation. Last, I want to get ahead of a question we've commonly gotten during the recent market volatility. Tariffs do not impact our business in any direct way. Even more significant is that our long-term strategy has moved the heart of our business toward an insured patient base, which lowers our dependence on out-of-pocket spending. As an in-network provider covering nearly 200 million covered lives, we stay both accessible and affordable. We serve as a national provider for Medicare, Medicare Advantage included, and keep gaining from the Federal investment in Senior mental health. Because we aren't in Medicaid, we're protected from possible modifications to those programs. To wrap up my remarks, I'm extremely happy with the way we began the year and feel assured about our path through the rest of 2025. We anticipate sustained demand for our convenient, affordable in-network care and stay confident in our full year guidance. I'll now hand things over to Ian.

Thanks, Jon, and good morning to all of you. We're happy to share that our first quarter was solid and came in right where we expected. Q1 total revenue reached $52.2 million, which is a 15% gain over the first quarter of 2024. The driver behind that growth was our payer business, which rose 33% versus Q1 of last year and showed ongoing strength across important metrics, among them payer sessions, which came to roughly 350,000 during the quarter — a 23% year-over-year rise. The number of unique payer members who completed a session during the quarter climbed 17% year-over-year, surpassing 101,000 for the quarter, while completed sessions per active member were up 5% compared with a year ago. Regarding our payer business, starting with this quarter, we will stop giving routine updates on our total covered lives figure. As Jon said, our covered lives grew more than 40% versus a year ago, and we now cover close to 200 million lives — a milestone we've discussed before and are extremely proud of. We do anticipate continued growth in covered lives, primarily through additional regional plans, among them 2 of the largest ones, which we expect to add later in this quarter. That said, we don't see this metric as especially relevant to driving sustainable growth, given all our success in scaling to nearly 200 million. Getting this large base of members who already have Talkspace as a covered benefit to activate and engage will matter incrementally more to our growth. Now on to DTE. DTE revenue for the quarter was $9.6 million, a 3% decline year-on-year and flat versus Q4 on a sequential basis. On the whole, our DTE pipeline remains strong in both the Employer and Youth segments, and we anticipate positive booking momentum through the remainder of the year. Consumer revenue, which relates to people who choose to pay out of pocket, fell by slightly more than $2 million compared with the same quarter in 2024, since the vast majority of new members are using their insurance coverage when they check out. Gross profit for the quarter totaled $23.3 million, up 7% from the prior year. Gross margin was 44.6%, versus 44.2% in Q4 2024 and 47.8% a year ago. This continues the trend we expect to see as we keep shifting the overall revenue mix further toward our payer business, which benefits the company thanks to the superior long-term economics and lifetime value for members under the payer-focused strategy. During the quarter, we also stayed focused on operational efficiency. Total operating expenses came to $24.4 million, which is $1 million higher than Q1 of last year, reflecting the greater marketing investments we've discussed before. As a share of revenue, total OpEx was 46.7%, compared with 51.5% in the first quarter of last year; we delivered GAAP net income of $300,000 in the quarter, an improvement over a $1.5 million loss 1 year ago. For the first quarter, adjusted EBITDA came in at $2.0 million, which is $1.2 million higher than what we recorded during the same period a year ago. Now let's move on to the balance sheet. As I've said before, one of the things that really sets us apart is how strong our balance sheet is. We closed out the first quarter with $108 million in cash and cash equivalents, including available-for-sale securities, down from $118 million in Q4. That $10 million drop on a sequential basis came mostly from the repurchase activity we've been doing under the share repurchase program we announced earlier. During Q1, we repurchased roughly $7 million worth of stock, which takes our total repurchase activity up to $18 million since we first authorized the program 1 year ago. Now let's shift to our outlook for the year. We're reaffirming the full year financial outlook we gave on our previous call, and that includes revenue in the range of $220 million to $235 million, which works out to 21% growth at the midpoint, along with adjusted EBITDA of $14 million to $20 million, representing an increase of 144% at the midpoint. Talkspace continues to be a leader in the behavioral health market, and our dedication to high-quality care keeps resonating with our payer partners, our customers, our network of therapists; and above all, with our members. I'm really happy with the strong start we've had this year and I'm looking forward to carrying that momentum forward through the rest of the year; with that, we can go ahead and open up the call for questions. Operator?

To begin, I have a two-part question regarding Medicare Advantage, and I'll pose the first part now. Considering the highly favorable clinical results you're observing, which exceed what was anticipated, I'm wondering how you plan to leverage that when marketing to additional MA plans, potentially to broaden your reach into those plans. Could you speak to that?

Absolutely. So when it comes to MA plans, we're witnessing considerable interest and involvement in MA plans across a number of payers as well as regional plans. What we believe at this moment is that MA plans are treating this as they would standard Medicare. To put it differently, they are making it available to their MA members. Our expectation is that eventually we will build stronger ties with certain MA plans, perhaps involving some kind of PMPM arrangement. Thus far, we have not pursued that, meaning a "value-based contract" of that nature; however, we are definitely seeing a great deal of interest.

All right. And separately, when it comes to Medicare Advantage or Medicare fee-for-service, have you fellas laid out perhaps what the marketing spend looks like for this year? You've mentioned, I believe, that this is a fresh market and that it's unclear which channels will connect or how the lifetime value will shape up. So with us nearing the year's fifth month, I'm wondering whether you now have somewhat more information and have started to zero in on what the advertising plan looks like for that segment?

Hi, Ryan, this is Ian. We're quite — like we've mentioned previously, we take very much a portfolio-based approach to our go-to-market as a whole, and that shows up in how we spend on ads and how we plan our media. So at the start of the year, we have a broad structure spanning, roughly, core Commercial, Military, and then Medicare and MA. As I think we've noted earlier, we're extremely data-driven about that, correct? That means those budgets and the relative shares going to each can shift quite dramatically from one quarter to another, and even between months. So I wouldn't give you a figure to tie it to. What we're really doing is optimizing for the strongest ROI, while also recognizing, when it comes to Medicare in particular, that this is a fresh cohort, and determining it will require multiple quarters. Given that, we're prepared to push a bit harder on spending, accepting that pinning down the ROI will take time. By contrast, Military, I'd say, has genuinely surpassed even our loftiest hopes. And so — although that's a newer cohort as well, that one — first, because of the kinds of location-based media channels available to us, such as on-base media channels and outlets, plus community engagement platforms. We've witnessed truly, truly strong momentum and results in Military; so even though that one is new, I'd anticipate we lean further into it simply because of the returns we're witnessing.

All right. That's great; and for my final one, I'll get out of the way. Regarding the sorts of tech enhancements related to checking benefits, you brought up the Easy button for moving between EAP and coverage. How widely has that been made available? It sounds like it's making a fairly meaningful difference when it comes to either utilization or keeping people engaged. So I'd like to know whether you've made that available on a wide scale or whether it was closer to a trial involving particular employers or payers. Any detail on that would be helpful. Thanks, and congratulations once more.

We're currently in the middle of getting that out there, essentially one plan at a time — meaning one employer at a time; and just as you noted, it truly does produce a notable effect. The entire notion of not needing to move over, input information again, single sign-on, whatever name you'd give it, genuinely makes it far simpler for individuals to move to their benefit. So at present we are pushing hard on this in a major way, and it is generating a favorable effect.

To start with, how has retention among patients shifted across the past 6 or 12 months, given that you keep introducing technological improvements? Then, as a second point, could you remind us what share of your 2025 guidance — your revenue guidance — is anticipated to originate from Medicare, and then from Military?

Hey Steve, regarding your second question, we don't disclose that breakdown. Once more, on an internal basis we hold a variety of possible outcomes concerning where the volumes end up coming from. So there are plenty of combinations and permutations, so to speak, in terms of how we reach plan. As you might expect, we adopt a fairly conservative stance when discounting the different end markets, correct? So I wouldn't attach a firm figure to it. Once more, if returns aren't showing up in one area, we'll move spend toward another while we determine that former and sort of tackle it proactively in that manner. Your first question, I believe, concerned retention — what is technology contributing on that front? Yes; so I would highlight the session velocity metric that we reference as one signal of that. So that rose 5% versus the prior year in the first quarter. Once more, it's a single useful signal. Looking ahead, we're actually sort of observing that the marketing investments we kicked off in Q1 are truly beginning to take effect as we finished out March and we're seeing very strong checkouts in April. And so that actually — the session velocity metric, I just want to note, might become somewhat skewed owing to that rise in new users. But generally speaking, items such as Talkcast and these other sorts of product enhancements we're rolling out, we do monitor and assess the effect on retention; so it's entirely favorable to LTV. It does, though, whenever we launch a new feature, require several quarters before we genuinely observe that shift in sort of the typical duration of the user, correct? We have to let time pass and see how much longer those individuals remain on the platform, but every sign thus far is favorable.

I'd like to dig a bit deeper into the sales and marketing line. Take the converting member — someone who has Talkspace access and is becoming engaged. My sense is that sales and marketing expense came in somewhat below what we'd anticipated, though clearly it's up slightly versus a year ago. And Ian, I hear you saying you want to monitor how certain programs are performing. Still, is there any rationale for holding back rather than stepping on the gas harder? Or might it be that as some channels outperform others, we'd see heavier spending, since this looks like a major opportunity — and assuming demand is as strong as we all believe, the task is simply making people aware of what's out there.

Yes. Appreciate it, Charles. The brief response is yes, without question. What I mean is, we're working out the total budget. Below that sits ad spend. This space is highly competitive and agile when moving from one — channel isn't quite the right word, but from one area of emphasis to a different one. I'd say anticipate Q2 looking much like Q1, okay? So view it more as a first half where marketing investments run heavier, after which the payoff arrives, since a payer's life lasts longer than what you'd have observed from us back when we ran a pure consumer model several years back. So yes, without question. Much of this, Charles, comes down to balancing things as each month unfolds. Broadly speaking, the ROIs look quite strong. We've stated openly and consistently that we're leaning in and putting more money into this area. Exactly when it lands month to month can depend on many factors, correct? What's happening in the broader environment? What returns certain channels are delivering? What new experiments are underway? And frankly, also new product developments, correct? Should a product launch we believe will drive substantial conversion gains slip by 2 weeks, we might adjust marketing to match. So it's — I wouldn't overinterpret the quarter-to-quarter picture; I'd point out that the first half will carry the bulk of marketing spending, and then we collect the rewards beginning really in Q2, when you'll observe an acceleration in growth. That's thanks to those Q1 investments, followed by that pull-through across the rest of the year as well.

Yet should those returns on investment come in strongly positive, is there any argument against simply keeping up the outlay on sales and marketing in order to fuel expansion?

You're referring to across the whole year, correct?

Yes, exactly.

Yes, yes.

I get it — you're able to pull through benefits — but is there any reason you wouldn't just keep pushing for more conversion?

Yeah, possibly; that's a topic we discuss constantly. And to be honest, it comes down to the everyday details — how many holidays fall in a given month, and what other events we have to keep in mind. Take Mental Health Awareness month in May — that's going to be a really busy stretch for us. If you mean the latter half of the year, then definitely, right? But since our plan and our financial guidance both include considerable growth on the top and bottom lines, that's simply the trade-off we have to handle, right? It's like — seeing the benefit, the return on that investment, takes time, right? So it's always a matter of balancing those 2 factors.

Understood. And perhaps only a brief — my apologies, please continue, Jon.

What I meant to mention is, keep in mind, it isn't solely — it's partly the overall figure, yet much of it concerns the particular areas where that money goes, correct? Therefore, we recognize we must allocate — we will allocate additional funds toward Military. We recognize we will — there are certain other subpopulations that we're examining. Thus, it isn't merely the location, but rather the way it's spread among the social media channels and the way it's spread among the search channels; therefore, it's a substantial figure, yet it isn't simply that it has to go up; to us, in fact, the bigger question is how the money gets distributed.

Understood. And Jon, I'd like to ask a follow-up regarding the Bark partnership. Could you explain a bit about the way it functions? Since it appears Bark members receive the complimentary mental wellness tools, like Talk — this Talkspace Go. After that, they get certain discounts on their initial month should they sign up for Talkspace. Could you share more about the mechanics of this partnership and perhaps the economics from your perspective? Also, is it offered right away to all 7.5 million Bark members?

Yes. There are a few components to this. First, naturally, the Bark phone exists. So we will have — the Talkspace app is going to be preloaded on the Bark phone. Basically, whenever a parent receives a notification of some kind, they can conveniently reach Talkspace. That's one piece. The second is — well — they are on — you likely noticed it, precisely 3,700 schools have that software integrated so children can only visit particular locations while using the school software. So we don't — we're not — we will not reveal the specific financial arrangement with Bark, yet we do believe that the entire field of parental alerts, given our history with suicide ideation and — if you noticed, we still — we now also have homicide violence ideation, which we are introducing. It's extremely important, not only a moral imperative for us, but it's a really potentially larger channel for us to obtain referrals. If you're interested in it or if you're examining all the parental protection matters, it's quite remarkable really, because it isn't only the suicide ideation and violence, it's that they're monitoring for sex content, cyberbullying, risky applications, dangerous challenges, hate speech, drug, alcohol abuse. So there's an enormous amount they're watching, which provides us a chance to be part of that as parents seek help for their children when they discover something they don't like.

Talkcast has now been out for slightly over one complete month. I'm genuinely interested to know whether it's something every single client is using across the board. If that isn't the case, how do you determine which people receive these personalized inter-reading personalized podcasts?