Talkspace, Inc. Q1 FY2024 earnings call

• Payor category: Revenue grew 92% YOY, with expansion into Anthem commercial lives and strategic conversations with other payors. Medicare is a significant opportunity with plans to go live in multiple states and expand in Medicare Advantage networks.
• Brand partnerships: Significant expansion in brand and referral partnerships, including with Thirty Madison and expanded provider directories on Zocdoc and Health Grades. Launched Health Collective marketplace.
• DTE: Early progress in New York City and Baltimore launches, with impact on teen mental health. Employer side had renewals and new wins but also account attrition due to inflation and competition. Released ROI calculator for employers.
• Provider network: Over 5,600 therapists, up 6% sequentially. AI capability launched to generate Smart Notes for providers, improving efficiency. Continued investment in technology enhancements.
• Mental Health Awareness Month: Unveiled new brand identity, campaign encouraging therapy, and TV spot highlighting member stories.

Total revenue for the first quarter was $45.4 million. Payor category revenue grew 92% YOY to $28.5 million, accounting for 62.8% of total revenue. Direct-to-Enterprise (DTE) category revenue was $9.9 million, up 14% YOY, making up 21.8% of total. Consumer category revenue was $7 million, down 29% YOY, representing 15.4% of total. Gross profit increased 30% YOY to $21.7 million, with a gross margin of 47.8% for the first quarter, lower than the prior year due to a shift in revenue mix towards the payor category which has lower gross margins.

• Total revenue expected between $185 million and $195 million for the full year. Adjusted EBITDA expected between $4 million and $8 million. Adjusted EBITDA is more heavily weighted towards the second half of the year due to timing of DTE pipeline maturing and turning into revenue.
• Continued confidence in maintaining profitable growth with focus on payor expansion and DTE pipeline development.

• Competition: Impacting account attrition in DTE employer side.
• Account attrition: Headwinds in DTE due to businesses reviewing budgets in inflationary environment and increased competition.
• Uncertainties in Medicare rollout: Need to figure out go-to-market strategy for Medicare patients and potential variability in uptake.

Q: Asked about Medicare opportunity roll out and long-term guidance impact.

A: Jon Cohen discussed Medicare launch in multiple states and deep discussions with Medicare Advantage Plans. Jennifer Fulk mentioned Medicare expansion as a component of long-term guidance levers.

Q: Inquired about adjusted EBITDA back half weighting.

A: Jennifer Fulk explained it's due to variability in DTE pipeline maturing and turning into revenue, with first quarter seeing ramp of covered lives added in December '23.

Q: Asked about gross margins and competitive front in DTE.

A: Jennifer Fulk stated gross profit growth expected to be lower due to payor mix, and Jon Cohen discussed multiple reasons for DTE account attrition including competition, budgetary restraints, and utilization issues.

Q: Questioned about durability of duration increases in payor vs consumer and impact of new populations.

A: Jon Cohen mentioned strong evidence payor side users stay longer. Jennifer Fulk pointed to positive metrics across covered lives, session completions, etc.

Q: Asked about Medicare rollout structuring and assumptions.

A: Jon Cohen talked about go-to-market strategy testing, and Jennifer Fulk noted synergy with broader marketing on capture rate from expanded covered lives.

Q: Inquired about cost structure shift from DTE to payor.

A: Ryan Daniels mentioned reconfiguration of DTE organization with new leadership and pipeline built for DTE opportunities