Talkspace, Inc. Q3 FY2023 earnings call

• Acknowledged Men's Health Awareness Month (Movember) and highlighted Talkspace's role in promoting mental health awareness, including a campaign with Michael Phelps in Times Square.
• Introduced Nikole Benders-Hadi as the new Chief Medical Officer, who will oversee clinical quality and research.
• Noted strong financial results with consolidated revenue up 32% YOY, adjusted EBITDA loss narrowed to $2.8 million.
• Outlined strategic initiatives: driving payer revenue growth by adding covered lives and partnerships, growing DTE business, expanding provider network to nearly 1,800 providers (a 60% increase YTD), and achieving operational excellence by reducing cost base by $10.4 million YOY.
• Anticipated adding 15 million more covered lives in the next few weeks and progress towards SOX compliance.

Consolidated revenue for the third quarter was $38.6 million, an increase of 32% year-over-year. The B2B payer revenue was $22.1 million, up 19% sequentially and 132% year-over-year, with session volume growing to over 228,000 sessions, a 14% sequential increase. The direct-to-enterprise (DTE) business had revenue of $8 million, flat sequentially but up 10% year-over-year. The consumer category generated $8.5 million in revenue, a 6% sequential decline. Gross profit for the third quarter was $18.8 million, up 6% sequentially and 29% year-over-year, with a gross margin of 48.8%. Covered lives grew 31% year-over-year and 3% quarter-over-quarter to 113 million, and the company anticipates adding approximately 15 million more covered lives in the next few weeks.

• Raised 2023 revenue guidance to approximately $146 million, up from the prior estimate of $137 million to $142 million.
• 2023 adjusted EBITDA loss is estimated to range from $16 million to $17 million.
• Reaffirmed the goal to achieve adjusted EBITDA breakeven by the end of Q1 2024 with approximately $120 million in cash available.

Q: Looking at the updated 2023 guidance and the launch of about 15 million lives in the EAP business, thoughts on realizing adjusted EBITDA breakeven target this year and qualitative outlook for 2024.

A: Jennifer Fulk stated the fourth quarter is expected to have similar volume trends as last year due to holiday-related supply and demand factors. New covered lives launches will not immediately drive incremental revenue but will impact capture rates in 2024. For 2024, growth is anticipated in both DTE and payer businesses with ongoing negotiations and a strong pipeline.

Q: About general demand for clinician capacity, growth into 2024 besides onboarded covered lives, and operating expenses as a percent of revenue.

A: Jon Cohen mentioned plans to increase covered lives in 2024 through ongoing negotiations and a substantial pipeline. The DTE business pipeline is growing with opportunities in employer, college, and adolescent segments. Jennifer Fulk noted operating expenses in Q3 were nearly flat to Q2, and the company sees opportunity to scale revenue while maintaining OpEx base and driving leverage through top line growth.