Q2 2021 Talkspace Inc Earnings Call
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Okay.
Welcome to the talk space second quarter earnings Conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone.
<unk>.
I'll now turn the call over to Mr. Mark Hirshhorn, President and Chief operating Officer, you may begin.
Good afternoon, everyone. This is mark Hirshhorn talk spaces, President and Chief operating Officer I'd like to welcome you to our earnings conference call from the second quarter of 2021.
Leading today's call is where and Frank talk spaces, co founder and Chief Executive Officer will.
They'll be joined by gender provoke the company's chief financial Officer and myself.
Management will offer their prepared remarks, and we will then take your questions.
<unk> press release and webcast link are available on the Investor Relations section of talk spaces website.
On this call we will be making forward looking statements. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially.
Please refer to the documents that we file with the SEC, including the form 8-K filed with today's press release in the disclaimer posted on talk spaces website.
I'll now turn it over to Orient Frank.
Thank you Mark welcome and thank you all for joining us on our first earnings as a public company.
We found the top speeds with the mission of making high quality behavioral health care accessible to everyone. We are proud of the impact that we've had so far in the millions of lives are per.
Opus build technology platform is designed to personalize treatment lower costs and most importantly improved clinical outcomes at the very low at scale, we continue to invest in product and service innovation with the MLP, providing individuals greater choice and address an even broader array of conditions that will make our portfolio.
Greenlee up trucks due from individual health plans and enterprise clients. We continue to develop our distribution channel that will further extend our market reach we believe that our clinical and technology capabilities allow us to offer an unparalleled product set new.
He designed to address the vast unmet and growing demand from mental health services in innovative ways I'm delighted to start today's call by introducing journey flow Volk, who joined US as our Chief Financial Officer, Jennifer <unk> joined Us from Eli Lilly and bring them to either an accomplished track record of success.
Of course, a diverse set of leadership roles in finance strategy and Investor Relations.
World Class Health care organization, Jennifer over to you.
Thank you Oren and good afternoon, everyone I'm thrilled to have joined talk space and I've been very impressed by the passion and commitment of our talented leadership team. It is clear that we have differentiated medical grade clinical capabilities and unique technology stack and a highly recognized brand.
This gives us an incredible foundation to capitalize on strong demand tailwind as they revolutionize virtual behavioral health care and I'm looking forward to speaking with our investors in the coming weeks.
Thanks, Jennifer I also want to mention our 2 incredibly important Bristol Myers Doctor balloon should diary, who joined us as Chief Medical officer, but what it was previously as Magellan, where he managed the Nash and there'll be able health program and Erin Boyd, who joined US as chief growth officer for our enterprise business.
And previously served as director of the Bureau network strategy for Sigma Aaron's higher further strengthens our commitment to taking advantage of what we view as the massive beat to be opportunity.
Recognizing that many of you are new to the dock space story I would like to spend some time talking about our company more generally after this we will review some of the highlights of top spaces second quarter results and then touch from the exciting growth opportunities ahead of us.
Top sales is the only public pure play virtual behavioral health provider delivering same day access to high quality mental health resources via text video and audio messaging and also by a light video audio sessions platform treat a wide range of mental health conditions and acuity is a crossover.
<unk> preclinical specializations and addresses the needs of individuals couples are the lessons of psychiatric patients clinicians can also write the prescription habits and directly to the patients local a virtual pharmacy in all 50 states.
Since the founding of dock space, we've been the technology first company because of our belief that virtual therapy can dramatically improve engagement and treatment outcomes through the application of data science, our proprietary machine learning and natural language technologies leverage above <unk>.
Let's say, it's 2 identify patterns into personalized treatment.
This allows us to improve the speed and accuracy of matching and diagnosis empower clinicians to deliver personalized care and optimizing the highest clinical outcomes of course, we have designed our ecosystem in inflammation practices to achieve and maintain full compliance with the EPA and other legal requirements regarding the confidentiality of patients.
Formation, we believe that our technological capabilities and data driven approach are robust and sustainable competitive advantage.
To be able health market is ripe for innovation and we see several opportunities to further stuff you've cited demand with new products that re imagined quality centric be able health care, making it more convenient and affordable in the second half of the year. Our service portfolio will expand again, we've been in the hands suite of functionality that will.
Further drive broad market adoption.
Expanding our product suite towards a full behavioral stack will enable us to adopt a land and expand approach cross selling and Upselling services.
The entire spectrum of clinical use cases needs and also modalities.
He's coming medical grade capabilities are unique in the marketplace and represents a compelling value proposition for a b to C and b to B clients.
We serve our members through 2 different channels direct to consumer comprised of individual consumers, who subscribe directly through our platform and our business to business channel comprised of enterprise clients, who pay us per member per month fee as well as large health plans, who offer their insured members with <unk>.
As to our platform as an in network reimbursement rates were currently making inroads into new distribution channels, such as health care platforms at Navigators E Commerce platform partnerships and additional non traditional carriers that will give us extra suite, an even broader and more diversified audience.
Our b to C product is offered via several subscription tiers. Some low for asynchronous treatment via unlimited text video and audio messaging and offer a range of scheduled live audio sessions, we continue to see a shift towards a higher tiers, which should continue to drive our food.
We currently offer of psychotherapy, psychiatry, and prescription services target to individuals coupled with teenagers.
In the second half of the year, we're planning to further expand our offering in an encompass group therapy and situation specific treatments focused on the workplace.
Our b to B business is built to service large plans and employers and provides a reoccurring in the visible stream of revenue with low customer acquisition cost, which will ultimately lead to higher operating margins over time, we're extremely excited about these offerings accelerating traction in cross selling opportunities as it continues to.
Her former expectations and over time, we expect it to contribute an increasing portion of both our revenue and margin.
Our a b to B provides all employees access to our services as the benefits paid or by their employer, either directly which we called <unk> or direct to employer or through an insurance plan.
Our direct to employer offering we contract directly with the enterprises governments and universities to provide care on a per member per month basis.
A representative sample of our enterprise clients include Accenture, Blackstone Expedia, Google Federal Reserve Banks, West, Virginia University, and the USA Triathlon Association.
For health plan clients, we contract with a major insurance clients to deliver care by other EAP employee assistance program and NBA, Egypt manage behavioral health programs.
Presentative central of our health plans and EAP clients include Aetna, Cigna, Humana, Optum Primera and Wild Springs.
We have built the leading network of approximately 3000 license therapy psychiatry is a nurse practitioners. We serve are large and growing demands of member base. The proceeds from our merger enabled us to accelerate our strategic decision to hire full time W..2 conditions, which we believe enhances our.
Members retention engagement and satisfaction.
The increasing availability of full time employees providers will lead to higher matching wage increase our network capacity capacity utilization and grandpa's more flexibility to experiment with new products, we expect to add additional full time therapy throughout the remainder of the calendar year and this structure do requires the greater upfront.
Investment, but we are confident that we can scale rapidly as we continue to grow and convening fully improved both our quality and unit economics over time.
We are all living through a major industry shift mental health is finally recognized as an essential need and things to its greater convenience lower cost of demonstrable clinical efficacy.
Adoption of behavioral Telehealth has continued to increase post pandemic.
While most medical speciality they've seen a gradual decline in Philadelphia utilization in the aftermath of Covid. The percentage of claims for virtual behavioral health visits has remained consistent since the onset of the epidemic both in aggregate and as a percentage of total total behavioral visits claims the most meaningful.
River of consumer be able in mental telehealth is no longer the threats of competing but convenience reduce stigma and lower costs, which ultimately validate the durability of for it you'll be able to carry the day month.
We believe this change is structural certain surveys suggest telehealth consumer satisfaction is actually at an all time high utilization continues to increase as clinicians become more familiar with the platform and patient demands attracts new investment in infrastructure and innovation.
As it relates to talk spaces go to market strategy, our audience is being and companions to be digitally native mobile first and young.
60% of our members are first time therapy users, we select top space, where it's privacy convenience and affordability as such we expect demand to remain especially robust as consumers and providers continue to appreciate the benefits of virtual modality for mental health care.
Before turning the conversation over to Mark I would like to highlight some key items from our quarterly financial performance and also share a number of Kpis, we used to track our business internally and expect to share regularly with investors to help you monitor our performance.
This quarter, we serve more patients across more conditions than ever before with approximately 61500 active members at the end of the second quarter up over 40% for just 1 year ago.
Our $31 million in net revenue for the second quarter was a quarterly record for the company and represent 73% year over year growth B to C. Net revenue from the second quarter. It was $21 million up 36 percentage year over year and up 14% sequentially.
Of particular note our <unk> revenue grew 320 per cent year over year to $10 million and we have a robust pipeline of b to b clients and revenue opportunities. As a result, we are on track to meet our revenue guidance of $125 billion growing our revenue by 64 per.
For the fiscal year of 2021.
While our <unk> revenue grew substantially we and many other of our peers are experiencing elevated customer acquisition costs due mainly to a material increase in the cost of digital advertising.
As a result of this environment, we're taking a number of steps, which we believe further strengthens our business.
First we increased our advertising budget, which we believe further enhances our market leading brand, which differentiate us from competition is an important driver for our b to B pipeline.
Second we focused on further enhancing our medical grade clinical capabilities in part by building on network from W..2 clinicians are unique assets that we believe will ultimately increase members retention engagement and satisfaction.
Third we expect to launch a number of new products feature in distribution channels over the coming quarters, which we will believe will drive organic growth.
And finally, we are undertaking a number of operational improvements, which we believe could mitigate the impact of inflation.
While we do not know how long this pricing environment will persist. We believe we are both well positioned and well capitalized to defend our brands market leading position.
Moving back to our B to B business, we continue to execute on our B to B growth strategy, which provides a reoccurring and visit on stream of high margin revenue.
Our differentiated and comprehensive product portfolio from seem to use to resonate in the marketplace, we're seeing traction and expanding our offering both to be day in existing clients as well as adding new clients in the second quarter. We added a combined 14 million eligible lives representing a 34%.
<unk> quarterly increase and a 67% per year over year increase the number of enterprise customers was also up strongly ending the quarter up 18% from the prior quarter, our direct to employer offering continues to grow rapidly and we've just experienced our largest BCE or direct to employer.
Work in the company's history.
The b to B business is thriving and continues to outperform our expectations, we foresee a significant opportunity to cross sell and up sell our medical grade.
Sweet and over time, we expect it to contribute an increasing portion of our revenue and margin.
Yeah.
As a result of our merger we ended the quarter with approximately $250 million of cash which will be used to further increase our already high brand awareness drive adoption across all channels and new products and partnerships leverage the massive <unk> opportunity. We have ahead of us and extended the nation.
At this point I will turn the call over to Mark for a review of our financial results. Thanks, very much everyone.
Thank you Lauren.
I already noted we had a very solid second quarter.
During the second quarter revenues increased 73% year over year to $31 million.
Direct to consumer revenue for the second quarter increased 36% year over year to $21 million driven by a significant increase in our active membership.
Well as consumer preferences shifting towards higher subscription tiers.
<unk> revenue from the second quarter increased 321% year over year to $10 million and grew to represent 32% of total revenue compared to 13% of total revenue in last year's quarter.
This is exactly where we want it to be at this point in the year and underscores our success in moving aggressively into the enterprise Arena.
We are reaffirming our 2021 revenue guidance at $125 million, which reflects 64% year over year growth.
Turning to membership and access.
We ended the second quarter with 61500 active members an increase of 41% over the prior year's quarter.
At the end of Q2, our <unk> business reached over 56 million eligible lives between July 1.2020 through June 30 of 2021 talk space was added as an in network benefit from over 22 million eligible lives.
Direct to employer clients increased to 107 as of June 32021 up from 41 clients.
As of the end of the second quarter 2020.
As already mentioned, our direct to employer offering continues to gain traction in the marketplace. As we just experienced our largest direct to employer weekly wins in the company's history.
In fact, our sales pipeline today stands at a greater than 10 X increase in opportunities and where it stood at this time last year.
Our enterprise clients as well as those pending enterprise opportunities, including some of the nation's largest health plans had been slowly transitioning to the recognition that virtual behavioral care is an absolute necessity as a permanent modality for care.
This nation shortage of qualified professionals. In addition to other inherent obstacles to access.
That are systemic in our health care system make taught space a vital partner to every health plan and health care benefits provider.
We are extremely excited for the fourth quarter as timely product enhancements will enable us to capture an even greater percentage of the existing white space in the payer market.
While we had.
And actively promoting our market leading brand we have also been busy creating optionality for our members.
We will shortly have the ability to offer synchronous relied messaging to complement phone and video features to ensure that members have the opportunity to select exactly how and when they want to engage with their cycle therapist or psychiatrist.
Well I'll talk space has been an innovator in bringing therapy to millions of people through messaging, we've listened to our health plan clients and we will be introducing these expanded features to ensure that a far broader audience and advance into therapy over the next several months.
Our gross profit increased to $19 million for the quarter, an increase of 57% compared to the prior year second quarter, our gross margin was 62% compared to 69% in the second quarter of 2020.
The decline in gross margin is primarily attributable to the increasing <unk> and line of business and it's growing absolute dollars as a percentage of the total revenues. In addition to upfront investments in W..2 clinicians and the time it takes to optimize their client capacity.
These fulltime clinicians have been transitioned either from part time 10, 99 clinicians already on our platform or recruited from outside of talk space.
We expect that margins will normalize as these clinicians reach full utilization and optimization on our platform over the next several quarters.
Adjusted EBITDA loss was $12 million in the second quarter 2021, compared to a loss of 300000 in the second quarter of 2020.
As already mentioned CAC has been meaningfully elevated since the beginning of the year relative to prior periods. The majority of the excess losses in the quarter relative to initial expectations can be attributed to this increase in customer acquisition cost.
While advertising costs have dramatically increased during the first half of this year. The current environment makes it more difficult to predict when customer acquisition costs will ultimately normalize.
Such we will not be providing any update to guidance on EBITDA for the remainder of this year.
Net loss for the quarter was $34 million compared to a net loss of $600000 in the prior year period and included transaction related expenses of $4 million on a per share basis net loss was $1.15 per share from the second quarter compared to a loss of <unk>.
<unk> in the comparable quarter last year.
Also for Q2, we booked a $39 million liability on our balance sheet related to warrants that were acquired from Hudson Executive investment Corp. In connection with the closing of our merger.
We ended the quarter with about 248 million in cash and short term investments. We are very confident that these resources will enable us to both continue to invest.
And our expanding BDC franchise, while we also build out our emerging b to B franchise over time, our strategy is to strengthen our <unk> commercial offerings.
And in turn see this segment generate an increasing portion of our revenue and margin.
We believe we have a significant opportunity to cross sell and up sell our comprehensive service portfolio and we will continue to invest in new products channels.
And geographies.
With that I will turn the call back to <unk> for closing remarks.
Thanks, Marty and Jennifer before I turn over the call to Q&A I would like to take this time to thank our investors, we are trusting us and in our mission.
Also like to use this opportunity to acknowledge the hard work of the Fox based team members around the world. We are grateful for your passion talent and incredible execution, all while managing the exciting and demanding position into a public company I am proud to share. These results on your behalf and tell the world that talk is good and we do.
Ed will open the call for questions back to you operator.
Thank you we will now.
Now begin the question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key.
Youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then 1 on your Touchtone phone and we're standing by for questions.
Our first question on line comes from Mr. Charles <unk> from Cowen. Please go ahead.
Yeah, Thanks, and congratulations on the merger and congratulations on the quarter.
Just had a quick question here.
Really about sort of the.
I think Mark you you noted that a lot of the gross margin erosion was from actually the mix shift in <unk> can you give us a breakdown of the active members between D.
<unk> D to C and the <unk> business and just looking at how that mix, how we're thinking about that as we go forward into the third quarter guidance here in particular, obviously, a nice step up from first to second quarter, a little bit less zone in the third can you kind of give us a sense on what might be driving that.
Yes, Charles Thank you this.
This quarter, we saw a significant increase in b to B active membership to the extent that day to be members are now essentially representing slightly more than half of the active members on the platform as you as you know those b to B members.
Come to us at a far reduced acquisition costs. They generate however, a slightly lower gross margin, but a far improved the bottom line net margin.
We would continue to look towards the <unk> contribution of membership as well as revenue to continue to represent a growing portion of consolidated revenue both in the third and fourth quarters of this year as we continue to see just tremendous traction from both our health plan clients in our di.
To employer clients.
We have now exceeded our expectations for annualized revenue as our quarter came in at $10 million and clearly we'll be looking to exceed our original original guidance on the on the enterprise contribution to total revenue.
Okay.
The active members in the BDC side, we're down sequentially anything to comment on that and what do you expect for.
For the rest of the year.
Sure.
We were very deliberate.
This quarter and we continue to really focus on the fact that theres really accumulative pricing in the market today, there is a tremendous price disparity in customer acquisition costs.
This year as composed as compared to where we were in the second quarter of 2020.
The frequency of price increases and somewhat dramatic from Facebook and Google and the other digital properties and we are we are spending what we believe is appropriate to maintain our competitive advantage and our leading brand, but we're going to continue to look to obviously.
Now diversify our acquisition channels through investments in non traditional channels as well as looking to partner with some of the nation's leading companies.
I think the it's.
Unlikely that we are going to see a dramatic shift downward in the next quarter or 2 but we do believe that.
Jack will stabilize because these are quite frankly levels I'd say elevated levels.
We don't believe are sustainable nor have we ever seen increases like this.
This really since this.
I'd say past 2 to 3 years.
We've been tracking this.
Clearly over the last 5 years.
Charles This is over in a couple of additional comments first of all to your question about Q3.
We've been doing this for 10 years now and this is purely seasonal.
The historically the demand for this type of therapy, and psychiatry and slightly lower during the summer. So we are being a little conservative on the on Q3.
Although when you look at what's going on with the Delta very ads.
It's very it's very unclear as to how the market will be a.
Very strong tailwind as Mark has mentioned.
Regarding the cash question. We are we are optimizing the beast very very carefully and thoughtfully.
Achieved 2 things first of all we have a unique I would say advantage of differentiation that we're active on both b to C and b to B and therefore, the power of our brands will actually help both penetration and utilization.
<unk> to be the part of our consideration on how much to invest in CAC and it would be to see there I would say cross feeding and helping each other in a very very unique manner.
We are investing the money there to keep our brand the number 1 brand in this market, but as Mark said there are certain levels of prices.
If you guys. So the Q2 Facebook released you will have seen that the.
Raised their price is close to 50 percentage year over the year that we just don't think are worth it. So it's a careful optimizing game.
Great appreciate it thank you.
Thank you. Our next question on the line comes from Stephanie Davis from SVP Leerink.
Hey, guys. Congrats my first quarter at the day and Mike Welcome back to the public earnings call Yeah.
Yes.
Thank you Scott I was hoping to hear a little bit about how things are going in your key selling season, just because the employers are beginning to look at different benefits from the following year and maybe how that could tie in but I'm solid growth book when you see in the BGP eligible lives metric and any.
Ah lumpiness or seasonality to consider that.
We are extremely excited about where the <unk> business sits today, we obviously exceeded our internal projections, we're going to exceed our our objectives both from individual sales performance as well as for the entire.
Group.
Of our colleagues that work on the enterprise size of business they've seen uptake clearly.
Coming from both the payer side and the direct to employer side, what we're seeing today I think is a accelerated interest in trying to align with the.
The benefits of the traditional benefits commencement on January 1st moving towards a Q3 and Q4 adoption and implementation of talk space services ahead of those ahead of the introduction of additional or revised benefits.
We're seeing a tremendous amount of interest.
From traditional companies and now we're beginning to really get traction with some of the nations.
Just consultants and brokers.
We've added and we continue to add some extremely experienced individuals from the markets as you saw we.
Boyd on we're going to announce.
Of additional hires on the enterprise side.
Quite frankly, we are just.
We are in a position that's somewhat enviable.
As we have.
I believe a solution for both enterprise clients and health plan clients through.
True modalities of live video through messaging through voice that can help too.
And to the most critical issues that are out in the marketplace today that being access and cost.
And then they can get the early data from paradigm I remember improving your penetration into the health plan base something you guys understanding a lot on a lot of their marketing budgets on the how should we think about improving the penetration of active users and that health plan revenue base.
And maybe some strategy and cost metrics around that.
Well I think the the analogy is.
100% spot on we're still at a point, where we're evangelizing the the access point and the expansion of networks to all of our health plan clients and those health plan prospects that we're speaking to.
Find us extremely appealing because we had thousands of available therapist to their platform.
Almost overnight.
I believe we are likely going to see additional traction as some of our product innovations are rolled out in the fourth quarter and most innovation you really align us with where the consumer is deciding that they want to receive their care. So the consumer innovation and the fact that.
Yes.
We believe that we're striving towards some degree of commercial ubiquity as tens of millions of individuals have access to our cycle therapist from psychiatrist the term talk space could vary.
<unk> become a verb and I think it is very similar to those breakthrough years when people were being introduced to a teladoc and other virtual care urgent care solutions.
Hours of course has a far greater.
And tenure of the relationship of our subscribers are normally with us for many months through their condition.
And through their of course successful remission.
Super helpful. Thank you Stefan.
It's definitely I'd add 1 thing, which is teladoc as the time line look 10 years ago had to really evangelize the notion of telemedicine or remote care. We don't have to do any of that that is a done deal I think with growth that particular threshold.
And so we have a I would say an easier job in educating.
And unfortunately, the pandemic has generated the second make line of mental health.
We don't have just look at the Olympics and to read the newspaper I think we all know somebody and understand the level of stress and anxiety and depression that are around us.
The tail winds of demands are very very strong and that helps us do it too.
2 are I would say.
<unk> reached the levels of both penetration and utilization that are that should be easier than Intel at book or did they give you..1 example, which is fascinating.
And points to the alignment between very large employers or health plans and talk space.
In Q2, we launched coverage for EAP will say 1 of the largest employers in the United States.
In the first couple of weeks, we have got a few thousands of their employees looking for help.
Our ability allowed us to match, both 95 per cent of their employees to a licensed therapist in all 50 states in under 3 hours and 100% match rate 24 hours a day.
Capability of our platform technology, and our and that's what it does not exist elsewhere and I think you know this is what really.
Large employers and plans are looking for so that the immediate access as Mark mentioned, our company by proven quality when we actually report the clinical outcome the level of engagement and the and all the data that can be used for those employers to assess whether the launch was successful.
I hear that that's an easier lift from easier lift than it was a few years ago. That's.
Exactly.
Yes.
Thank you. Thank you.
And thank you. Our next question online comes from Ryan Daniels from William Blair. Please go ahead.
Hey, guys. Thank you for taking the questions I wanted to go back to some of the new product offerings that are coming out over the next 2 quarters right. Thank you.
Referenced the fourth quarter in particular can you talk a little bit about.
Which of those are going to be targeted more towards the D. C market because employers are demanding there which would be DTC.
So thanks for the question.
We I have to tell you that we look at the member or the patient is the 1 individual a person that will need those services and I think the issue of them day needs are crossing our go to market.
And you will be surprised that the.
How many of those requests for additional services are actually from people that acts as both privately or through.
Lawyers and health plans would that be in line I'll give you just the phase what we are looking at and planning with a kind of a I would say a better fit for a b to C or b to b or both.
As you know we deliver psychotherapy in psychiatry in all 50 states include including prescription management.
So various audiences around over 20 clinical speciality so all the major conditions and acuity.
Already covered.
In terms of those modalities, we are planning to add this is mark mentioned live messaging, which is actually something that was requested by both go to market and come up with I would say a better suite of live session something that Oh.
Again accounts from both users and the more people that have used traditional face to face therapy in the past are moving it's a tough space to close this broke free for them of course is alive.
So we are seeing growth in that the more demand. We are planning to add forms of group therapy or therapy in the group, which is again on both ends but I would say more on the on the plan or the b to B side.
And then we look at the other vector which is conditions in acuity with definitely very interesting in the health and substance use disorder patients.
This is a clear request.
From some of our partners in the large plans, but also something that again, if you follow the news you will see that the alcohol use disorder that has grown dramatically.
And now represents a major major issue, we already treat from any of those conditions through our network, but we want to build products and services that are dedicated for that and we those that would also include other forms of chronic are elements that are associated to be ever hub.
That could be diabetes, there could be hyperthermia zone, there could be a lot of issues that are that has a very huge overlap with the Airbus.
In essence, when we look at our strategy, which is a full stack, which is providing a I would say the vast majority of conditions and acuity with appropriately strong clinical solution. We think this is very much in demand from the plans and our large partners. They want the full suite.
<unk> for the vast majority of their of their cases.
But also we find that and virtual care for behavioral health becomes a.
I would say the first line or the first choice of treatment in the in the consumer world more and more conditions and acuity, they're looking for solutions on lines versus face to face. So I guess the short answer is book.
Okay. That's helpful color and that actually leads into my next question as you try to.
Reduced customer acquisition cost.
Seem like 1 potential way to do that would be strengthening partnership with primary care groups across the country, obviously with the mental health prices Theres, a lot of need to better integrate behavioral and physical health care and those doctors, probably see a lot of patients and want them to get care, but realize in local markets.
Yes.
And if there is access to care there might be long matching periods not the greatest matches Theres a lot of private pay only so you might have to go out of network and spend more money. So has there been thoughts to kind of working with that as a referral channel to try to drive preferred referral relationships with the larger PCP groups across the country.
Have such a broad platform and service offering relative to some of your peers.
Mark Ryan Let me Yeah, let me take that and I think there is naturally going to be at <unk>.
Aggressive M&A over the next <unk>.
Several quarters as people move towards designing a platform that can give the consumers the optionality and give some of these are physical practices the opportunity to leverage a lot of.
I would say a lot of their resources, but also.
Enable them to them.
Have an array of services, where the consumer can select.
Perhaps intervals of once a month to come in and be seen in person by somebody but then either for a co morbid condition that they're being treated for or.
In order to just ensure that they can make a a weekly or biweekly appointment they'll engage over over a live video or over messaging.
The fact that this comprehensive type.
Type of care is not available today anywhere in the nation through any through any scaled provider group is something that we believe will be able to facilitate the Philippines regionally as well as likely nationally over the next several years.
I think this will come about as a result, the small acquisitions in certain geographies.
And I think it's going to be a very active part of our inorganic growth.
Okay. That's very helpful. And then final 1 and I'll hop off just again on the customer acquisition costs I think you mentioned Facebook raising their prices.
I'm curious if you've seen that across kind of all mediums so paid search.
If that is having similar year over year price increases and then also is this just generally across the marketplace or is it specific to the behavioral market given the big uptick.
You've seen in utilization and then some of the funding than a lot of the competitors.
Inflows of hundreds of millions of dollars earlier this year or are they kind of spending that money really actively to try to drive up their membership base. So is it specific to the total behavioral industry, which is very broad.
So right there the price raises a very broad if you look at the big platforms named Facebook or Google.
Which are essentially the majority of phone line advertise.
Being in the United States, you will see that the growth is across all categories and so I would say that the majority of course, there is an element of the Av.
Competition, but it's less pronounced than people would say tend to see because of all the noise a lot of money is being invested and of course the.
I've spoken with several of you before we strongly believe this is the decade there'll be a real house. So there's a lot of attention at Red dog.
When we look at the at the Catholic what do we see the growth in costs across most of the large platforms and therefore, we definitely will channel much of our effort into alternative channels alternative solutions in order to generate the I would say more direct and organic growth we will keep them.
And getting our brand.
As I mentioned before we're not going to be the growth needs of Facebook because they raise their prices so aggressively.
We believe you know it's an optimization game, that's gonna takes a little bit it's doable. The only thing I can really tell you is how long this environment is going to love.
Yeah.
Thank you. Our next question on line comes from Vikram Malhotra from Baird. Please go ahead.
Yeah. Thanks for taking the question I'm curious if you can talk about what youre seeing with respect to remember duration on the platform across both the <unk> channel relative to what you've seen historically and any expectations for how that can trend going forward just based on the behavior of some of the newer members on the platform.
So let me take the consumer side of the crime. Thank you for your question and then I'll hand, it over to Mark for enterprise.
At the low.
This time on the platform has been relatively stable.
Through many of the years that we are doing with these and actually improve the recently.
As a as you will see in our Arsenal number.
And we I think.
We think this is related mostly to the condition that you see as the people that come to seek help the farmer members.
It's very difficult to forecast what it will be we always work you know just to provide a better service, which translates into into longer lifetimes and better clinical outcomes. Those are highly correlated I think I mentioned earlier on a very large investment in the quality of our network by high.
Ring fully employed W to clinicians.
This generates a higher quality of care, which in turn translates into longer lifetimes and better clinical outcomes. So we did see an improvement in the last quarter I hope and plan for it to continue with definitely didn't see a decline.
And again, if you come in it's very simple to understand who the people are seeking care or if I call me in a nice suffered from depression for many long years and probably going to be.
A member of dock space going back and forth for quite a few years to come and if I came here because I had an argument with my girlfriend I'm, probably going to stay a few weeks.
So that particular issue and go back over time. This normalizes, because we want to help both I would say fulfillment I hope this answers your question.
Okay, great. Thanks, and then maybe just as a follow up on the provider network. I mean can you talk about the mix fully employed versus independent providers in the network today and any expectation on where that can go through the balance of this year and longer term as well. Thanks.
Yeah. Thank you. So first of all I think something that is very very good is happening those set of professionals both psychotherapy since that guidance.
And that has a huge value add to the Ara and being treated with the right kind of respect and Theyre. All now essentially post COVID-19 or through Covid depends on your point of view on Delta there are old virtual providers, though so we have a huge opportunity to actually I would say.
A recruit the best ones and we believe that because of the way we manage our data platform, we have a far better view into who the real therapies in psychiatry star.
Therefore earlier this year in January we changed strategy and we started to hire them. We have now out of the I would say roughly 2700 psychotherapies on the platform and around 3 to 400 prescribers.
Around 250 Psychotherapies fully employed.
From January this year and we aim to continue this trend very aggressively.
We find that the that the providers are very happy to join us from the people that we hired from the beginning of the year. The W..2 the churn is very very minimal and the alignment of course is very strong and I would also think that we have a again a very clear advantage in the hiring.
Best therapies.
Good day or most of their alternatives are being hired by brick and mortar network and of course the flexibility.
And the lifestyle lifestyle, that's associated with that kind of higher it is very different to a true.
The data power very independent.
Every flexible nature of working with docs space, who are very very bullish on this.
And we think this is a this is a great development for the industry and for us.
Yeah.
Thank you. Our next question on line comes from Richard close from Canaccord Genuity. Please go ahead.
Yeah, Thanks for the questions and congratulations on the transaction.
I had a couple of housekeeping here, maybe clarification on some of the answers to that.
Previous questions just on the B to B L.
And our direct to consumer or just the break out in terms of the active users am I on target seeing like B to B was like 31400 around there and D to C 30100.
Sort of like 50, 149%.
Yeah, you're on target there Richard.
Great and then on retention earn I appreciate a train stable I just going through my notes I think I had 5 months as like average duration is that the right number we should be thinking about.
Direct to consumer that's exactly right.
Great.
Mark on your comments.
This was for Stephanie's question.
Just to be clear I took from your answer in terms of the selling season.
Were you implying that you know new wins here in the selling season could actually start.
Prior to January 1st so they'd be launching.
And call it late third quarter fourth quarter timeframe.
That's exactly right.
We're currently in finalists positions in a number of Rfps are 1 or 2 of them are some of the large they'll represent.
In the top 100 employers in the nation.
There are a number of other initiatives that are launching.
With some brokerage houses.
That will also enable us to accelerate the Onboarding and go live dates.
Prior to the traditional January 1 start dates.
Thank you.
And our last question on line comes from Charles <unk> from Cowen. Please go ahead.
Yeah. Thanks, Thanks for taking the follow up.
Mark just wanted to ask a little bit about.
What's the thing about for EBITDA for the rest of the year I appreciate it.
You say that there certainly uncertainties around.
Customer acquisition costs and the like here.
But at the same time it sounds like you are optimizing for that environment and if right now is sort of this kind of peak.
Kind of cat pricing.
Yeah.
And so I think the EBITDA loss in the quarter was about $11.8 million a roughly let's call. It roughly ballpark from last quarter at 12, and a half million, Oh, sorry, 10, and a half million an adjusted EBITDA basis.
Is that sort of the right run rate to think of for the rest of the year and anything else that we should think about that would pull that 1.
1 way or the other.
We look at our model.
I think Charles it's fair to assume that this third quarter is experiencing very similar metrics to what we've seen in the first reported 6 months of the year. So I would I would suggest that your approach is correct. We really don't have any insight into where this CAC pricing will be.
Clearly.
Additional lives coming onto the platform that we've already contracted will begin contributing obviously additional revenues to offset some of that but.
We will continue to moderate our our spend to ensure that we can optimize and develop those additional channels, but our run rate today is most likely going to be seen throughout the next several months can't really opine on Q4 as Q4 typically.
Experiences are the.
Our highest pack inflation, just as a result from all of that retail demand.
If we pull away from that well.
We will see lower spend clearly, but there's a degree to which we obviously are going to plan on investing in the brand.
Thank you.
There are no further questions at this time I'd like to turn the call over to Mark Hirshhorn for any closing comments.
Yeah.
Got it.
The Orange, but go ahead, yeah. Thank you.
Thanks, very much everyone. We are very excited for.
For this quarter and for the rest of the year and as I mentioned, the perhaps the rest of this day cuz decade dock space is uniquely positioned to help millions of people in need.
With the tailwind of this industry to finally getting the rights recognition of the right prioritization. So thanks again for your trust and for your support.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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Welcome to the talk space second quarter earnings Conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then 1.
On your Touchtone phone.
I'll now turn the call over to Mr. Mark Hirshhorn, President and Chief operating Officer, you may begin.
Good afternoon, everyone. This is mark Hershey Orange talk spaces, President and Chief operating Officer I'd like to welcome you to our earnings conference call for the second quarter of 2021, leading todays call.
Oren, Frank talk spaces, co founder and Chief Executive Officer.
They'll be joined by channel provoke the Companys, Chief financial Officer and myself.
Management will offer their prepared remarks, and we'll then take your questions <unk>.
<unk> press release and webcast link are available on the Investor Relations section of talk spaces website.
On this call we will be making forward looking statements. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially.
Please refer to the documents that we file with the SEC, including the form 8-K filed with today's press release in the disclaimer posted on talk spaces website.
I'll now turn it over to Orange Frank.
Thank you Mark welcome and thank you all for joining us on our first earnings as a public company.
We found the top speeds with the mission of making high quality behavioral health care accessible to everyone. We are proud of the impact that we've had so far on millions of lives are purpose built technology platform is designed to personalized treatments lower costs and most importantly improved clinical outcomes at the very large scale, we continue to.
First in product and service innovation with the MLP, providing individuals greater choice and address an even broader array of conditions that will make our portfolio extremely attractive for individual health plans and enterprise clients. We continue to develop our distribution channel that will further expand our market reach we believe.
As our clinical and technology capabilities allow us to offer an unparalleled product designs.
Designed to address the vast unmet and growing demand from mental health services in innovative ways I'm delighted to start today's call by introducing Jennifer <unk>, who joined US as our Chief Financial Officer, Jennifer <unk> joined Us from Eli Lilly and bring them to either an accomplished track record of success.
Of course, a diverse set of leadership roles in finance strategy and Investor Relations.
World Class Health care organization, Jennifer over to you.
Thank you Oren and good afternoon, everyone I'm thrilled to have joined talk space and I've been very impressed by the passion and commitment of our talented leadership team at.
It is clear that we have differentiated medical grade critical capabilities.
Neat technology stack and a highly recognized brand. This gives us an incredible foundation to capitalize on strong demand tailwind as they revolutionize virtual behavioral health care and I'm looking forward to speaking with our investors in the coming weeks.
Thanks, Jennifer I also want to mention our 2 incredibly important recent hires Dr. Arun <unk>, who joined US as Chief Medical Officer, but 1 was previously at Magellan and where he managed the national behavioral Health program, and Erin Boyd, who joined US as chief growth officer for our enterprise busy.
<unk> and previously served as director of the Bureau Metro strategy for Sigma everyone's higher further strengthens our commitment to taking advantage of what we view as the massive <unk> opportunity.
Recognizing that many of you are new to the dock space story I would like to spend some time talking about our company more generally after that we will review some of the highlights of top spaces second quarter results and then touch on the exciting growth opportunities ahead of us.
Top sales is the only public pure play virtual behavioral health provider delivering same day access to high quality mental health resources via text video and audio messaging and also by a light video audio sessions, our platform creates a wide range of mental health conditions and acuity is a crossover.
<unk> T clinical specializations and addresses the needs of individuals couples are the lessons of psychiatric patients clinicians can also write the prescription habits and directly to the patient's local a virtual pharmacy in all 50 states.
Since the founding rooftop space, we've been the technology first company because of our belief that virtual therapy can dramatically improve engagement and treatment outcomes through the application of data science, our proprietary machine learning and natural language technologies leverage at Boston Anonymize dataset to identity.
Patterns into personalized treatment.
This allows us to improve the speed and accuracy of matching and diagnosis.
Power clinicians to deliver personalized care and optimizing the highest clinical outcomes of course, we have designed our ecosystem in inflammation practices to achieve and maintain full compliance with the EPA and other legal requirements regarding the confidentiality of patient information, we believe that our technological capabilities and data driven approach.
Which are robust and sustainable competitive advantage.
To be able health market is ripe for innovation and we see several opportunities to further satisfy demand with new products that re imagined quality centric be able health care, making it more convenient and affordable in the second half of the year. Our service portfolio will expand again, we did it in the hands suite of functionality that will.
Further drive broad market adoption, extending our product suite towards the food behavioral stack will enable us to adopt a land and expand approach growth selling and up selling those services.
Across the entire spectrum of clinical use cases needs and also modalities. These coming medical grade capabilities are unique in the marketplace and represents a compelling value proposition for a b to C and b to B clients.
We serve our members through 2 different channels direct to consumer comprised of individual consumers, who subscribe directly through our platform and our business to business channel comprised of enterprise clients, who pay us per member per month fee as well as large health plans, who offer their insured members.
Access to our platform as an in network reimbursement rates were currently making inroads into new distribution channels, such as health care platforms at Navigators E Commerce platform partnerships and additional non traditional carriers that will give us extra suite, an even broader and more diversified audience.
A b to C product is offered via several subscription tiers. Some low for asynchronous treatment line unlimited text video and audio messaging and offer a range of scheduled live or audio sessions, we continue to see a shift or a higher tiers, which should continue to drive our food.
We currently offer of psychotherapy, psychiatry, and prescription services target to individuals coupled with teenagers and in the second half of the year, we're planning to further expand our offering and encompass group therapy and situation specific treatments focused on the workplace.
<unk> business is built to service large plans and employers and provided a reoccurring in the visible a stream of revenue with low customer acquisition cost, which will ultimately lead to higher operating margins over time, we're extremely excited about these offerings accelerating traction in cross selling opportunities as it continues to outperform our.
Expectations and over time, we expect it to contribute an increasing portions of both our revenue and margin.
Our a b to B provides all employees access to our services as the benefits paid or by their employer, either directly which we call D C E or direct to employer or through an insurance plan.
Our direct to employer offering we contract directly with enterprises governments and universities to provide care on a per member per month basis.
A representative sample of our enterprise clients include Accenture, Blackstone Expedia, Google Federal Reserve Banks, West, Virginia University, and the USA Triathlon Association.
For our health plan clients, we contract with a major insurance clients to deliver care by other EAP employee assistance program and NBA, Egypt manage behavioral health programs.
Representative sample of our health plans and EAP clients include Aetna, Cigna, Humana, Optum Primera and Wild Springs.
We have built the leading network of approximately 3000 licensed therapists psychiatrist and nurse practitioners, who serve our large and growing demands of member base. The proceeds from our merger enabled us to accelerate our strategic decision to hire full time W..2 conditions, which we believe enhances our.
Members retention engagement and satisfaction.
<unk> seen the availability of full time employees providers will lead to higher matching grades increase our network capacity capacity utilization and grandpa's more flexibility to experiment with new products, we expect to add additional full time therapy throughout the remainder of the calendar year and this structure do requires the greater upfront investment.
But we are confident that we can scale rapidly as we continue to grow and can meaningfully improve both our quality and unit economics over time.
Okay.
We are all living through a major industry shift mental health is finally recognized as an essential need and things through its greater convenience lower cost of demonstrable clinical efficacy. The adoption of behavioral telehealth has continued to increase post pandemic.
While most medical speciality they've seen a gradual decline in Philadelphia utilization in the aftermath of Covid that the Sun.
In terms of claims for virtual behavioral health visits has remained consistent since the onset of a day make both in aggregate and as a percentage of total total behavioral visits claims the most meaningful driver of consumer be able in mental telehealth is no longer the threats of per patron, but convenience reduced.
Stigma and lower costs, which ultimately value based the durability of threads, you'll be able to share it would be months.
We believe this change is structural and certain surveys suggest tell it helps consumers with resection is actually at an all time high utilization continues to increase as clinicians become more familiar with the platform and patient demands attracts new investment in infrastructure and innovation.
As it relates to toxicity go to market strategy, our audience is being and companions to be digitally native mobile first and young 60 per cent of the farmer members are first time therapy users, we select top space suites privacy convenience and affordability.
Such we expect demand to remain especially robust as consumers and providers continue to appreciate the benefits of virtual modality for mental health care.
Before turning the conversation over to Mark I would like to highlight some key items from our quarterly financial performance and also share a number of Kpis, we used to track our business internally and expect to share regularly with our investors to help you monitor our performance.
This quarter, we serve more patients across more conditions than ever before with approximately 61500 active members at the end of the second quarter up over 40% for just 1 year ago.
Or a $31 million in net revenue for the second quarter was a quarterly record for the company and represents 73% year over year growth B to C. Net revenue from the second quarter was $21 million up 36% year over year and up 14% sequentially.
Of particular note our <unk> revenue grew 320 per cent year over year to $10 million and we have a robust pipeline of b to b clients and revenue opportunities. As a result, we are on track to meet our revenue guidance of $125 billion growing our revenue by 64 per.
<unk> for the fiscal year of 2021.
While our B to C revenue grew substantially we and many other of our peers are experiencing elevate the customer acquisition costs due mainly to a material increase in the cost of digital advertising.
As a result of this environment, we're taking a number of steps, which we believe further strengthens our business.
First we increased our advertising budget, which we believe further enhances our market leading brand, which differentiates us from competition is an important driver for our b to B pipeline.
Second we focused on further enhancing our medical grade clinical capabilities in part by building on net worth of WTO clinicians are unique assets that we believe will ultimately increase members retention engagement and satisfaction.
Third we expect to launch a number of new products feature in distribution channels over the coming quarters, which we will believe will drive organic growth.
And finally, we're undertaking a number of operational improvements, which we believe could mitigate the impact of cash inflation.
While we do not know how long this pricing environment will persist. We believe we are both well positioned and well capitalized to defend our brands market leading position.
Moving back to our B to B business, we continued to execute on our B to B growth strategy, which provides a reoccurring and physical stream of high margin revenue.
Our differentiated and comprehensive product portfolio from seem to use to resonate in the b to b marketplace, we're seeing traction and expanding our offering both to be day in existing clients as well as adding new clients in the second quarter. We added a combined 14 million eligible lives representing a 34%.
<unk> quarterly increase and a 67% per year over year increase the number of enterprise customers was also up strongly ending the quarter up 18% from the prior quarter, our direct to employer offering continues to grow rapidly and we've just experienced our largest DTE or direct to employer.
Work in the company's history.
The b to B business is thriving and continues to outperform our expectations, we foresee a significant opportunity to cross sell and up sell our medical grade.
<unk> suite and over time, we expect it to contribute an increasing portion of our revenue and margin.
Okay.
As a result of our merger we ended the quarter with approximately $250 million of cash which will be used to further increase our already high brand awareness drive adoption across all channels and new products and partnerships leverage the massive b to b opportunity. We have ahead of us and extended their nation.
At this point I will turn the call over to Mark for a review of our financial results. Thanks, very much everyone.
Thank you Lauren.
As already noted we had a very solid second quarter.
During the second quarter revenues increased 73% year over year to $31 million.
Direct to consumer revenue, the second quarter increased 36% year over year to $21 million driven by a significant increase in our active membership as well as consumer preferences shifting towards higher subscription tiers.
<unk> revenue from the second quarter increased 321% year over year to $10 million and grew to represent 32% of total revenue compared to 13% of total revenue in last year's quarter.
This is exactly where we want it to be at this point in the year and underscores our success in moving aggressively into the enterprise Arena.
We are reaffirming our 2021 revenue guidance at $125 million, which.
64% year over year growth.
Turning to membership and access we ended the second quarter with 61500 active members an increase of 41% over the prior year's quarter.
At the end of Q2, our B to B business reached over 56 million eligible lives between July 1.2020 through June 32021 talk space was added as an in network benefit from over 22 million eligible lives.
Direct to employer clients increased to 107 as of June 32021 up from 41 clients as of the end of the second quarter 2020.
As already mentioned, our direct to employer offering continues to gain traction in the marketplace. As we just experienced our largest direct to employer weekly wins in the Companys history.
In fact, our sales pipeline today stands at a greater than 10 X increase in opportunities than where it stood at this time last year.
Our enterprise clients as well as those pending enterprise opportunities, including some of the nation's largest health plans have been slowly transitioning to the recognition that virtual behavioral care is an absolute necessity as a permanent modality for care.
This nation shortage of qualified professionals. In addition to other inherent obstacles to access.
Better systemic in our health care system make talk space, a vital partner to every health plan and health care benefits provider.
We are extremely excited for the fourth quarter as timely product enhancements will enable us to capture an even greater percentage of the existing white space in the payer market.
While we had.
And actively promoting our market leading brand we have also been busy creating optionality for our members.
We will shortly have the ability to offer synchronous or live messaging to complement phone and video features to ensure that members have the opportunity to select exactly how and when they want to engage with their psychotherapy Mr. Psychiatrist.
Well I'll talk space has been an innovator in bringing therapy to millions of people through messaging, we have listened to our health plan clients and we will be introducing these expanded features to ensure that a far broader audience can advance into therapy over the next several months.
Our gross profit increased to $19 million per the quarter, an increase of 57% compared to the prior year second quarter, our gross margin was 62% compared to 69% in the second quarter of 2020.
The decline in gross margin is primarily attributable to the increasing <unk> and line of business and it's growing absolute dollars as a percentage of the total revenues. In addition to upfront investments in W..2 clinicians and the time it takes to optimize their client capacity.
These fulltime clinicians have been transitioned either from part time 10, 99 clinicians already on our platform or recruited from outside of talk space.
We expect that margins will normalize as these clinicians reach full utilization and optimization on our platform over the next several quarters.
Adjusted EBITDA loss was $12 million in the second quarter 2021, compared to low loss of 300000 in the second quarter of 2020.
As already mentioned CAC has been meaningfully elevated since the beginning of the year relative to prior periods. The majority of the excess losses in the quarter relative to initial expectations can be attributed to this increase in customer acquisition cost.
While advertising costs have dramatically increased during the first half of this year. The current environment makes it more difficult to predict when customer acquisition costs will ultimately normalize.
Such we will not be providing any update to guidance on EBITDA for the remainder of this year.
Net loss for the quarter was $34 million compared to a net loss of $600000 in the prior year period and included transaction related expenses of $4 million on a per share basis net loss was $1.15 per share from the second quarter compared to a loss of <unk>.
<unk> in the comparable quarter last year.
Also for Q2, we booked a $39 million liability on our balance sheet related to warrants that were acquired from Hudson Executive investment Corp. In connection with the closing of our merger.
We ended the quarter.
With about $248 million in cash and short term investments. We are very confident that these resources will enable us to both continue to invest.
In our expanding BDC franchise, while we also build out our emerging b to B franchise over time, our strategy is to strengthen our <unk> commercial offerings.
And in turn see this segment generate an increasing portion of our revenue and margin.
We believe we have a significant opportunity to cross sell and up sell our comprehensive services portfolio and we will continue to invest in new products channels.
And geographies.
With that I will turn the call back to Orange for closing remarks.
Thanks, Marty and Jennifer before I turn over the call to Q&A I would like to take this time to thank our investors, we are trusting us and in our mission.
Also like to use this opportunity to acknowledge the hard work of the Fox based team members around the world. We're grateful for your passion talent and incredible execution, all while managing the exciting and demanding position into a public company I'm proud to share. These results on your own behalf and total world that talk is good and we do.
Ed will open the call for questions back to you operator.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key.
We're using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then 1 on your Touchtone phone and we're standing by for questions.
Our first question on line comes from Mr. Charles <unk> from Cowen. Please go ahead.
Yes, thanks, and congratulations on the merger and congratulations on the quarter.
Just had a quick question here.
Really about sort of the.
I think Mark you you noted that a lot of the gross margin erosion was from actually the mix shifted in B to B can you give us a breakdown of the active members between the.
<unk> and the B to B business and just looking at how that mix, how we're thinking about that as we go forward into the third quarter guidance here in particular, obviously, a nice step up from first to second quarter, a little bit less zone in the third can you kind of give us a sense on what might be driving that.
Yeah, Charles Thank you this quarter, we saw a significant increase in b to B active membership to the extent that day to be members are now essentially representing slightly more than half of the active members on the platform as you as you know those b to B.
Members.
Come to us at a far reduced acquisition cost they generate however, a slightly lower gross margin, but a far improved bottom line net margin.
We would continue to look towards the B to B contribution of membership as well as revenue to continue to represent a growing portion of consolidated revenue both in the third and fourth quarters of this year as we continue to see just tremendous traction from both our health plan clients in our di.
Correct to employer clients.
We have now exceeded our expectations for annualized revenue as our quarter came in at $10 million and clearly we'll be looking to exceed our original original guidance on the on the enterprise contribution to total revenue.
The active members in the BDC side.
We're down sequentially anything to comment on that and what do you expect.
For the rest of the year. Thanks.
Sure.
We were very deliberate this quarter and we continue to really focus on the fact that theres really punitive pricing in the market today, there is a tremendous price disparity in customer acquisition costs.
This year as composed as compared to where we were in the second quarter of 2020.
The frequency of price increases are somewhat dramatic from Facebook and Google and the other digital properties.
And we are we are spending what we believe is appropriate to maintain our competitive advantage and our leading brand, but we're going to continue to look to obviously now diversify our acquisition channels through investments in non.
Non traditional channels as well as looking to partner with some of the nation's leading companies.
I think the it's.
Likely that we're going to see a dramatic shift downward in the next quarter or 2 but we do believe that cash will stabilize because these are quite frankly levels I'd say elevated levels.
We don't believe are sustainable nor have we ever seen increases like this.
Since this really since this.
I'd take past 2 to 3 years and we've been tracking this.
Clearly over the last 5 years.
Charles This is over in a couple of additional comments so simple to your question about Q3.
We've been doing this for 10 years now this is purely seasonal.
The price.
Historically the demand for this type of therapy and psychiatry at slightly lower during the summer. So we are being a little conservative on Q3.
Although when you look at what's going on with the Delta very adds you know, it's very it's very unclear as to how the market will behave.
Very strong tailwind as Mark has mentioned.
Regarding the Cat question. We are we are optimizing the b's very very carefully and thoughtfully.
Achieved 2 things first of all we have a unique I would say advantage of differentiation that we're active on both b to C and b to B and therefore, the power of our brands to actually help both penetration and utilization on <unk> to be the part of our consideration on how much to invest in CAC and it'd be 2 free there.
I'd say cross breathing and helping each other in a very very unique manner. So we are investing the money there to keep our brand and the number 1 brand in this market, but as Mark said there are certain levels of prices.
If you guys. So the Q2 Facebook released you will have seen that the raise their prices are close to 50 percentage year over the year that we just don't think are worth it. So it's a careful optimizing game.
Great appreciate it thank you.
Thank you. Our next question on the line comes from Stephanie Davis from SVP Leerink.
Hey, guys. Congrats my first quarter at the day and Mike Welcome back to the public earnings call Yeah.
Next.
Thank you Scott.
Moving to hear a little bit about how things are going in our key selling season, just because the employers are beginning to look at different benefits from the following year and maybe how that could tie and solid growth, we're going to see in the PDP eligible lives metric and any lumpiness or seasonality to consider that.
We are extremely excited about where the business sits today, we obviously exceeded our internal projections, we're going to exceed our our objectives. Both from individual sales performance as well as for the entire.
[noise] group.
The AR of our colleagues that work on the enterprise size of business they've seen uptake.
Nearly coming.
Coming from both the payer side and the direct to employer side, what we're seeing today I think is a accelerated interest in trying to align with the.
The benefits of the traditional benefits commencement on January 1st moving towards a Q3 and Q4 adoption and implementation of talk space services ahead of those ahead of the introduction of additional or revised benefits.
We're seeing a tremendous amount of interest.
From traditional companies and now we're beginning to really get traction with some of the nations.
Just consultants and brokers.
We've added and we continue to add some extremely experienced individuals from the markets as you saw we.
Boyd on we're going to announce it.
Of additional hires on the enterprise side quite.
Quite frankly, we are just.
We are in a position that's somewhat enviable.
As we have I believe a a solution for both enterprise clients and health plan clients.
3 modalities of live video through messaging through voice that can help to attend to the most critical issues that are out in the marketplace today that being access and cost.
And then they can get the early data from paradox, I remember improving user penetration into the health plan base ways, you guys understanding a lot I know a.
A lot of their marketing budgets on so how should we think about improving the penetration of assets. There is in that health plan revenue base, and maybe from an strategy and cost metrics around that.
Well I think the the analogy is.
100% spot on we're still at a point, where we're evangelizing the the access point and the expansion of networks to all of our health plan clients and those health plans prospects that we're speaking to.
Find us extremely appealing because we had thousands of available therapists to their platform.
Almost overnight.
I believe we are likely going to see additional traction as some of our product innovations are rolled out in the fourth quarter and most innovations really align us with where the consumer is deciding that they want to receive their care. So the consumer innovation and the fact that.
Yeah, we do.
We believe that we're striving towards some degree of commercial ubiquity as tens of millions of individuals have access to our cycle therapist from psychiatrist the term talk space could vary.
With me become a barb and I think it is very similar to those breakthrough years when people were being introduced to a teladoc and other virtual care urgent care solutions.
Hours of course has a far greater death.
From tenure of the relationship of our subscribers are normally with us for many months through their condition.
And through their of course successful remission.
Let's see if I have I think yes Stefan.
Stephanie I'd add 1 thing, which is teladoc. The time line look 10 years ago had to really evangelize the notion of telemedicine or remote care. We don't have to do any of that that is a done deal I think with growth that particular threshold.
And so we have a I would say easier job in educating.
And unfortunately, the pandemic has generated the second thing didn't make 1 of mental health.
We don't have just look at the Olympics and to read the newspaper I think we all know somebody and understand the level of stress and anxiety and depression that are around us so the tail winds of demand.
Our very very strong and that helps us do it too.
2 are I would say.
<unk> reached the levels of both penetration and Utilizations that are that should be easier than tell a book or did they give you..1 example, which is fascinating and points to the alignment between very large employers or health plans and Sox days.
Q2, we launched coverage for EAP also 1 of the largest employers in the United States.
In the first couple of weeks, we have quite a few thousands of their employees looking for help.
Our ability allowed us to.
Mitch about 95 per cent of their employees to a licensed therapist in all 50 states in under 3 hours and 100% match rate in under 24 hours.
That capability of our platform technology, and now and that's what it does not exist elsewhere and I think you know this is what really low.
Employers and plans are looking for for that immediate access as Mark mentioned our cash.
Company had the by proven quality when we actually report the clinical outcome the level of engagement and and all the data that can be used for those employers to assess whether the launch was successful.
I hear that is an easier less major lifting it wasn't deviation.
Exactly.
Yes.
Thank you. Thank you.
And thank you. Our next question online comes from Ryan Daniels from William Blair. Please go ahead.
Hey, guys. Thank you for taking the questions I wanted to go back to some of the new product offerings that are coming out over the next 2 quarters right. Thank you.
Reference to fourth quarter in particular can you talk a little bit about.
Which of those are going to be targeted more towards the b to C market, because employers are demanding there and which would be to see.
So thanks for the question.
We I have to tell you that we look at the member or the patient is the 1 individual a person that will need our services and I think the issue of them day needs are crossing our go to markets.
And you will be surprised how many of those requests for additional services are actually from people that axis privately or through our employers and health plans would that be in line and I'll give you just the phase what we are looking at and planning with a kind of a I would say a better pizza.
Or b to C or b to b or both.
As you know we deliver psychotherapy in psychiatry in all 50 states includes including prescription management.
So various audiences erode over 20 clinical speciality so all the major conditions and acuity.
Already covered in terms of those modalities, we are planning to add as Mark mentioned live messaging, which is actually something that was requested by both go to market and come up with I would say a better suite of live sessions something that again accounts from both users and multi.
People that have used traditional face to face therapy in the past or moving to talk space.
Does this proxy for them of course is alive at this session. So we are seeing growth in death and more demand. We are planning to add forms of group therapy or therapy in the group, which is again on both ends but that would be more on the on the plan or the b to B side, and then we look at that.
Other vector, which is conditions in acuity with definitely very interesting in helping a substance use disorder patients.
The clear request.
From some of our partners in the launch plan, but also something that again, if you follow the news you will see that the alcohol use disorder has grown dramatically through the pandemic and now represents a major major issue, we already treat many of those conditions through our network, but we want to build products and service.
There's a dedicated for that and we do that would also include other forms of chronic element that our associates have been able to hub.
It could be diabetes, there could be hypertension, there could be a lot of issues that are that has a very huge overlap with in essence, when we look at our strategy, which is a full stack, which is providing I would say the vast majority of conditions and acuity is with appropriately strong clinical salute.
We think this is very much in demand.
From the plans and our large partners they want the full solution for the vast majority of their of their cases.
But also we find that and virtual care, if will be ever health becomes the.
I would say the first line or the first choice of treatment in the in the consumer world more and more conditions and acuity. They are looking for solutions to online versus face to face. So I guess the short answer is book.
Okay. That's helpful color and that actually leads into my next question as you try to.
Reduced customer acquisition cost it would seem like 1 potential way to do that would be strengthening partnership with primary care groups across the country.
Obviously with the mental health prices Theres, a lot of need to better integrate behavioral and physical health care and those doctors, probably see a lot of patience and want them to get care, but realize in local markets.
Even if there is access to care there might be long matching periods not the greatest matches, but theres a lot of private pay only so you might have to go out of network and spend more money. So has there been thoughts to kind of working with that as a referral channel to try to drive preferred referral relationships with the larger PCP groups across the country as you have such a.
<unk> platform and service offering relative to some of your peers.
Mark Ryan Let me Yeah, let me take that.
I think there is naturally going to be at.
Aggressive M&A over the next several quarters.
As people move towards designing a platform that can give their consumers the optionality and get some of these physical practices the opportunity to leverage a lot of.
I would say a lot of their resources, but also enable them to them.
Have an array of services, where the consumer can select.
Perhaps intervals of once a month to come in and be seen in person by somebody but then either for a comorbid condition that they're being treated for or are in order to just ensure that they can make a a weekly or biweekly appointment they'll engage over.
Over live video are over messaging.
The fact that this comprehensive type.
Type of care is not available today anywhere in the nation through any through any scaled provider group is something that we believe will be able to facilitate facilitate a regionally as well as likely nationally over the next several years.
I think this will come about as a result, the small acquisitions.
Certain geographies.
And I think it's going to be a very active part of our inorganic growth.
Okay. That's very helpful. And then final 1 and I'll hop off just again on the customer acquisition costs I think you mentioned Facebook raising their prices.
I'm curious if you've seen that across kind of all media and so paid search.
If that is having similar year over year price increases and then also is this just generally across the marketplace or is it specific to the behavioral market given the big uptick.
<unk> seen in utilization and then some of the funding that a lot of the competitors.
Inflows of hundreds of millions of dollars earlier this year or are they kind of spending that money really actively to try to drive up their membership base. So is it is it specific to the total behavioral industry, which is very broad.
So right there the price raise is very broad if you look at the big platforms named Facebook or Google.
Which are essentially the majority of online advertising in the United States, you will see that the growth is across all categories.
And so I would say that the majority of course, there is an element of the of the.
Competition, but it's less pronounced than people I would say tend to see it because the whole day noise a lot of money is being invested and of course the.
Spoken with several of you before we strongly believe this is a decade there'll be a real house. So there's a lot of attention at Red dog.
When we look at the at the Canaccord, what do we see the growth in costs across most of the large platforms and therefore, we definitely will channel much of our effort into alternative channels alternative solutions in order to generate the I would say more direct and organic growth we will keep them.
Getting our brands and as I mentioned before we're not going to be the growth needs of Facebook because they raised the process so aggressively.
We believe you know, it's an optimization game, that's going to take a little bit. It's doable. The only thing I can really tell you is how long this environment is going to love.
Thank you our.
Our next question online comes from Vikram Kessel box line from Baird. Please go ahead.
Yeah. Thanks for taking the question I'm curious if you can talk about what youre seeing with respect to remember duration on the platform across both the D to C and D to be channels relative to what you've seen historically and any expectations for how that can trend going forward just based on the behavior of some of the newer members on the platform.
So let me take the consumer side that the Graham. Thank you for a question and then I'll hand, it over to Mark for enterprise in essence, a lifetime on the platform has been relatively stable through many of the years that we are doing this and actually improve the recently.
As a as you will see in our Arsenal number.
And we I think.
We think this is related mostly to the conditions that you would see us the people that come to seek help the farmer members.
It's very difficult to forecast what it will be we always work you know just to provide a better service, which translates into into longer lifetimes and better clinical outcomes those are highly correlated.
I mentioned earlier on a very large investments in the quality of our network by hiring fully employed.
To clinicians.
Generates a higher quality of care, which in turn the translates into longer lifetimes and better clinical outcomes. So we did see an improvement in the last quarter I hope and plan for it to continue we definitely didn't see a decline.
And again, if you come in it it's very simple to understand who the people are seeking care or if I call me in a nice suffered from depression for many long years, I'm probably going to be.
<unk>.
A member of dock space going back and forth for quite a few years to come and if I came here because I had an argument with my girlfriend I'm, probably going to stay a few weeks.
So that particular issue and go back over time. This normalizes, because we want to help both the I would say fulfillment I hope this answers your question.
Okay, great. Thanks, and then maybe just as a follow up on the provider network. I mean can you talk about the mix fully employed versus independent providers in the network today and any expectation on where that can go through the balance of the strength and longer term as well. Thanks.
Yes. Thank you. So first of all I think it's something that's very very good things happening to those set of professionals both psychotherapy since that guidance.
<unk> recognized as a huge value add is that they are and they are being treated with the right kind of respect and theyre. All now essentially post COVID-19 or through Covid depends on your point of view on Delta there or virtual providers, though so we have a huge opportunity to actually I would say.
The crew the best ones and we believe that because of the way we manage our data platform, we have a far better view into who the real therapies in psychiatry star.
Therefore earlier this year in January we changed strategy and then we started to hire them.
Now out of the I would say roughly 2700 psychotherapies on the platform and around 3 to 400 prescribers.
Around 250 psychotherapy fully employed.
From January this year and we aim to continue this trend very aggressively.
We find that the.
The providers are very happy to join us from the people that we hired from the beginning of the year. The doublet to the churn is very very minimal and the alignment of course is very strong and I would also things that we have again, a very clear advantage in the hiring the best therapies.
Good day or most of their alternatives are being hired by brick and mortar network and of course the flexibility.
And the lifestyle lifestyle, that's associated with it coming higher it is very different to a to the data power very independent.
Very flexible nature of working with doctors, who are very very bullish on days.
And we think this is a this is a great development for the industry and for us.
Yeah.
Thank you. Our next question on line comes from Richard close from Canaccord Genuity. Please go ahead.
Yeah, Thanks for the questions and congratulations on the transaction.
Just had a couple of housekeeping here, maybe clarification on some of the answers to that.
Previous questions just on the B to B L.
And our direct to consumer or just the break out in terms of the active users am I on target seeing like B to B was like 31400 around manner and D to C 30100.
Sort of like 50, 149%.
Yeah, you're on target there Richard.
Great and then retention earn I appreciate a train stable I just going through my notes I think I had 5 months is like average duration is that the right number we should be thinking about.
So direct to consumer that's exactly right.
Great.
Mark on your comments I think this was first Stephanie's question.
Just to be clear.
From your answer in terms of the selling season.
Were you implying that new wins here in the selling season could actually start.
Prior to January 1st So you know they'd be launching.
And you know call it late third quarter fourth quarter timeframe.
That's exactly right.
We're currently in finalists positions in a number of Rfps are 1 or 2 of them are some of the larger that represent in.
In the top 100 employers in the nation.
And there are a number of other initiatives that are launching.
With some brokerage houses.
It will also enable us to accelerate the Onboarding and go live dates.
Prior to the traditional January 1 start dates.
Yeah.
Thank you.
And our last question on line comes from Charles <unk> from Cowen. Please go ahead.
Yeah, Thanks for taking the follow up.
Just wanted to ask a little bit about.
The thing about for EBITDA for the rest of the year I appreciate it.
You say that there certainly uncertainties around.
Customer acquisition.
Physician costs and the like here.
But at the same time it sounds like you are optimizing you know for that environment and if right now is sort of this kind of peak.
Kind of cat pricing.
Yeah.
And so I think the EBITDA loss in the quarter was about $11.8 million a roughly let's call. It roughly ballpark from last quarter at $12.5 million I'm, sorry, 10, and a half million an adjusted EBITDA basis.
Is that sort of the right run rate to think of for the rest of the year and anything else that we should think about that would pull it.
1 way or the other.
Looking at our model.
I think Charles it's fair to assume that this third quarter is experiencing very similar metrics to what we've seen in the first reported 6 months of the year. So I would I would suggest that your approach is correct. We really don't have any insight into where this CAC pricing will be.
Clearly additional lives coming onto the platform that we've already contracted will begin contributing obviously additional revenues to offset some of that but we'll.
Continue to moderate our our spend to ensure that we can optimize and develop those additional channels, but our run rate today.
Is most likely going to be seen throughout the next several months can't really opine on Q4.
As you know Q4 typically experiences.
The highest pack inflation, just as a result of all of that retail demand.
If we pull away from that well.
We will see lower spend clearly, but there's a degree to which we obviously are going to plan on investing in the brand.
Thank you.
There are no further questions at this time I'd like to turn the call over to Mark Hirshhorn for any closing comments.
Yeah.
Got it.
The Orange, but go ahead, yeah. Thank you.
Thanks, very much everyone and we're very excited that the for this quarter and for the rest of the year and as I mentioned, the perhaps the rest of this day could decade dock space is uniquely positioned to help millions of people in need.
With the tailwind of this industry to finally getting the rights recognition of the right prioritization. So thanks again for your trust and for your support.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.