Q4 2021 Talkspace Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you opinion by your conference call will begin momentarily again. Thank you for standing by your conference call should be getting momentarily. Thank you.
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Thank you for standing by and welcome to the top states fourth quarter and full year earnings conference call. At this time, all participants are in a listen only mode.
So to speak its presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on your touch tone telephone.
They were mounted today's conference call maybe recorded.
I will now turn the conference over to your host Mr. Mike Lovell Director of Investor Relations. Please go ahead Sir.
Good evening, everyone. Thanks for joining talk spaces first annual earnings call.
Hope you've had the opportunity to access the press release.
We've also added a presentation to our earnings materials that you should see on Tox basis IR site.
We use the presentation to walk you through todays remarks.
We will begin with comments from chairman and interim Chief Executive Officer, Doug Braunstein.
Followed by Chief Financial Officer, Jennifer fall.
Both are available for questions following their prepared remarks.
Certain measures, we'll discuss on this call are expressed on a non-GAAP basis and have been.
When adjusted to exclude the impact of one off items.
Reconciliations of these non-GAAP measures are included in our earnings release and on our website talk space Dot com.
I also want to remind you that we'll be discussing forward looking information today, including forecasts targets and other statements regarding our plans kohls strategic priorities and anticipated financial results.
While these statements represent our best current judgment about future results and performance as of today. Our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.
Important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release.
For more information Please review, our safe Harbor disclaimer on slide two.
Now I'll turn the call over to Doug who will begin on slide three.
Thanks, Mike and welcome to talk space. Thank.
Thank you all for joining us today to discuss both our fourth quarter and our full year 2021 results.
I'm going to begin with a snapshot of summary financial performance on page three.
But I want to spend the majority of my time discussing the progress we've made in the past three months since we outlined our operational and execution priorities during our third quarter earnings call.
You can see on slide three of the 21 full year revenue grew 49% year over year.
Driven by significant growth in our <unk> business as demonstrated by the significant rise in <unk> sessions, which more than doubled in 2021 as.
As well as the continued shift towards higher subscription tiers in our <unk> business, which drove an increase in ARPA.
This was partially offset by a decline in b to C. Active users at the end of the period.
Which reflects our decision to reduce media spend in the fourth quarter.
In order to more effectively optimize be to see returns.
As we highlighted at the JP Morgan Conference in January .
The BTB channel has increasingly been the driver of growth in our business as we grow the number of eligible M B H and EAP lives.
<unk> focus on initiatives to increase penetration in that membership base and continue to grow our enterprise accounts.
Our <unk> business covered approximately 69 million eligible lives as of December 31st up 75% from the prior year period.
Driven by new client wins, including Cigna and regions.
We expect to continue to add covered lives in the first quarter of 2022.
We recently expanded our partnership with Optum in Q1 by adding a meaningful number of lives to our existing coverage.
And we're planning to go live with a new large national insurer by the end of the quarter.
Importantly, we've retained all of our significant customers as we began in calendar year 2022.
We have also more than doubled the number of enterprise customers and 21, adding notable clients such as Blackstone expensive Fi and West Virginia University.
The recurring portion of our <unk> business continues to increase and the strong momentum continues into 2022.
We launched more enterprise accounts in January than in any other month in the company's history.
While we also continue to shift our focus to larger enterprises throughout the course of the year.
If you turn to slide four you'll note that the fourth quarter actual results have been updated since our estimates in January .
While Jennifer will dive deeply into the details in the quarter, which involve some ongoing adjustments to our reserves in <unk> I do want to note two items first ripped.
Reported revenue for the quarter ended slightly above the high end of our guidance, reflecting modestly better than anticipated underlying performance in our <unk> business.
Combined with the year end favorable reserve allowance on receivables related to a prior period.
Second.
As we noted in our preliminary release in January .
<unk> revenues declined in the quarter.
As we strive to optimize capital returns in our consumer business.
A reduction in advertising spend modestly outpaced the decline in revenues improving our quarterly contribution.
And I would say, while we're in the early innings of our efforts here, we're starting to see signs of stabilization in a number of important metrics like conversion and retention.
So if you turn to slide five.
You'll note that we identified these operational priorities in our third quarter call and they're all listed here on this page, but before I go through some of the specific actions we've taken since November 15th.
I would note that we believe we have made substantive progress across the organization in the past three months, adding targeted resources to the organization to accelerate growth.
Prioritize projects and at the same time, we've begun to implement processes that established that operational financial discipline, we talked about.
While some of our early actions will improve our performance financially quickly the bulk of our work will take time to impact our financial performance.
But we believe that many of the operational issues, we are addressing have clear solutions.
And we believe we have both the resources and the team to address those issues swiftly.
As a result, we remain optimistic that against the backdrop of our strong brand.
Our mission driven and talented team our unique product solutions and the ongoing macro environment that we serve that increasingly recognizes the need for accessible high quality behavioral care.
We can build significant shareholder value over time.
Looking at more closely at our priorities I want to take each in turn.
We believe there's a significant opportunity to take advantage of the synergies between <unk> and <unk>.
Unifying the customer acquisition funnel, leveraging the company's robust website traffic and brand awareness in the <unk> space and simplifying the process to submit claims for all of our members.
We've implemented a number of changes in the funnel that we expect to drive improvements in our b to b to C conversion rate.
And this means increasing the number of customers that visit our consumer website that ultimately use talk space as part of their insurance benefits.
An upgraded version of the unified funnel is expected to be released by the end of this quarter.
We've also recently launched Super Bills, a feature that helps our members to expedite reimbursements for mental health service claims, particularly for out of network claims.
We expect this initiative to further strength in conversion and retention rates across our customer base over time.
Second.
We've recently introduced a number of changes to increase our network capacity and enhanced talk spaces value proposition for our clinicians for example.
We're actively assisting therapists today and adding licenses across several states to help alleviate regional provider shortages in.
And the state of Washington for example, where there's been significant state wide shortages inexperience therapist, we've meaningfully increased our clinical capacity in the first quarter directly as a result of the actions we took to improve licensing.
We've also redesigned our providers compensation, improving the talks base value proposition for our therapists as well as increased training.
Both of these actions are expected to improve engagement and assist in recruiting therapists to our platform again.
We are beginning to see early signs of improvement and therapists retention and satisfaction as a result of these changes.
Third.
We're investing incremental resources to fully capture the large and growing demand from our health plan and our enterprise partners.
We've added meaningfully to our DTE sales organization in the first quarter and we continue to expect to expand the team throughout the year.
We've also allocated more marking resources to the <unk> side with the aim of driving both penetration and the utilization for our covered lives.
Fourth.
We continue to focus on optimizing capital capital deployment for our consumer business.
This includes reducing the media spend in the back half of the fourth quarter, while also more closely managing or refunds in our discounts.
We've also as I noted observed a stabilization in our customer retention drip.
Driven in part by the recent efforts to unify the funnel and improve the onboarding experience and clinical tools for our providers.
Fifth.
<unk> been focusing our efforts to develop several new products.
This includes bundled offerings to better serve our enterprise customers needs in <unk> offering a range from self help to therapy to psychiatry.
We've also introduced live video sessions as part of our initial patient evaluation process and we're finding that is improving the therapist pastry and fit and early reactions to this change are quite promising.
We've enriched our self help content beyond couples therapy and improve the user interface for those patients. It offers more value and services that we can provide to our enterprise customers.
Sixth and finally, we continue to focus on optimizing cash flow overtime.
As I mentioned in our prior calls we believe we have ample cash resources to invest in the enhancements the upgrades expand our capabilities and ultimately deliver on operating leverage over time.
But we've taken some specific actions for example.
We've already begun to implement a new billing and claims management system, which we expect will meaningfully reduce reserves and increased cash collections from our b to b business over time.
We've built out a full financial accounting and reporting team to improve both our reporting our controls and ultimately we become a better allocator of the shareholders' capital.
We've implemented a pricing committee to optimize our <unk> customer mix.
And improve returns.
And as I discussed before we're optimizing our advertising spend across the BDC platform in order to improve contribution there as well.
We believe that all of these initiatives allow us to leverage our platform and our cost base and can enhance our cash flow overtime.
And drive stronger competitive and financial performance.
With that I'll turn the call over to Jennifer to provide more details on our operating and financial performance Jennifer over to you.
Thank you, Doug and good evening everyone.
Much of my discussion will be presented on a sequential basis, comparing the fourth quarter 2021 result.
The third quarter 2021.
We believe this presentation is most useful to understand the business performance given the shift in the revenue mix. The initiatives, we started to implement in November and the rapidly changing competitive landscape.
Starting with slide six fourth quarter revenue was $29 $2 million.
11% sequentially.
Reported basis from the third quarter.
<unk> revenue was $12 $7 million up 64% on a reported basis.
In the third quarter.
Tribute a volunteer approximately 18% growth in the underlying revenue from both an increase in database sessions and DTE customers.
The remaining growth was due to changes in revenue reserves related to prior periods.
When we normalize for these adjustments.
Revenue would have been $10 $1 million and $11 $9 million in Q3 and Q4, respectively.
Our <unk> revenue declined 12% in the quarter to $16 $5 million driven by a lower number of active users as we reduced our advertising spend by 15% sequentially.
Offset in part by an improved mix.
Our plan.
Our fourth quarter gross profit grew 13% sequentially to $16 million with a gross margin of 54, 7%.
Sequentially, primarily due to lower revenue reserve on day to day receivables versus the third quarter.
Absent these adjustments related to prior periods fourth quarter margin would have been 53, 5%.
Impacted by an increasing shift in revenue towards database and a greater number of full time therapists.
Turning to slide seven gap.
GAAP operating expenses in the fourth quarter were $44 $5 million compared to $39 $4 million in the third quarter.
GAAP cost base grew by $5 million quarter to quarter, mainly due to higher stock based compensation and nonrecurring items.
Excluding these fourth quarter operating expenses were down by approximately $1.5 million sequentially.
This was driven by lower media spend.
Partially offset by higher employee related expenses.
To increase head count increased competition for talent and professional services fees.
Fourth quarter net loss was $21.1 million and adjusted EBITDA loss was $17 $6 million.
Our cash balance as of December 31 was $198 million.
Excluding one time items, our cash balance would have been approximately $200 million at the end of the quarter.
Turning to slide eight for a closer look at our <unk> performance.
As I mentioned earlier <unk> revenue for the quarter grew 18% on a normalized basis.
This reflects an increase in the number of sessions.
As well as significant growth in our <unk> customer base in the quarter.
We ended the quarter with approximately 69 million eligible lives and increase of 22% versus the prior quarter.
Solid pipeline of additional lives going into 2022 .
As Doug noted, we see a significant opportunity to grow our <unk> franchise, expanding our relationships with existing health plan partners as well as launching coverage with new players.
The number of completed EAP and N D. H sessions was up 14% sequentially in Q4.
And then by modestly improved utilization of our services.
While the number of active b to B users at the end of the period declined one 5% to 31800 as of December 31.
This is due to a decline in therapists activity during the holiday season.
We have already seen a rebound in January and active users.
We added 19 enterprise customers in the fourth quarter and grid DTE revenue more than 19% quarter over quarter.
This recurring revenue is more than 40% of our b to B business and as Doug mentioned, we have launched several new accounts already this quarter.
Turning to slide nine for a closer look at our B to C performance.
The new declined 12% sequentially.
And then by a 15% decline in active users, partially offset by an increase in our appeal as our members continue to migrate toward higher subscription tiers.
We spent less money on media in line with the expectations, we outlined last quarter.
Advertising spending was down 15% sequentially as we worked to optimize capital returns in our consumer business.
The reduction in advertising spend outpaced our revenue decline modestly improving our quarterly contribution.
Turning to our conclusion on slide 10.
As we discussed during our third quarter earnings call and reiterated last month at the Jpmorgan Conference.
We've been taking tangible steps to improve performance.
This includes unifying the b to B and B to C funnel to improve conversion.
<unk>, our clinical network to drive utilization and retention.
Optimizing our b to C returns and expanding our product suite.
While the initiatives outlined today will take some time to materialize in our reported results. We believe those will drive growth and profitability over time, and we look forward to keeping you updated on our future progress.
With that we'll open the call to questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchstone telephone.
Again to ask a question. Please press Star then one.
Our first question comes from Ryan Daniels of William Blair. Your line is open.
Yeah.
Please make sure your phone is on mute.
Hi, sorry can you hear me.
Yes.
Hello, Hi, Hi, this is Nick in for Ryan Thanks for taking my question.
I guess just to start if you could provide a little bit of an update on the W. Two workforce transition.
I know I think we've asked in the past that there was kind of a timeline you guys are going on if you've got any changes there I appreciate that.
Yeah. Thanks for the question Nick So.
Not.
Yeah.
You mentioned.
So the timeline, but I can tell you just the evolution that we made and the progress we've made over the last few months.
We did hire them you know we had higher W. Twos overall for the fourth for the fourth quarter. So we did make progress on some operational efforts related to that so as Doug mentioned earlier enhancements around productivity and capacity of the network. At this point, we don't have a specific plan for the network overall.
Operational.
Efforts in place to improve the capacity and utilization.
Okay. Thanks for that and then I guess next you've mentioned in the past.
You need to do a better job kind of bundling product offerings I'm wondering how you're tracking there and is there any other metric other than just kind of like RP. You know you guys are tracking like multi bookings or something like that that.
You guys are tracking that you can update us with.
Yeah.
Yeah. So.
We did.
Has a few advancements and we have initiatives with regard to bundling in our product offering and I would say that has gotten traction with our pairs.
We mentioned the progress that we've made both with regard to enterprise clients as well as expanding lives.
Within our pair account.
Attribute a lot of that success to us bundling our services across herself.
Self-help platform as long as our therapy, and our saga psychiatry services.
Outside of that I don't have anything other specifics to recognize as far as.
The portfolio combination.
Okay, Great I appreciate that I'll hop back thanks.
Yes.
Thank you. Our next question comes from Charles <unk> Cowen Your line is open.
Yeah. Thanks for taking the question.
Doug maybe you wanted to talk about.
You talked about optimizing media spend and then obviously we can see there is there is a direct correlation between.
Media spending and membership growth.
You have given example, what when you're saying optimizing can you give us some examples of what what you are doing in this regard.
How can we sort of what does that actually entail.
Hey, Jennifer do you want to yeah, Yeah, I'll start Charles Thanks for the question. So in our third quarter call and then at JP Morgan we talked about.
Our rising cost of acquisition and that primarily being driven by a declining conversion or stabilization of conversion.
It's really positive to see in the fourth quarter on top of that we've made specific efforts as we look to optimize the spending in the channel. So specifically as you asked related to analytics and working with a third party to better understand the rois of our funding channels as well as investment in our marketing agency.
Better make sure that we're kind of spending and optimizing it.
As Ben from from those dollars.
And.
I would just add as both Jennifer and I talked about.
The unification of the funnel.
So.
Taking the same traffic that is coming to our website.
Easing the access and experience for our covered lives are insured lives.
Directly impact.
Pak <unk>.
LTV and all of the key metrics so.
It is literally turning alive that otherwise.
A potential visit to the website that would otherwise decide not to pay out of pocket that gives them an alternative.
And I would add for those that are paying out of pocket.
Superville function that we've just recently launched is another it's early early days of that new product. It's another way to extend the duration of that customer.
Increase retention so a lot of what we're talking about both in terms of the specific.
Optimizations that Jennifer talked about as well as the unification of the funnel really go to improving the economics of our media.
But that's that's helpful. And then maybe if I could just follow up.
Your you know your competitor your one of your large competitor here in this space talked about that.
Media spend or sort of those kind of costs youre seeing it kind of.
Down a little bit from a year ago can you give us a sense of what youre seeing in terms of.
Cost for media spending right now and sort of what do you. What are you kind of expect here for at least maybe for the first part of the year.
So just on the first the.
First element there Charles.
I wouldn't say that you know higher cost of advertising has not been a significant factor for us.
Continuing on into the fourth quarter and to date, the bigger factor of the things that we've talked about as far as conversion goes with you now.
As far as you know our level of media spending.
As we mentioned we reduced that in the fourth quarter will continue on about that same level of spend as we look to prioritize investment outside of media into our talents and our processes and infrastructure and building out that process and building out the <unk>.
So that we can scale.
Yes, I mean, just because things are Charles.
Doug.
The.
Amit driver for Us is conversion.
The marginal cost of the advertising at this point is the material mover value, it's driving conversion and retention. Those two elements are aware and obviously as Jennifer said, we're going to optimize the dollars that we spend and take advantage of.
Better analytics and methodology in doing so.
But the real driver of value for us is going to be around conversion and retention.
That's great. That's sorry, one last follow up for me and I'll jump back in.
I think talk space had a lot of a lot of.
What do you call a lot.
A lot of.
Awareness driven by some strong spokes people that you had a gain wanted to wanted to see if you saw.
Still have some high profile spokes people.
Engage with for the company and sort of if theres any kind of change the strategy for that going forward. Thanks.
Yes.
I'll answer by saying.
<unk>.
We continue to have really outstanding brand recognition.
And we continue to invest behind that because again Charles brand not only works in driving our b to C business, but it is increasingly important.
Building out our <unk> business and the utilization.
Those.
Millions of lives. We have that is very important we're not going to comment on the specific spokes people other than to say you may have seen some we just launched a series of.
New advertising.
And you can certainly go on Youtube and look at the Michael Phelps add it is an excellent one.
Great. Thank you.
Thank you. Our next question comes from Daniel growth Lie with Citi. Your line is open.
[laughter].
And at present ski on for Danielle Thanks for taking the question.
I had a question on how membership duration is trending.
And how that varies between the E channels I think in the past you guys had said that the average duration of about five months on the platform and just curious if that's a whole and how that compares to your members.
Yeah Ana Thanks for the question, we see in our current data in our DTC business, we have roughly four months of average duration.
Of those numbers.
And the B to B business can I just interrupt one second.
Haven't seen a decline in that and we're just saying it has been consistent.
At around that level for a period of time.
Right.
Okay, and as we look to the B to B business.
The equivalent of duration, we would call utilization in other states are our current rates.
We're much less than what we see in the BDC business and that is why it is such a significant opportunity for us so as we work on effort.
Across the platform those on.
Conversion, which is penetration in our <unk> business as well as retention, which is equivalent to utilization and duration in the <unk> business.
Those efforts will pay off as we looked at it increased that duration of Ralph.
Of our members.
Okay.
And then as a follow up on that you guys are getting a higher mix of video visits in the DTC channel last quarter, which has led to our few uplift.
I was wondering.
If the average duration for the video visits with us about four months like that.
We don't measure duration.
As far as what.
Kind of modalities are members shoes, so our comment on higher mix, so higher selection of the more premium subscription areas include.
Asynchronous.
Communication as well as the video sessions.
Okay Gotcha.
Thank you that's helpful.
Thank you.
Our next question comes from Stephanie Davis of ethylene be your line is open.
Hi, Yes. This is joy Zhang on for Stephanie. Thank you for taking my question.
Given that you had a departure and your C suite of someone who is heading this shift towards b to B plus.
Should we be thinking about the growth outlook for the V to me that that's compared with the projections you provided when you came public.
Yeah, I'm not going to comment on the projections provided by the prior management.
I will say that you as you know.
The first two quarters, which prior management.
We're we're misses and estimates.
What I will comment on is that as I mentioned on our call in January December was our strongest.
Month for DTE sign ups. It has actually been exceeded in the month of January .
We added covered lives.
In December in January and we continue to do so in February .
We have added resources in the first quarter to our B to B business, we've added marketing spend in our <unk> business and we've also added.
The whole series of.
Control functions.
Pricing discipline.
Billing discipline.
Ultimately optimize not only our revenue, but the cash generation from those businesses. So I would say today.
Our b to B business is stronger than it was.
On November 15th and we expect it to continue to gain momentum through the course of 2022.
We have not and we are not for the moment, providing any guidance around where those businesses will be.
In part because as we've said I said in my opening comments and Jennifer said.
While we're making lots of changes many of those things will take time to come to fruition, but we're we believe confident that the changes, we're making will ultimately strengthen the business. So that's how we feel about it today, we feel better today than we did on November 15.
Yeah.
Okay.
Paul.
Maybe I'll sure sure.
Good.
Maybe that's a follow up we've seen some high profile transactions in that space in the past few months. So maybe can you just walk us through the value of skiing as Standalone company versus being acquired by maybe a large payer or provider.
Oh.
I would say, we're focused as a management team.
On optimizing the value of the company to our shareholders.
As the chairman of the board I would say that we always have the interest of optimizing value in whatever fashion creates most value for our shareholders, but right now the things under our control are to run the business better.
To grow our b to B franchise to optimize our b to C business to improve our network to increase and improve our controls and financial rigor and discipline and cash flow generation and so those are the things we're focused on and we think that's going to deliver a lot of value over time.
We will remain open to any pads that would get us to value.
Yeah.
That's very helpful. Thank you.
Yes.
Okay.
That's our unless I'm mistaken I think thats. Our last question. So thank you for everyone for the excellent questions and for participating in the <unk>.
Fourth quarter and year end call and Jennifer and Mike and I look forward to two.
Speaking one on one with.
With our shareholders.
Our upcoming performance in 2022, so thanks very much everyone.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you also to pay you may now disconnect have a great day.
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Yes.
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