Q2 2022 Talkspace Inc Earnings Call
To be member growth.
We now estimate that several thousand additional <unk> members join our platform each month via our consumer website.
As a result the.
Total number of active members on Tox based platform increased by 7% in the second quarter from the first is growth in B to B users outpaced BDC member declines.
Importantly, we believe that our managed behavioral health cohorts are sticky.
Thus monthly utilization improves as cohorts mature.
Continuing to increase the <unk> funnel inflow will ultimately build our <unk> user base over time and improve the platforms overall unit economics.
Moreover, we don't recognize this conversion funnel from B to B membership in our talc calculations for BDC, meaning that conversion and LTV from the <unk> members is not included in our consumer marketing calculations.
We also introduced new session modality, and our <unk> business in the second quarter for our customers.
This product change was important to our Payors and it's designed to improve the <unk> member journey as.
As expected. These changes initially reduced volumes in the second quarter, but now these improvements are driving increased customer conversion satisfaction, and we believe revenue growth heading into the third quarter.
We continue to improve the <unk> platform experience for our members and therapists and we expect to drive more engagement with ongoing product enhancements released during the back half of the year. We remain in active discussions to increase our covered lives with existing large national payers for a number of these accounts.
While lead time at network connectivity creates uncertainty around the specific launch timings, we do expect to have meaningful additional lives added during the second half of 2022.
Our <unk> business grew nicely in the second quarter, including a launch with a major national retailer as employers continue expanding mental health benefits for their employees.
We continue to invest in marketing and prospecting and pipeline management tools.
All to drive stronger sales as we increasingly target are larger opportunities.
We also implemented pricing changes designed to enhance margin over time.
Throughout the quarter, we added logos on a gross and a net basis.
However, we have begun to notice longer lead times for converting these larger accounts and increased discussions related to more cost effective capabilities.
As such we began to test market, our Tox based self guided product at the end of Q2.
It's very early days initial efforts have been quite encouraging and we expect this product to be an important component of our DTE sales efforts going forward into 'twenty three as we ramp up our marketing efforts around the product.
Turning to our work optimizing our BDC business, we continue to focus on improving unit economics in a variety of ways, we've worked to optimize our spend.
Increase organic content improve conversion rate potential customers facilitate out of network bill submissions and work to increase retention.
While not all of these efforts have been needle moving it's worth noting that in aggregate we have delivered on a large improvement in efficiency in the past two quarters.
Media spend is down nearly 50% sequentially in the last three quarters, while revenue was down 18% on a reported basis and down 13% on an adjusted basis.
We enjoy declining CAC for two consecutive quarters, reversing a six quarter trend.
And average revenue per user continues to rise slightly as well as consumers choose our higher tiered subscription products.
Course, we remain cautious in the current environment as media costs in many channels remained elevated despite a weakening economy and consumers have to manage inflationary headwinds that might impact their disposable income available to spend on therapy.
Beyond direct media spend we've been looking to optimize our cost structure in our consumer business and took a number of additional steps at the end of the quarter that should improve cash flow generation in that business throughout the remainder of the year.
Third we continue to focus on making talk space a platform of choice for our network.
As we discussed last quarter, we made changes in the compensation structure for our independent contractor network as well as improving the design and functionality of provider dashboards, we reinvested in training and development, we've added resources to our recruiting efforts and as a result, our ICP network added more therapists in the second quarter.
Then we've added in the two previous quarters combined.
Many of whom are now completed their onboarding and training and are ready to meet the increased demand, we expect to see from our b to b customers.
In addition, the average therapist on our ICP platform devoted more time to talk space in the second quarter, which also expanded our platform's capacity.
As I talked about in our last call we needed to make changes to the clinical efficiency and engagement of our W. Two NPP network.
And Unfortunately, we were not able to operationalize many of those changes in Q2.
But we've now begun to take action necessary to improve both the efficiency.
Engagement and the productivity of that network.
This network's inefficiency negatively impacted our margins in the second quarter.
But as a result of the actions we've taken during the start of Q3, you will see us convert a number of W. Two therapists back to independent contractors and reduced the size of this network temporarily.
We have also now begun to hire new full time therapists with clearer expectations for the role on the platform as full time employees.
As I mentioned in our last call, we would hope to see margins improve as more of these initiatives and changes take effect throughout the remainder of the year.
Finally.
We want to focus on optimizing cash flow, which remains a priority across all of our business here too.
I believe we've continued to make progress we've improved our <unk> revenue collection part through greater automation and progress in our billing and collection processes. This quarter and further improvements there are expected throughout the year.
<unk> upgraded our real time reporting systems, which gives us greater visibility into account level profitability and unit economics.
And is therefore enables us to make more rapid decision, making and more robust pricing decisions.
Beyond the reduction in media spend and the actions we've taken on the clinical side of our W. Two network. We've also identified a number of opportunities to further reduce operating expenses.
And we continue to expect to take actions through the remainder of 2022.
That will reduce our EBITDA cash burn each quarter.
We believe we have more than sufficient cash to invest and continuing to grow and strengthen our businesses. While at the same time drive the business towards cash flow breakeven and ultimately to deliver value to our stakeholders overtime with that I will turn the discussion over to Jennifer.
Thank you, Doug and good evening everyone.
With prior quarters I'll speak to sequential trends and we believe this view provides useful context, given the meaningful operational initiatives, we implemented since November and the <unk>.
Ongoing revenue mix shift driven by strong momentum in our <unk> business.
Starting with slide five second.
Second quarter revenue was $29 8 million.
Down 1% sequentially from the first quarter.
Second quarter <unk> revenue was $14 6 million.
Up 13% sequentially on a reported basis.
Performance was driven primarily by double digit growth in DTE revenue and more modest growth and b to B sessions.
<unk> revenue was $15 3 million down 11% from the first quarter on a reported basis.
The lower number of active users was partially upset by lower promotional activity and an increase in our <unk> and <unk>.
Larger portion of our members selected subscription plans.
Live video content.
As you see in our footnotes, we classified post session number payments as B to B revenue in the second quarter.
Our work to improve collections resulted in a meaningful increase in post session payments in the first half.
Which drove further analysis regarding this revenue classification.
Which we believe is better matched to <unk> revenues.
We have previously reported this revenue at <unk> in the first quarter.
On a comparable basis <unk> revenue would have been up 6% and b to C revenues would have been down 7% quarter on quarter had we not made this adjustment in Q2.
We do expect continued improvements in collections and resulting cash flow.
Second quarter gross profit declined 3% sequentially to $14 $5 million.
Margin at 48, 7% was down approximately 110 basis points from Q1, due primarily to our revenue mix shifting toward our b to b business as well as a full quarter impact from the.
The therapist compensation increase that we implemented in Q1.
Turning to slide six.
Quarter 2022, GAAP operating expenses.
Just under $36 million down.
Down slightly from the first quarter.
Excluding stock based compensation Q2 expenses were approximately $32 million compared to $34 million in the prior quarter.
Driven by lower media spend as we held head count and other corporate related expenses.
Consistent quarter over quarter.
Second quarter net loss was $23 million.
Adjusted EBITDA loss narrowed to $17 million, an improvement of $1 5 million compared to the first quarter.
This was driven by improvements to unit economics in the <unk> business and growth in <unk>.
These were partially offset by our investments in scalable operations.
To support further business growth, including processes and controls.
We continue to maintain a strong balance sheet with $167 million of cash on hand as of June 30.
We believe this offers great flexibility to fund operations and invest in our growth initiatives for the next two years.
Turning to slide seven to look more in depth at <unk> performance.
Second quarter <unk> revenues were up 13% from the first quarter on a reported basis and up 6% on a comparable basis.
Performance was driven by 18% sequential growth and DTE revenue as we added 16, new accounts during the second quarter and had the benefit of several large accounts launched late in Q1.
And our payer business, we ended the quarter with 77 million eligible lives.
Slight increase from Q1.
We expect as Doug mentioned to add additional lives in the back half of 2022 as the operationalized new markets for existing large national providers.
Our lives were relatively flat in the quarter, we saw an acceleration in b to B is a registration.
Driven by our work to leverage the consumer funnel and make it simpler for covered numbers to access the platform.
Several changes made to the user experience and b to b during the quarter, including launching our session modality screens negatively impacted conversion in the quarter, but that trend has now been reversed.
We expect penetration to continue to increase as we continue to enhance the conversion of <unk> visitors into our platform.
Turning to slide eight for a closer look at our B to C performance.
<unk> revenues were down 11% sequentially on a reported basis.
Down 7% on a comparable basis, excluding post session payments.
As I mentioned earlier, our performance was driven primarily by a 9% decline in active members, partially offset by an organic increase in average price and fewer discounts.
Well at this moment, we are not seeing any change in our consumers' behavior and customer acquisition costs has become more favorable for the second quarter in a row.
Also aware that the macro environment is softening.
This could potentially be a headwind for a b to C business.
They also serve to accelerate member enrollment through our B to B business, where the cost of therapy can be primarily covered by the members' health benefits.
Turning to our conclusion on slide nine as Doug mentioned in his remarks, we are encouraged by the progress we've made to date, which continues to drive growth in our <unk> business optimize unit economics in our <unk> business and improve the experience for our therapists.
We believe that our initiatives and focus on disciplined execution.
<unk> improvement in.
In performance and ultimately profitability over time for our stakeholders.
That we will open the call for questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Our first question comes from the line of Ryan Daniels with William Blair. Your line is open.
Hey, guys. This is Jackson Don for Ryan Daniels. Thanks for taking my question to start off I'm, just kind of curious what you guys are seeing on the wage inflation front and if you have any more color on that as it pertains to hourly wages versus salaried and then even kind of take this further are you seeing any further headwinds as it relates to this or even other opportunities.
Or initiatives you can implement to help kind of purpose.
Any color you'd have on this would be appreciated. Thanks.
Yes, Jack it's Doug Braunstein, Thanks for the question.
<unk>.
We spoke about.
Earlier on the call.
We took a.
Increase too.
The level of compensation that we pay to our therapists.
Early in.
In the first quarter.
And that took effect in mid first quarter and so.
In part the pressure on margin in the second quarter was reflecting in part that increase in compensation. We believe based on where we are today our level of compensation is quite competitive and attractive and as you heard our.
Our recruiting.
Pendant contractor network or 10 90 nines.
We recruited more therapist the platform this quarter than we did in the previous two quarters combined.
We have much more work to do on the efficiency level of our W. Two network, but thats really not an inflationary issue that's an efficiency issue for us.
And I would say across the platform for our full time non therapist employees, we like others.
The challenges of.
More difficult recruiting environment.
The good news for talks space in part is as we.
And to.
Attract individuals who also are quite mission driven.
And that has worked to our benefit in terms of.
People being attracted to come work on the platform and stay on the platform.
The important work, we do for our members.
Awesome. Thank you I appreciate that.
As a quick follow up into I know one of your goals was to target larger accounts, what you've seen in <unk>.
Inside the $1 million contract signed last quarter.
Just kind of curious do you have any updates on selling to these larger and larger accounts you can comment.
And then two are you having to kind of change your strategy on selling to the b to B side, just given the reduced DTC spend.
Just kind of thinking about this with the lessee.
Youre thinking maybe less possible brand awareness.
And maybe if hospital accounts is going to be just any update you have on that would be great. Thank you, yes, so actually.
Part of what we mentioned in the call is actually our traffic to the site.
And our cost our traffic went up in the second quarter and our cost per visitor went down.
With very favorable and what we also mentioned is because of that unified bundle change we made.
Late in the first quarter, we are now driving through our B to C side.
A significant increase in VIP customers, who are able to come in to the website now and seamlessly find whether or not they have coverage through one of our payer partners.
Where EAP plans and then to stay within the site and literally sign on as a <unk> member.
Thats been thats been actually quite advantageous for us and we expect to continue to see more traction there, particularly as we add additional covered lives in the back half of 2022.
I would say.
The.
The first part of your question around DTE.
We did sign up a number of large accounts.
During this quarter.
But what we are seeing is for many of the accounts the accounts, which were in active discussions.
They are deferring implementation and decisions.
Two the beginning part of 2023.
Much more holistic view on what benefits and what cost they are going to.
Commit to for their employee populations.
We've got quite a number of.
Very attractive.
Engaged.
Discussions with large clients, so our targeting and our efforts there are improving the flow of discussions that we have.
But.
As both Jennifer and I caution.
The timing to actually get the implementation for a number of those large accounts given the macro environment.
May be it may be lumpier than we would have otherwise hoped and expected it to be during the course of 2002.
But the issue.
You should rest assured for most employers today and for many many of their HR executives.
Delivering incremental benefits for behavioral healthcare remains.
Top tier priority and so.
The level of engagement and discussion remains very robust for us.
Great. Thanks, guys. Thanks.
Your next question comes from the line of Stephanie Davis with SBB Securities. Your line is open.
Hi, guys. This is Anna.
Thank you for taking my question.
I'm wondering if you would be able to pivot some of that BTC cost basis.
Business came through the BV margin or if those markets may really be able to expand as the business scales.
Yes so.
Yes.
One of the things that we absolutely have done during the first six months of 2022.
As we have pivoted.
Fair amount of the savings that we experienced in the <unk> business by our.
Most 50% reduction in media spend and deploy that again.
More salespeople, indeed to be more customer support and need to be more technologists to do implementation of new products in b to B C.
So much of that savings has really been designed to drive revenue and improve our.
Collection of that revenue and improve the customer journey and experience for our VIP members.
The margin.
Is really partially a function of.
Optimizing our W. Two network, which as I said that was for me a little bit of a disappointment in terms of the progress.
In Q2, we didn't make as much progress as I had anticipated, but we've taken a number of actions at the beginning of Q3 that we hope will be.
Beginning to demonstrate improvements in margin in the back half of the year.
And the other opportunity that we've got in the <unk> space quite frankly is to optimize our pricing strategies.
Which again.
We look forward to the back half of the year as an opportunity to really take advantage of that.
Got you great. Thank you that's very helpful. And then just a quick follow up.
I'm wondering if you could talk about just curious can you give alternatives philosophy event.
The current macro and greatly as well Pat.
Okay.
Well I.
I don't think our position.
Has has changed at all which is we continue.
Yes.
Management team and as a board to be each to re increase focused on optimizing shareholder value.
And.
The course in front of us, which Jennifer and I feel quite strongly.
You bet, we've made a lot of progress in the last several quarters is to improve.
Revenue with B to B business optimize our b to C and really begin to generally focus on reducing our cash burn and moving this company towards cash flow breakeven.
We remain open to.
Two.
Two doing that both on a standalone basis.
And open to any strategic dialogue that we think gets the shareholders.
To value creation.
More expedited and more efficient manner.
We're going to we're going to keep the management team focused on doing what we can to improve our business and then we remain open to whatever opportunities are out there I will say by the way on the growth side from a strategic standpoint.
There are we've had we've been approached by numerous companies.
Better private today.
We're funding has become much more challenging.
And we are taking a very disciplined approach to thinking about are there product extensions that we can add.
But we maintain our focus on.
On our path towards profitability and cash flow breakeven.
Okay got it thank you great color.
Okay.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
There are no further questions at this time.
So operator, thank you and I appreciate everyone participating.
We know it is a very busy period in time Theres lots of calls to make we look forward to engaging.
Both with our sell side research and our investors in.
In the coming days to answer questions that they might have and again on behalf of Mike.
Mike and Jennifer and myself, we appreciate the time and we look forward to continuing to update this group on our ongoing progress.
To really deliver value to our constituencies. So thanks for participating in today's call.
This concludes today's conference call you may now disconnect.
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