Q2 2023 Talkspace Inc Earnings Call
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Yeah.
Good morning, and welcome to talk spaces earnings conference call for the second quarter of 2023.
Janine fine director of communication.
I hope you've had the opportunity to access actually requested.
This is our website presentation of our earnings results.
Well he's this presentation to walk you through today's remarks bleeding today's call see a doctor John Collins.
CFO Jennifer.
Management will offer their prepared remarks, and we authenticate your questions.
Measures will discuss on this call are expressed on a nonprofit basis and has been adjusted to exclude the impact of one off items.
Conciliations that these non-GAAP .
Measures are included in our earnings release and on our website <unk> Dot com.
Also want to remind you that we will be discussing forward looking information today, which may include forecasts targets and other statements regarding our plans call strategic priorities and anticipated financial results.
While these statements represent our best current judgment about pizza results and performance as of today are 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.
And today's earnings press release.
More information please review, our safe Harbor disclaimer on slide too.
Now I will turn it over to Doctor John Collins.
Thanks Janine.
You all for joining us today I.
I am pleased to report talk space had another strong quarter as we continue to execute against our strategic initiatives and rapidly progress on our path to profitability destroy.
The strong results of this quarter provide us with the confidence that we will exceed our original guidance and to raise our fiscal 2023 revenue and adjusted EBITDA targets as I will discuss shortly.
Dishes I, particularly excited to relay that this quarter, we with cash flow positive for the first time since becoming publicly traded which Jennifer will discuss later.
Before you turn into our financial results. So I wanted to call out three important mental health reports that will publish this quarter.
General issue that new advisory about the effects of social media use youth mental health is one of the greatest threat to to help you get a cigarette smoking.
And another report loneliness as a huge issue for 36% of Americans, 61% of youth and 51% of mothers.
<unk> serious lowliness with associated increases of depression and anxiety.
And a third report 22 per cent increase in mental health emergencies, and teenage girls related to a sharp rise in hospitalizations for eating disorders and suicidal behavior.
On the positive side of June we released our latest study.
<unk> survey.
It's described Recalibration of how people view Batzel health services.
The study found that more people than ever are open to help seeking help for mental health issues and just as importantly.
King about it without fear of the stigma usually associated with mental health conditions.
Feel that mental health conditions in therapy are now socially acceptable and normal.
For example.
90% of respondents currently in therapy say, they've shared their experiences with friends and family other important takeaways include.
98% of responded sleep mental health treatment should be covered by the insurance regardless of a diagnosed condition.
Same way that preventive care is covered her physical health.
86% of respondents also said that getting therapy coverage through their employer would make them more likely to stay out of their job.
All of these reports are powerful indicators that again demonstrates the growing need and demand for covered mental health care services across all ages.
Graphics and geography and.
And each of these use cases, the chalkface platform is strategically situated to address this rapidly growing demand.
That'd be turned to the court is financial highlights.
Consolidated revenue accrued 19% year over year $235.6 million, driven by sustained momentum and our <unk> business, which was up 82% year on year.
Our pay a revenue grew 135% year on year, driven by a 42 per cent increase in covered lives at the end of the period of 42 per cent growth and capture right at a higher sessions per user.
This reflects strong and growing user engagement.
Such meaningful acceleration in our payer business occurred as a result of a relentless focus on member experience in critical quality at meaningful improvement in clinical supply and time to access.
Our consumer business continue to decline, albeit at a slower pace compared to prior quarters as we continue to optimize our media span, which is highly correlated to this category.
As discussed in the first quarter, we have a psychiatric business, primarily for medication management, which we see as another significant area of growth.
And the second quarter, we optimize our offerings to better serve a recurring subscriber base improving the unit economics.
Furthermore, we started testing a marketing campaign to increase awareness of our prescription capabilities and trained our providers to ensure a more efficient internal patient referral process.
Given the strong market demand for medication management overtime, we expect psychiatry to become a larger portion of the overall revenue mix.
All efforts to optimize our business platform continues to yield strong result of the second quarter, we reduce the cost base by another $1.6 billion secretly at 11.4 billion year on year, why we continue to grow revenue accurate uses as sessions.
This resulted in another significant reduction in our quarterly either the laws, which came in at $4 million at 2.5 million dollar improve it versus the first quarter at 13 billion dollar improvement year over year.
We also made meaningful progress in our revenue cycle management at Treasury functions, which allowed us to improve revenue collections, which contributed to achieving positive cash flow.
Let me know Boo to the progress we continue to make our for strategic initiatives I laid out previously.
Oh first priority is to drive payer revenue growth, which is achieved by expanding the number of active users who are covered by their behavior health benefits and employee assistance plan as well as focusing our efforts to make aware that these benefits are available at improving utilization.
Second quarter payer revenue was $18.5 million up 25% versus Q1 at 135% versus the second quarter last year, we added approximately $12 million that new covered lives of the quarter, while session volumes were up 17% sequentially from 172.
Thousand suggest over 200190% year over year.
Importantly initiatives to enhance our user experience such as improving immediate access and a relentless focus on clinical quality have resulted at a higher proportion of existing uses returning for more sessions within a shorter period of time.
As a result daily active members using their behavior health benefits have grown approximately 50% year to date.
As we progressive for the second half of the year, we will continue to focus on driving higher capture rates and utilization through product enhancements marketing initiatives to increase your curls.
Example, recently made it much easier for members to schedule recurring session and gave the therapist the ability to select a clinical areas that are most interesting to them and match patients accordingly.
Our second strategic initiatives is to grow our direct to enterprise business.
Our D T E business was up 20% year over year to $8 million, but down 7% this quarter.
Decline was due to a couple of longterm accounts moving because different coverage plans within the talk space platform and also a electrician from accounts that had joined talks space utilizing COVID-19 funding that is no longer available.
As I mentioned in the last quarter were living on our teams capability and as part of that continuing effort I'm excited to announce that out that Natalie confidence has joined as a chief business officer.
He has a history in successfully building large commercial organizations and developing business partnerships.
The result of these personnel changes is already having a significant impact as we anticipate significant growth in our pipeline of new clients and existing and new verticals.
In addition to growing the pipelines were continuing to refine our products and I'll go to market approach and recently launched the self serve portal product aimed at small businesses that allows them to sign up for our services through our website.
[noise] enables employees to immediately access those services within a short period of time.
We have also intensified our discussions with human resource leaders as they increasingly need mental health products to enhance the wellbeing and productivity of their employees.
A few weeks ago talk space exhibited at the world's largest HR confidence hosted by the society of human resource management, which recorded a record breaking year registered attendees.
There, we heard from HIV leaders and benefits manages about this strong desire to provide employees with mental health support services like talk space.
While we're looking to add new clients, we remain committed to providing best in class services to our existing clients. As a result of these efforts 11 level of customer satisfaction have engagement continues to increase across our account base.
Our service strategic initiatives to be the platform of choice for providers.
Year to date, we have <unk> a provider network by nearly 1300 therapist or 42 per cent increase at the beginning of the year walk churn has remained flat at the beginning of the year as we maintain stringent clinical quality and hiring standards.
Part of our work and cultivating and maintaining a clinical network is investing in our therapist, providing them with the best training and support tools to enable them to provide high quality and character I members. We've.
We've created and maintained and inclusive community and culture, while providing the learning a developmental opportunities that support resources to allow for continued professional growth.
They mentioned above we recently introduced a mechanism that allows provide us to focus on political areas that are most meaningful to them, which has resulted in a significant increase in provider satisfaction and engagement.
Top of competitive pay we've improved the way, we compensate our providers, including a non-financial recognition and a new <unk> bonus program right.
ICP therapist.
These changes have enabled us to achieve industry, leading <unk> access matrix and greatly improved overall that productivity year to date.
Average match times continues to decline sequentially in the median time for the first live video assertion remains under seven days.
Metrics in turn helped to build on our recruiting brand strength and enhance remember experience as engaged provided provide better care.
Carried on without work leaning into an identifying areas, where he we can optimize our business processes with the assistance of artificial intelligence.
We believe that a I should not be a replacement for the human component of therapy. However, we can leverage.
To support our therapist to improve clinical quality and to help provide clinical documentation. Our fourth initiative is the continued to achieve profitable growth by driving operational excellence.
The team has again made substantial progress on driving cost efficiency, while identifying synergies across the platform, reducing our cost base by 32% year over year here Wally revenues were up 19%. During the same time period. As a result, we nerd are adjusted EBITDA loss to 4 million.
Dollars down 77% year over year, and as I mentioned, we achieve positive cash flow for the first time since being a publicly traded company.
Our cash increased by $1 million at the end of the last quarter. This.
This progress reflects a newly built revenue operations team, which has been highly effective in increasing claims submission added Judah occasion rate and acceleration collection timing as well as enhanced treasury functions <unk>.
Alas, we continue to build the best in class control function.
Made meaningful progress towards achieving sucks compliance.
In summary, we believe that the <unk> categories will continue to few love growth as we add substantially new covered lives of the second half of the year maintain.
Maintaining our position as a leading in network telehealth mental health provider in the country.
I am also confident that several large D. T E deals will close in the second half of the year.
Our strong progress this quarter and two days later.
Let us too upward revise our guidance for.
2023, we now believe we will achieve a total revenue in the range of $137 million to $142 million up from $130 million to $135 million, while narrowing the adjusted EBITDA loss range $216 million to $19 million.
As compared to our prior guidance of 21 and $24 billion for 2023.
We also reaffirm that we believe we will achieve breakeven adjusted EBITDA by the end of the first quarter of 2024 with more than $100 million of cash on the balance sheet.
With that I'll turn it over to Jennifer to walk through the financial status Sir.
Thank you John and good morning, everyone.
I'm in today will be based primarily on second quarter results on a sequential quarter over quarter basis.
Cover highlights from our financial results and then you get more details on our updated 2023 revenue and adjusted EBITDA guidance.
Turning to slide five total revenue for the second quarter with $35.6 million seven per cent increase over the first quarter and a 19% increase from a year ago.
It'd be a pair of revenue increased approximately 25% sequentially to $18.5 million obsession volume grass at 17% and that price scratch that seven per cent.
Especially in grass is driven by another quarter, an increase capture me.
The result is continuing to leverage our brand recognition and focus our marketing efforts to drive awareness of our coverage benefit and to optimize our final.
We also grew covered lives by 12 per cent or 12 million in the second quarter.
Mentioned in our last call.
Added the entire commercial Becker business for a large pair in April and May are very pleased with the current ramp up right for this new book of business.
Regarding that price <unk> noted.
Significant progress within our revenue cycle management capabilities.
That price credit today, recognizing Q too, but it's primarily driven by an increase in our collections right.
Okay claims processing is highly complex. So we had firmly established our revenue cycle capabilities as a core competency and the results demonstrated in queue to reflect the product enhancements refined processes with our parent partners and enhance internal reporting capabilities.
Looking more broadly at this category are pair member unit economics improve meaningfully in the corner as a result of progress in revenue cycle management as well as higher user engagement and your attention.
And the drink to enterprise category revenue declined by seven per cent quarter on quarter to $8 million.
John highlighted.
You too sudden account migration to other tux Nathan offerings.
And attrition from older leather utilization accounts.
Renewed emphasis on rebuilding our customer pipeline and retaining existing account combined with our product enhancements is gaining traction and we are confident in the long term competitiveness of our offerings.
To me I can see more revenue declined 8% sequentially two $9.1 million. This is the furniture made of decline that we have seen in several quarters as they've come into it in the past. This category is highly correlated turn media sent and it also most expensive consumer discretionary spending trends.
This category continues to provide positive contribution and benefits are all number approach to our product and experiencing Christmas moving to gross profit total second quarter profit <unk>, 6% sequentially to $17.8 million with gross margin at 50 per cent.
<unk> quarter on quarter.
The result of revenue mix shift towards the pair category offset by improved pair of Avenue collection.
Turning decides six gap operating expenses decreased six per cent or $1.6 million sequentially, and 32% year over year to $24.2 million.
Excluding stock based compensation.
Too expensive is approximately $22.1 million a reduction of $1.4 million on a comparable basis versus coupons and a 30 per cent almost 10 million dollar reduction year over year.
And then stadium significant incremental progress and streamlining and strengthening our business across all categories of <unk>.
Incorporate spend we recognize savings from continuing to right size or corporate infrastructure as discussed on our last earnings call at the end of the first quarter, we reorganized our product and technology teams just focus on a leaner approach against our priority product initiatives.
This reduction was incremental progress we had made in the last several quarters to drive efficiencies across our corporate infrastructure and third party spent.
Well at the same time, prioritizing and investing in key grip capabilities and establishing robust processes and control.
We reduce been sequentially by 11% as we continued our efforts to optimize our unified member acquisition strategy.
As I mentioned, we are pleased with our demonstrated ability to leverage our brand and marketing messaging to drive awareness and acquisitions is Pam numbers.
Maybe the profitability both pair of Avenue and gross profit Chris combined with further Opex Redactions resulted in another quarter of significant in prison at an adjusted EBITDA loss, which was down 38 per cent sequentially and 77% year over year cause for $90.
Turning to the balance sheet, we ended the second quarter with $126.1 million in cash and cash equivalents.
From $125.1 million at the end of the first quarter.
As John mentioned, we generated positive cashflow during the second quarter, which was primarily driven by networking capital contractions.
Notably from our progress to accelerate the payment cyclist from my parents.
Resulted in a one time benefit and front interest income.
Going forward gleefully catch level match more closely with adjusted EBITDA.
Turning to five seven is John discussed we are raising the 20th twenty-three guidance, we provided on our last journey calm.
2023 revenue, we now estimate a range of $137 million to $142 million.
$130 million to $135 million previously estimated this is based.
Right on cue to results, including the continued strong pair revenue performance.
And for 2023 full year adjusted EBITDA loss, we now estimate arrange 16 to 19 $90.
$21 million to $24 million previously estimated driven.
Driven by top line expansion in the scalability of our queue to cost space.
Lastly, we are reaffirming our belief that we will reach breakeven adjusted EBITDA by the end of the first quarter 2024.
Cash balance as more than $100 million.
Let me highlight a few points on the updated guidance.
And pay revenue, we believe growth outpace other revenue categories this'll.
This will be driven primarily by the addition of new covered lives as well as continued growth and capture rate and utilization regarding the DTE category. We remain confident in our strategy, but as we have described we believe it will take us some time to demonstrate progress from a renewed efforts and our financial results.
And then the consumer category, they expect Chinese to stabilize do the rest of this year that remain couldn't given the macroeconomic backdrop.
Regarding gross margin, we expect this metric to remain in the range of keeps your levels as the revenue mix continues to shift towards their category offset by benefits from revenue cycle management and progress in the DTE category.
And operating expenses.
We have successfully rebuilt our cost base and created the core competencies needed to support profitable grass and we will continue to maintain a disciplined approach and managing expenses.
We believe we can drive further operating leverage from our infrastructure represented in our queue to cast space.
Before I turn the call over to the upgraded for questions I would like to summarize complaints from my remarks.
First we remain very enthusiastic about our progress and future within the pair category in his line of sight to continue expanding covered lives capture rate and utilization.
Continue to believe this to be our largest and that's possible Chris opportunity.
Second we believe the significant progress we have made to reduce their infrastructure and establish efficiencies throughout the business enable operating leverage well prioritizing.
Profitable growth investments.
Lastly, and as John described there is a massive and growing market opportunity and we believe we have the execution capabilities and product offering to be the leader in mental health care services and to deliver a longterm value creation for our shareholders.
With that we will open the call for Q&A.
Thank you at this time, if you would like to ask a question <unk> one on your telephone keypad.
If you'd like to withdraw your question Crestar one again.
Please pass by our first question.
And our first question comes from the line of challenge rate the call in.
Yeah, Hey, guys. Thanks for taking the questions and congrats on the results here.
To ask about the the D. T. E side, you you know you talked about sequential decline in some of that being some shipped and the customers moving to a different product, but some that you mentioned around COVID-19 funding can you go into that a little bit more just trying to understand you know what percent of your client.
<unk> over the last few years.
Or you know coming in using Covid funding and how many of those clients have then signed on for continued service is relative to the ones that may have stopped because of the lack of funding.
Yeah, Hi, Hey, Charles.
It's John I.
What I will give a person what I'll tell you, though a significant number of.
Small to medium size of the school districts, particularly utilized COVID-19 funding for mental health services I think what we're seeing that's actually where at the tail end of that right now because the funding has run out.
I would say several months ago about long already so the those those districts or whatever or just gonna have to make a decision about what they're gonna need to go forward is that.
Consider it a substantial risk moving forward at all it's just tell they were calling out because.
That was the cause of some of the intruder accounts.
Yeah I was just curious cause I was just because of the diverse have you seen a lot of these these school districts and others that are you.
The funding.
Find other sources of funding to continue the service with their.
So what what I would tell you that the the the mortgage for K through 12 of particularly.
13, and above is is actually.
Mmm, that's what they say there was significant interest in the law.
Right now to fund those those schools of the school districts. So there's an enormous amount of the AD.
Tivoli relative to what's the next.
What's the next.
Move it for that particular group.
A group of individuals so I would say that despite the COVID-19 bundling what we're seeing in the market is significant interest.
Okay. That's helpful. And then you know I think you know.
Uhm, Jennifer you you you talked about obviously casual positive in the court and that's that's great news.
And that seems like it's it's I'm really just more from your side of the of the claims processing with a <unk> with recycled management or has it been a change at the pain level I know another areas of health care. You know people have kind of noticed that parents have kind of slowed down pain.
<unk>, there's been a lengthening of Dsos just curious if this is really more just from internal improvements or is this.
Painters reimbursing faster.
Yeah, I know Charles it it certainly due to the hard work that we've done.
The whole process of revenue cycle management, including the Treasury operations in sharing with that.
And we are you know as quickly as possible collecting the cash.
So it's it's certainly all the progress we've made in the second quarter is a reflection of are really hard to authenticate with that.
Alright, I'm, sorry, and my last question you talked about.
You know launching with a big partner I think in April .
You know G can you talk a little bit more about how that's going <unk> I know you made some comments that it's going well and is ramping well, but I'm just trying to understand like sort of the damaged like where how you interface with you know their members is it really driven by or are you able to go indirectly.
Or is it still really driven by your your you know your health plan customer to really.
Really pushed the product just trying to understand you know where you can push to be able to increase you know.
Enrollment and then etc.
Yeah.
Is it turns out before you said <unk> utilization and our interaction uhm.
<unk> relationship seems really married by parents living.
We're excited about and let the pair that we launched uhm in the second quarter is a really great collaborative approach. So we were brought online.
With a lot of excitement and their internal sales team and it means that we're often at the table, helping to explain the value that talk space brings to their customers and with this this new interest. So we're we're really pleased with the way that launches gone in with the collaboration in collaboration with that parent.
John said, we look forward to more of that this coming year.
And then just to be clarified. This is this is on the E. A P size. So right now you can sign on at any point earlier versus maybe it's just C behavioral health side, which would be more for traditional one one starting next year.
Yeah, and so the the line three lines and April were that'd behavioral health, but uhm, what you're saying as far as they're not being necessarily one one triggered since we're <unk> on both.
Both for behavioral health and for <unk>. We are is that is in network provider and that can really be at any point during the year.
Okay. That's helpful. Thank you.
Thank you.
Your next question is from the line of Brian Daniels with William plan.
Yeah, Hi, good morning, Congrats can I get a.
<unk> This is Jack Malik on for Ryan.
Yeah, some sort of back to the D T E.
The business cause I know you mentioned that school districts Might've been you know <unk>.
Conan of these.
You know lost clients, but I guess can you provide a little bit more color on you know.
The low utilization of any clients that you lost and then you know any sort of implications you're seeing for the overall demand environment going forward you know are.
Are they shipping to lower cost options, what are they no longer seeing a need for mental health benefits given the low rates of utilization.
Yeah, I was I would say a couple of things one is.
You know, we we talk about some of the Covid funding, but there were there was also you know.
Some some other client really one particular, but those clients that have shifted to a to a different part of the talks based platform. So they moved from a D. T relationship to a more of an a P. Behavioral health Asia that that has occurred so we didn't.
There's no I just want to be clear, it's not like they don't want mental health services. They were just looking at a different way for us to to to supply them that need I would say.
General we we are spending a fair amount of time or the commercial team rather to make sure that the H R executives.
Utilize the service and actually promote it to their to their employees and you know to make sure that the.
Please know that the service available. So we we partner proactively with the employers if there was a little low utilization to actually improve it.
Certainly some of them are gonna see you low utilization, but we continue to refine our market or market strategies with them to increase that need.
Got it and then I guess, we'll same question would be around <unk> margins and how you're thinking about that coming up in the longterm given your next shift towards pay your category got it wants to be about 70 per cent of your day to be revenue. So it just kind of curious how you think about the rest margins gun for.
<unk>.
Okay I can I can say is.
I mentioned earlier, you know, we we foresee being able to maintain emergency here is 50 per cent level that we did that within the first and in the second quarter.
The upsetting items within there are they continued shift, particularly this year in the second half of the year at the <unk> and revenue, but that also being boosted mm. Bye are are probably best at Johns been talking about him in the D. C. E category and then you know also later this year.
Consumer category Stabilising, that's how we see the evolution of gross margin 2023.
Okay. Thank you.
As a reminder to ask my question press style one on your telephone keypad.
[laughter].
At this time there are no further questions.
Oh me too.
C L Jacqueline.
Thank you and thanks, everybody for joining us another call. This morning, I want to take the opportunity to get emphasize my continued at our teams continue to do the abdomen confidence that Arab does this ability to address the growing need for covered mental health services throughout the country, We believe and know that the talk space.
For what you're compasses.
Leaving bran comprehensive suite of products and clinical and operational capability is strategically situated to meet this growing demand with high quality care and to reach profitability and in theater. Thank you again, everyone and have a great rest of your day.
This concludes now call. Thank you for joining you may now disconnect your lines.
Goodbye.
Please wait the conference will begin shortly.
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