Q2 2024 Talkspace Inc Earnings Call

Kathleen: Thank you for standing by. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the Talkspace 2nd Quarter 2024 Earnings Conference Call.

Operator: At this time, I would like to welcome everyone to the Talkspace second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the number one on your phone. Thank you. I would like to thank you.

Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star 1 again. Thank you. I would now like to turn the call over to Jeannine Feyen, Director of Communications. Please go ahead.

Kathleen: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

Kathleen: And if you would like to withdraw your question, press the star 1 again. Thank you. I would now like to turn the call over to Jeannine Feyen, Director of Communications. Please go ahead.

Unnamed Speaker: I would like to turn to a goal over which you need to find, direct your us communications. Please go ahead.

Jeannine Feyen: Good morning, and welcome to Talkspace's earnings conference call for the second quarter of 2024. I hope you've had the opportunity to access the press release we posted on Talkspace's IR website and the presentation of our earnings results. I will use the presentation to walk you through today's remarks. Leading today's call are our CEO, Dr. Jon Cohen, and our CFO, Ian Harris.

Jeannine Feyen: Good morning and welcome to Talkspace's earnings conference call for the second quarter of 2024. I hope you've had the opportunity to access the press release we posted on Talkspace's IR website and the presentation of our earnings results. We need the presentation to walk through today's remarks.

Jeannine Feyen: Good morning and welcome to Talkspace's earnings conference call for the second quarter of 2024. I hope you've had the opportunity to access the press release we posted on Talkspace's IR website and the presentation of our earnings results.

Jeannine Feyen: We need to call our CEO, Dr. John Cohen, and our CSO, Ian Harris. Management will offer their prepared remarks, and we'll then take your questions. Certain measures we'll discuss on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of one-off items. Reconciliation of these non-GAAP measures is included in our earnings release and on our website, Talkspace.com. I also want to remind you that we will be discussing forward-looking information today, which may include forecasts, targets, and other statements regarding our planned goals and 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.

Speaker Change: We'll use the presentation to walk you through today's remarks.

Speaker Change: Leading today's call are our CEO , Dr. Jon Cohen, and our CFO , Ian Harris.

Jeannine Feyen: Management will offer their prepared remarks, and we will then take your questions. Certain measures we'll discuss on this call are expressed on a non-GAAP basis and have been 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, Talkspace.com. I 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, goals, and strategic priorities and anticipated financial results.

Speaker Change: Management will offer their prepared remarks and we'll then take your questions.

Speaker Change: Certain measures we'll discuss on this call are expressed on a non-GAAP basis and have been 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, Talkspace.com.

Speaker Change: I also want to remind you that we will be discussing forward-looking information today, which may include forecasts, targets, and other statements regarding our planned goals and strategic priorities and anticipated financial results.

Jeannine Feyen: 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 crash release. For more information, please review our Safe Harbor disclaimer on slide two. Now, I will turn it over to Dr. Jon Cohen.

Speaker Change: 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.

Jeannine Feyen: Important factors that may affect our future results are described in our most recent SEC reports and today's earnings cuts release.

Speaker Change: Important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release.

Jeannine Feyen: For more information, please review our safe harbor disclaimer on slide two.

Speaker Change: For more information, please review our Safe Harbor disclaimer on slide two. Now I will turn it over to Dr. Jon Cohen.

Jon Cohen: Now I will turn it over to Dr. John Cohen. Thanks, Janine. Good morning, everyone. Thank you for joining us for our second quarter, 2024 call. We are pleased to report that Talkspace has achieved another strong quarter of results, reflecting continued execution across the business.

Jon Cohen: Thanks, Jeannine. Good morning, everyone.

Jon Cohen: Thanks, Jeannine. Good morning, everyone. Thank you for joining us for our second quarter 2024 call.

Jon Cohen: Thank you for joining us for our second quarter 2024 call. We are pleased to report that Talkspace has achieved another strong quarter of results, reflecting continued execution across the business. Before I get into the results, I want to reiterate some of the data we recently released on the new normalization survey we reported on last week. This survey of over 3,000 current, former, and prospective clients of telehealth mental health services found that 85% of people are more open to therapy than they were five years ago. Jed Zee and 65-year-olds and older respondents cite loneliness as a top concern for seeking therapy.

Speaker Change: We are pleased to report that Talkspace has achieved another strong quarter of results, reflecting continued execution across the business.

Jon Cohen: 99% believe that it should be covered by insurance and that mental health is the number one benefit they want from their employer. This data confirms and supports our continued optimism about the future of the business. Now, turning to results.

Jon Cohen: Before I get into the results, I want to reiterate some of the data we recently released on the new normalization survey we reported on last week. This survey of over 3,000 current, former, and prospective clients of telehealth mental health services found that 85% of people are more open to therapies than they were five years ago. Gen D and 65 year old and old grocery respondents cite loneliness as a top concern for seeking therapies. 99% believe that it should be covered by insurance and that mental health is the number one benefit they want from their employer.

Speaker Change: Before I get into the results, I want to reiterate some of the data we recently released on the new normalization survey we reported on last week.

Speaker Change: This survey of over 3,000 current, former, and prospective clients of telehealth and mental health services

Speaker Change: found that 85% of people are more open to therapy than they were five years ago.

Speaker Change: Gen Z and 65 year olds and older respondents cite loneliness as a top concern for seeking therapy. 99% believe that it should be covered by insurance and that mental health is the number one benefit they want from their employer.

Jon Cohen: This data confirms and supports our continued optimism about the future of the business.

Speaker Change: This data confirms and supports our continued optimism about the future of the business.

Jon Cohen: During the quarter, revenue increased 29% year-over-year to $46.1 million, and we delivered our second consecutive profitable quarter with adjusted EBITDA coming in at $1.2 million. Strong year-over-year top-line growth reflects both the significant demand for behavioral health care as well as the power of the Talkspace brand and our ability to drive new members to use the Talkspace platform. Our continued cost discipline and the benefits of scale are highlighting the operating leverage inherent in the business, which is reflected in our adjusted EBITDA progress. Let me cover our results for the second quarter by revenue category. First, our payer revenue grew 62% year-over-year thanks to our strategic relationships with the payers. This annual growth is a result of several factors.

Jon Cohen: Now, turning to results. During the quarter, revenue increased 29% year over year to $46.1 million, and we delivered our second consecutive profitable quarter with adjusted even as coming in at $1.2 million. Strong, year-over-year top-line growth reflects both the significant demand for behavioral health care, as well as the power of the Talkspace brand and our ability to drive new members to use the Talkspace platform. Our continued cost discipline and the benefits of scale are highlighting the operating leverage inherent in the business, which is reflected in our adjusted EBITDA progress.

Speaker Change: Now, turning to results. During the quarter, revenue increased 29% year over year to $46.1 million and we delivered our second consecutive profitable quarter with adjusted EBITDA coming in at $1.2 million.

Speaker Change: Strong year-over-year top-line growth reflects both the significant demand for behavioral health care as well as the power of the Talkspace brand and our ability to drive new members to use the Talkspace platform.

Speaker Change: Our continued cost discipline and the benefits of scale are highlighting the operating leverage inherent in the business, which is reflected in our adjusted EBITDA progress.

Jon Cohen: Let me cover our results in the second quarter by revenue category. First, our pay-a-revenue grew 62% year-over-year, thanks to our strategic relationships with the payers. This annual growth is a result of several factors. First, our continued expansion of covered lives, which grew from 131 million to 145 million by quarter-end. This was the result of adding the first batch of nearly 14 million people with standard Medicare coverage in 12 states. Talkspace launched a dedicated Medicare website where members can quickly check their coverage or get on the list to be notified when care becomes available in their state.

Speaker Change: First, our payer revenue grew 62% year-over-year thanks to our strategic relationships with the payers.

Jon Cohen: First, our continued expansion of Covered Lives, which grew from 131 million to 145 million by quarter end. This was the result of adding the first batch of nearly 14 million people with standard Medicare coverage in 12 states. Talkspace launched a dedicated Medicare website where members can quickly check their coverage or get on the list to be notified when care becomes available in their state. We are on track towards our goal of having all 50 states live with Medicare coverage by the year-end, in addition to adding several large Medicare Advantage plans, the first of which will launch in Q4.

Speaker Change: This was the result of adding the first batch of nearly 14 million people with standard Medicare coverage in 12 states.

Jon Cohen: We are on track towards our goal of having all 50 states live with Medicare coverage by the year end, in addition to adding several large Medicare Advantage plans, the first of which will launch in Q4. Relative to new pay-a-recontract, we just announced yesterday that we went live with 6 million active military lives through Tricare with humanitarian military, including active duty and retired military personnel, as well as their partners. And 13-year-old and up-dependent. Looking forward, we anticipate adding several new Blues plans and regional plans by the year end. We expect that within the next 12 months, nearly 200 million people, almost two-thirds of the American public, will have access to Talkspace through their health insurance.

Speaker Change: We are on track towards our goal of having all 50 states live with Medicare coverage by the year-end, in addition to adding several large Medicare Advantage plans, the first of which will launch in Q4.

Jon Cohen: Relative to new payer contracts, we just announced yesterday that we went live with 6 million active military lives through TRICARE with Humana Military, including active duty and retired military personnel, as well as their partners and 13-year-olds and up dependents. Looking forward, we anticipate adding several new Blues plans and regional plans by the year end.

Jon Cohen: We expect that within the next 12 months, nearly 200 million people, or almost two-thirds of the American public, will have access to Talkspace through their health insurance. Second, understanding that our biggest opportunity for growth remains increasing capture rates and utilization for the 145 million and growing lives I just discussed, we continue to focus on our product improvement initiatives to motivate members to use and stay engaged on the platform. We are focused on enhancing the patient journey by making improvements to the intake process, therapist matching, and more.

Jon Cohen: Second, understanding that our biggest opportunity for growth remains increasing capture rates and utilization for the 145 million and growing lives I just discussed. We continue to focus on our product improvement initiatives to motivate members to use and stay engaged on the platform. We are focused on enhancing the patient journey by making improvements to the intake process, therapist matching, and more. Some specific examples include the ability to show real-time member copays, making it easier for people to update to their behavioral health coverage, and developing new navigation features in the therapy room to make it easier to book a next session.

Jon Cohen: Some specific examples include the ability to show real-time member co-pays, making it easier for people to update their behavioral health coverage, and developing new navigation features in the therapy room to make it easier to book a next session. Third, optimizing our focused marketing efforts specifically designated to improve capture rates and drive utilization by ensuring that people are aware that care is available through their insurance benefits. The average out-of-pocket cost for those in network is $15 per session.

Speaker Change: making it easier for people to update to their behavioral health coverage and developing new navigation features in the therapy room to make it easier to book a next session.

Jon Cohen: Third, optimizing our focused marketing efforts specifically designated to improve capture rates and drive utilization by ensuring that people are aware that care is available through their insurance benefits. The average out-of-pocket cost for those in-network is $15 per session. 60% of members pay $0, and 80% paid $25 or less. Fourth, our strong payer results were also driven by further developing our relationships to bring referrals to Talkspace. In Q2, we announced the number of strategic partnerships, like our previously announced Women's Health Coalition, that further strengthen Talkspace's brand reach and recognition, which in turn enables us to acquire members cost-effectively.

Speaker Change: The average out-of-pocket cost for those in-network is $15 per session.

Jon Cohen: 60% of members pay $0, and 80% pay $25 or less. In May, we announced the early successful results of the New York City Teen Space Program, which now has over 13,000 teens using the service. In the quarter, our full-time therapists were the most productive in Talkspace's history relative to the number of billable hours per week, thanks in part to the investments we've made in efficiency tools like the AI SmartNet.

Speaker Change: 60% of members pay $0 and 80% pay $25 or less.

Speaker Change: In Q2, we announced a number of strategic partnerships, like our previously announced Women's Health Coalition, that further strengthen Talkspace's brand, reach, and recognition, which in turn enables us to acquire members cost-effectively.

Jon Cohen: We will continue to announce new partnerships to build this network and drive even stronger awareness of Talkspace as an affordable option. In fact, based on Qualtrics' third-party survey data, the brand awareness of Talkspace increased this quarter to over 30%, a 7% increase versus a year ago, despite less core member media spend, partly as a result of this strategy.

Speaker Change: We will continue to announce new partnerships to build this network and drive even stronger awareness of Talkspace as an affordable option.

Speaker Change: In fact,

Speaker Change: Based on Qualtrics third-party survey data, the brand awareness of Talkspace increased this quarter to over 30 percent, a 7 percent increase versus a year ago, despite less core member media spend partly as a result of this strategy.

Jon Cohen: It is important to note that a significant differentiator for us in the market is our focus on the quality of care a therapist delivers. Compared to a directory or marketplace of providers, we measure the quality of service, the clinical impact, productivity, clinical experience, and clinical documentation for each provider. We find that this value proposition is resonating with payers as they are less concerned with just securing access to care and more interested in the quality of care. In addition, the infrastructure we have built around the clinical network gives us the opportunity to participate in value-based contracts, the obvious direction for most payer-provider relationships moving forward.

Speaker Change: It is important to note that a significant differentiator for us in the market is our focus on the quality of care a therapist delivers.

Speaker Change: Compared to a directory or marketplace of providers, we measure the quality of service, the clinical impact, productivity, clinical experience, and clinical documentation for each provider.

Speaker Change: We find that this value proposition is resonating with payers as they are less concerned with just securing access to care and more interested in the quality of care.

Speaker Change: In addition, the infrastructure we have built around the clinical network gives us the opportunity to participate in value-based contracts, the obvious direction for most payer-provider relationships moving forward.

Jon Cohen: Moving to our direct-to-enterprise segment, we grew revenue in the quarter 20% year-over-year to $9.6 million, driven by our teens initiatives including New York City. In May, we announced the early successful result of the New York City Teen Space Program, which now has over 13,000 teens using the service. These results demonstrate that we are reaching teens where they are on their phones, with 90% using asynchronous messaging therapy. We're also engaging teens that live in diverse and underserved communities that have traditionally been difficult to reach and frequently have less access to affordable care. Finally, we are particularly proud that our therapist, in conjunction with our suicide ideation algorithm, have now identified and intervened in over 180 high-risk student cases.

Speaker Change: Moving to our direct-to-enterprise segment, we grew revenue in the quarter 20% year-over-year to $9.6 million, driven by our teens initiatives including New York City.

Speaker Change: In May, we announced the early successful results of the New York City TeensFace program, which now has over 13,000 teens using the service. These results demonstrate that we are reaching teens where they are, on their phones, with 90% using asynchronous messaging therapy.

Speaker Change: We are also engaging teens that live in diverse and underserved communities that have traditionally been difficult to reach and frequently have less access to affordable care.

Speaker Change: Finally, we are particularly proud that our therapists, in conjunction with our suicide ideation algorithm, have now identified and intervened in over 180 high-risk student cases.

Jon Cohen: We are continuing to invest in new product features for this population based on feedback we have received from teens, parents, and customers today.

Speaker Change: We are continuing to invest in new product features for this population based on feedback we have received from teens, parents, and customers to date.

Jon Cohen: We continue to see a strong pipeline in this segment, driven by our continued focus on the mental health crisis impacting on our youth, and we are encouraged by the demand we see for our teen solutions across multiple states, cities, and school districts. We have had recent notable wins with several independent schools as well as another public school district in upstate New York.

Speaker Change: We continue to see a strong pipeline in this segment, driven by our continued focus on the mental health crisis impacting on our youth, and we are encouraged by the demand we see for our teen solutions across multiple states, cities, and school districts.

Speaker Change: We have had recent notable wins with several independent schools as well as another public school district in upstate New York.

Jon Cohen: In the employer vertical, we executed a number of key renewals in the quarter to cure several new client wins and began testing our new self-serve portal where small business clients can make Talkspace benefits available for their employees. Our discussions with employer clients have been encouraging, and we expect to share more exciting additions as the year progresses. In addition, we have made significant progress with the broker community, successfully demonstrating our value proposition as it relates to their. Our sales team remains focused on converting our strong pipeline of employer opportunities. Our new wins in the quarter demonstrate the diversity of our pipeline and the team's ability to drive wins across various business types and geographies.

Speaker Change: In the employer vertical, we executed a number of key renewals in the quarter, secured several new client wins, and began testing our new self-serve portal where small business clients can make Talkspace benefits available to their employees.

Speaker Change: Our discussions with employer clients have been encouraging, and we expect to share more exciting additions as the year progresses. In addition, we have made significant progress with the broker community, successfully demonstrating our value proposition as it relates to their end clients.

Speaker Change: Our sales team remains focused on converting our strong pipeline of employer opportunities.

Jon Cohen: Moving to our provider network, we ended the quarter with over 5,700 therapists, up 2% sequentially and 34% year-over-year. We have intentionally slowed the growth of our network in recent quarters, which reflects the success of our initiatives to improve therapist efficiency while at the same time improving our metrics around the patient's time to access care, all against the backdrop of growing patient demand. Fulkspace continues to be a platform of choice for therapists, which is the result of the investments we have made in our provider experience and our overall product quality. For example, our AI Innovation Group will bring to market product features in close partnership with our clinical team, including our new secure caption and translation technology, which allows Talkspace providers and clients to choose to see real-time close captions during live sessions conducted on our app.

Speaker Change: Moving to our provider network, we ended the quarter with over 5,700 therapists up 2% sequentially and 34% year-over-year.

Speaker Change: We have intentionally slowed the growth of our network in recent quarters, which reflects the success of our initiatives to improve therapist efficiency.

Speaker Change: while, at the same time, improving our metrics around the patient's time to access care, all against the backdrop of growing patient demand.

Speaker Change: will bring to market product features in close partnership with our clinical team, including our new Secure Caption and Translation technology, which allows Talkspace providers and clients to choose to see real-time closed captions during live sessions conducted on our app.

Jon Cohen: At the request of our providers, we have also expanded our AI smart notes feature, which helps to reduce the administrative burden of providers and allows us to focus more time on providing care. AI Smart Notes is now live with all providers for both live and texting sessions. In the quarter, our full-time therapists were the most productive in Talkspace's history, relative to the number of billable hours per week. Thanks in part to the investments we've made in efficiency tools like the AI Smart Notes.

Speaker Change: At the request of our providers, we have also expanded our AI Smart Notes feature, which helps to reduce the administrative burden of providers and allows us to focus more time on providing care.

Speaker Change: AI Smart Notes is now live with all providers for both live and texting sessions.

Speaker Change: In the quarter, our full-time therapists were the most productive in Talkspace's history relative to the number of billable hours per week, thanks in part to the investments we've made in efficiency tools like the AI Smart Notes.

Jon Cohen: In closing, I want to reiterate our unique position in the marketplace, reflected in our sustained momentum over the last six quarters. Our comprehensive service offerings and modalities are built to serve all demographics from teen to seniors. Enhanced by innovation, we believe our capabilities continue to set industry standards, validated time and again through our peer-reviewed research.

Speaker Change: reflected in our sustained momentum over the last six quarters.

Jon Cohen: In July, the Psychiatric Services journal published the results of a trial delivering 12 weeks of asynchronous therapy to Talkspace members with diagnosed depression. Results of this trial, which was funded by the National Institutes of Mental Health, suggest, in that quote, psychotherapies delivered by text messages may be a viable alternative to face-to-face or live video delivery and allow for more immediate on-demand care. In quote, this quarter's results underscore our commitment to our ambition of expanding mental health access to all.

Speaker Change: Results of this trial, which was funded by the National Institutes of Mental Health, suggest, and I quote, psychotherapy delivered via text messages may be a viable alternative to face-to-face or live video delivery and allow for more immediate on-demand care, end quote.

Speaker Change: This court's results underscore our commitment to our mission of expanding mental health access to all.

Jon Cohen: Lastly, I want to extend the warm welcome to two new senior executives who joined Talkspace in the second quarter. Ian Harris joined as our Chief Financial Officer in May. He was previously a partner at Hudson Executive Capital, where he led the firm's investments in healthcare, technology, and thin tech. And John Mooney joined Talkspace as Chief Product Officer in June. Following senior leadership positions at Neo-Genomics Laboratories via Reference Health and Care of All.

Speaker Change: Lastly, I want to extend a warm welcome

Speaker Change: to two new senior executives who joined Talkspace in the second quarter. Ian Harris joined as our chief financial officer in May. He was previously a partner at Hudson Executive Capital, where he led the firm's investments in healthcare, technology, and fintech.

Speaker Change: and John Mooney joined Talkspace as Chief Product Officer in June , following senior leadership positions at Neogenomics Laboratories, BioReference Health, and Care Evolved.

Ian Harris: With that, I'll turn the call over to Ian to review our second quarter results.

Speaker Change: With that, I'll turn the call over to Ian to review our second quarter results.

Ian Harris: Thank you, Jon, and good morning, everyone. First, let me say what an honor it is to join an incredible group of people at the preeminent virtual mental health platform. I'm looking forward to helping execute on the strategic mission of the business, making access to high quality therapy more affordable and accessible for everyone through in-network and employer-sponsored coverage. With 10 weeks of CSO under my belt, it's clearing me that Talkspace has the resources, human capital, and the culture of innovation, as well as the operational rigor to continue to lead the digital mental health industry.

Ian Harris: Thank you, Jon, and good morning, everyone.

Ian Harris: First, let me say what an honor it is to join an incredible group of people at the preeminent virtual mental health platform. I'm looking forward to helping execute on the strategic mission of the business, making access to high-quality therapy more affordable and accessible for everyone through in-network and employer-sponsored coverage.

Speaker Change: With 10 weeks of CFO under my belt, it's clear to me that Talkspace has the resources, human capital, and the culture of innovation, as well as the operational rigor to continue to lead the digital mental health industry.

Ian Harris: Talkspace enters a new phase of profitable growth with a robust set of opportunities ahead of us. I'm excited to work closely with the leadership team to help execute on the strategic direction of the business by optimizing resource allocation to drive long-term benefits for the company. And to also clearly articulate our strategy to all of our stakeholders.

Speaker Change: As Talkspace enters a new phase of profitable growth with a robust set of opportunities ahead of us.

Speaker Change: I'm excited to work closely with the leadership team to help execute on the strategic direction of the business by optimizing resource allocation to drive long-term benefits for the company

Ian Harris: So let me start with our financials. My comment today was based primarily on second quarter results on a year-on-year basis, unless otherwise noted. Total revenue for the second quarter was 46.1 million, a 29% increase from a year ago. Adjusted EBITDA was approximately 1.2 million in the second quarter and improvement of 5.2 million versus the prior year period and marks our second consecutive quarter of profitability.

Speaker Change: So let me start with our financials.

Jon Cohen: Total revenue for the second quarter was $46.1 million, a 29% increase from a year ago. Moving to gross profit, our second quarter gross profit increased 18% versus the prior year period to $21 million. We continue to see that focusing on payer coverage across our messaging and in all media channels is the most cost-effective way to acquire the right members, given the high intent and the longer tenure of covered members.

Speaker Change: Total revenue for the second quarter was $46.1 million, a 29% increase from a year ago.

Speaker Change: Justin Ibadal was approximately $1.2 million in the second quarter, an improvement of $5.2 million versus the prior year period, and marks our second consecutive quarter of profitability.

Ian Harris: Moving to results by revenue category. Pair revenue was 29.9 million, a 62% increase versus the prior year period. Pair sessions completed by behavioral health and EAP members grew 5% sequentially and 49% year over year to nearly 299,000. Unique payer members completing a session grew by over 30% year on year to 89,000. Additionally, we experienced a 15% year-on-year improvement in the utilization of sessions, proactive member driven by continued product enhancements and that increasing member engagement and retention. In the direct to enterprise categories, second quarter revenue was 9.6 million, up 20% from last year, driven by our teams' contracts, such as New York City and Baltimore County schools.

Speaker Change: Payer revenue is $29.9 million, a 62% increase versus the prior year period.

Speaker Change: payer sessions completed by behavioral health and EAP members grew 5% sequentially and 49% year-over-year to nearly 299,000.

Speaker Change: Unique payer members completing a session grew by over 30% year-on-year to 89,000.

Speaker Change: Additionally, we experienced a 15% year-on-year improvement in the utilization of sessions per active member, driven by continued product enhancements aimed at increasing member engagement and retention.

Speaker Change: In the direct-to-enterprise category, second quarter revenue was $9.6 million, up 20% from last year, driven by our teen contracts, such as New York City and Baltimore County schools.

Ian Harris: Equentially, DTE revenue is down 3%, as a result of the timing of new contract wins we discussed last quarter. As a reminder, our pipeline remains robust, with selling cycle times for new wins, especially in the team space, having remained elongated.

Speaker Change: Sequentially, DTE revenue is down 3% as a result of the timing of new contract wins we discussed last quarter.

Speaker Change: As a reminder, our pipeline remains robust, but selling cycle times for new wins, especially in the team space, have remained elongated.

Ian Harris: In the consumer category, we're members to add a pocket, revenue 6.5 million in the quarter. This was a 7% sequence of the client and a 28% decline year over year, which was in line with our expectations and results of our successful strategy to optimize both traffic conversion and second mix to deliver maximum returns against our marketing investments.

Speaker Change: In the consumer category, where members pay out-of-pocket, revenue is $6.5 million in the quarter.

Speaker Change: This was a 7% sequential decline and a 28% decline year-over-year, which was in line with our expectations and a result of our successful strategy to optimize both traffic conversion and segment mix to deliver maximum returns against our marketing investments.

Ian Harris: Moving to growth profit, our second quarter growth profit increased 18% versus the prior year period to $21 million. Growth margin for the second quarter was 45.5%. Lower than last year, as well as the contrary, as expected, due to further net revenue shift towards payer. for the remainder of 2024, we would expect gross margin to remain around this level.

Speaker Change: Moving to gross profit. Our second quarter gross profit increased 18% versus the prior year period to $21 million.

Speaker Change: Gross margin for the second quarter was 45.5%, lower than last year, as well as sequentially, as expected, due to further net revenue mix shift towards payer.

Speaker Change: For the remainder of 2024, we would expect growth margin to remain around this level.

Ian Harris: During the operating expenses, our gap operating expenses for the second quarter increase 1% year over year to 24.4 million. Excluding Talkspace compensation and non-returring items, our Q2 operating expenses amounted to approximately 19.8 million, a reduction of 2 million compared to the same period last year. The benefits of our costs is split over the last of the recorders is beginning to show the operating leverage inherent in the business. While we've made tremendous progress in right-sliving our cost structure and enhancing organizational efficiencies, we remain vigilant when it comes to managing our cost base. We continue to drive efficiency in our marketing spend despite elevated media costs in the market as a whole.

Speaker Change: for incorporating expenses.

Speaker Change: Our GAAP operating expenses for the second quarter increased 1% year-over-year to $24.4 million.

Speaker Change: Excluding stock-based compensation and non-recurring items, our Q2 operating expenses amounted to approximately $19.8 million, a reduction of $2 million compared to the same period last year.

Speaker Change: The benefits of our cost discipline over the last several quarters is beginning to show the operating leverage inherent in the business.

Speaker Change: While we've made tremendous progress in right-sizing our cost structure and enhancing organizational efficiencies, we remain vigilant when it comes to managing our cost base.

Speaker Change: We continue to drive efficiency in our marketing spend despite elevated media costs in the market as a whole.

Ian Harris: We've been able to observe the strength of our brand and continue strong organic growth and do more with less through media optimization and diversification, primarily with programmatic media and influencer marketing. We continue to see that focusing on payer coverage across our messaging and at all media channels is the most cost-effective way to acquire the right members, given the high intent and the longer tenure of covered members. As we grow our covered live space, we will continue to broaden targeting and drive a higher conversion rate of that traffic, further lowering the cost to acquire members.

Speaker Change: We've been able to observe the strength of our brand and continued strong organic growth, and do more with less through media optimization and diversification, primarily with programmatic media and influencer marketing.

Speaker Change: We continue to see that focusing on payer coverage across our messaging and in all media channels is the most cost-effective way to acquire the right members, given the high intent and the longer tenure of covered members.

Speaker Change: As we grow our covered live space, we will continue to broaden targeting and drive a higher conversion rate of that traffic, further lowering the cost to acquire a member.

Ian Harris: Moving to profitability, Gap net loss was $500,000 or $4.2 million improvement versus the same period a year ago. Adjusted EBITDA was $1.2 million and improvement of $5.2 million year over year, given by higher revenue and growth profit with a lower cost base of normalized off-ex versus the same period a year ago.

Speaker Change: Moving to profitability. Gap net loss was $500,000, a $4.2 million improvement versus the same period a year ago.

Speaker Change: Adjusted EBITDA was $1.2 million, an improvement of $5.2 million year-over-year, driven by higher revenue and gross profit, with a lower cost base of normalized OPEX versus the same period a year ago.

Ian Harris: Turning to the balance sheet. We ended the quarter with 114.9 million cash and cash equivalents, down 5.4 million sequentially from Q1. The decline was driven by our sharey purchase activity. We bought back approximately 8 million during the quarter, leaving roughly 7 million available under the program we announced earlier this year.

Speaker Change: Turning to the balance sheet.

Speaker Change: We ended the quarter with 114.9 million in cash and cash equivalents down 5.4 million sequentially from Q1.

Speaker Change: The climate is driven by our shared repurchase activity.

Speaker Change: We bought back approximately $8 million during the quarter, leaving roughly $7 million available under the program we announced earlier this year.

Ian Harris: Today, we announced that our board of directors increased the size of our share purchase authorization by 25 million. This is an addition to the original $15 million authorization.

Speaker Change: Today, we announce that our Board of Directors increased the size of our share repurchase authorization by $25 million.

Speaker Change: This is in addition to the original $15 million dollar authorization.

Ian Harris: Finally, we're reiterating our 2024 guidance, which calls for revenue in the range of 185 to 195 million and adjusted EBITDA between 4 and 8 million for the full year. We continue to grow our payer business and remain enthusiastic about the opportunities ahead, including adding new covered lives from both commercial Blue's plans and executing on our early progress in Medicare. In direct enterprise, we're optimistic about the strength of our pipeline and that a man we're seeing across a diverse set of enterprises, including cities, municipalities, and employers. This is a testament to the strength of the Talkspace brand and the large and growing demand for quality mental health care in the U.S.

Speaker Change: Finally, we're reiterating our 2024 guidance, which calls for revenue in the range of 185 to 195 million.

Speaker Change: and adjusted EBITDA between $4 and $8 million for the full year.

Speaker Change: We continue to grow our payer business and remain enthusiastic about the opportunities ahead, including adding new covered lives from both Commercial Blues plans and executing on our early progress in Medicare.

Speaker Change: In direct enterprise, we're optimistic about the strength of our pipeline and the demand we're seeing across a diverse set of enterprises, including cities, municipalities, and employers.

Speaker Change: This is a testament to the strength of the Talkspace brand and the large and growing demand for quality mental health care in the U.S.

Ian Harris: To summarize, the result to report today marked further progress and reinforce our conviction in our enterprise and payer focus strategy. What worked, remains talk spaces and positions continue to drive profitable growth and capitalize on the many opportunities ahead of us.

Speaker Change: To summarize, the results reported today mark further progress and reinforce our conviction in our enterprise and payer-focused strategy.

Speaker Change: While work remains, Talkspace is in a position to continue to drive profitable growth and capitalize on the many opportunities ahead of us.

Operator: With that, we'll open up the call for questions. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Speaker Change: With that, we will open up the call for questions.

Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question, simply press star 1 again. And if you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: And if you are called upon to answer a question and listening via loud speaker in your device, please speak up your handset and then sure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue.

Speaker Change: Again, please press star 1 to join the queue.

Stephanie Davis: Your first question comes from the line of Stephanie Davis of Barclays. Your line is now open.

Speaker Change: Your first question comes from the line of Stephanie Davis of Parkless. Your line is now open.

Jon Cohen: Hey guys, you can get in the car. I want to take my question. So, you can get in the car and welcome to some of the news. So, government lives are becoming a bigger part of your story, right? You've got the Medicare rollout. We now have to try care. We've data in mind. How should you think about these economics and how they compare their commercial lives? And now that we've got a bit more time with these talkulations. We have many inklings on how utilization and maybe other usage metrics compare. So, first of all, the Medicare really, we have no data yet, quite honestly.

Ian Harris: So, good morning, and welcome to some of the news.

Stephanie Davis: Hey guys, congrats on the court. Thanks for taking my question.

Speaker Change: Good morning.

Speaker Change: Good morning, and welcome to some of the news you'll hear. Morning.

Speaker Change: So government lies are becoming a bigger part of your story.

Speaker Change: We've got the Medicare rollout, we now have TRICARE. With that in mind, how should we think about these economics and how they compare to commercialize? And now that we've got a bit more time with these populations, do we have any inklings on how utilization and, you know, maybe other usage metrics compare?

Speaker Change: So first of all, the Medicare, really, we have no data yet, quite honestly, on what that's going to look like. It's really, really early days. We are

Jon Cohen: What that's going to look like is really, really early days. We are, as we said, we're in 12 states. We'll be in 50 by the end of the year. But, you know, we really have no line of sight yet on what that's going to look like.

Speaker Change: As we said, we're in 12 states, we'll be in 50 by the end of the year, but you know, we really have no line of sight yet on what that's going to look like. We have not yet, quite honestly, launched

Jon Cohen: We have not yet, but honestly, launched a fully baked marketing plan to go to Mark with Medicare. As we're looking to make sure we're in some of the larger Medicare Advantage plans as we move the plan forward. So, to really know data yet, you know, we, since we know we suspect on Medicare reimbursement versus the commercials.

Speaker Change: a fully baked marketing plan to go to market with Medicare as we're looking to make sure we're in some of the larger Medicare Advantage plans as we move the plan forward. So,

Speaker Change: So really no data yet, you know, we know we suspect on Medicare reimbursement versus the commercials, but I just, you know, I'm just not prepared to talk about it yet because I don't have anything to tell you yet.

Ian Harris: But, I just, you know, I just not prepared to talk about it yet, because I don't have anything to tell you yet. Yeah, something you're more interested in. We've, as you can imagine, done a lot of analysis, sort of. Correctively about it, but as John mentioned, we want to be really methodical about how we roll out in terms of the marketing initiatives. As you can imagine, there's an element of call it critical mass before national advertising makes sense. And so, while we're on track to get to that 50 state target by the end of the year that we talked about.

Ian Harris: Yeah, Stephanie, good morning. We've, as you can imagine, done a lot of analysis sort of proactively about it, but as Jon mentioned, we want to be really methodical about how we roll out in terms of the marketing initiatives. As you can imagine, there's an element

Speaker Change: of call it critical mass before national advertising makes sense. And so while we're on track to get to that 50 state target by the end of the year that we talked about.

Ian Harris: We're, we're waiting a little bit to really sort of start opening up the marketing spaghetti, which we're going to do very deliberately and carefully, as John mentioned in his prepared remarks.

Speaker Change: We're waiting a little bit to really sort of start opening up the marketing spigot, which we're going to do very deliberately and carefully, and as Jon mentioned in his prepared remarks.

Ian Harris: We'll be announcing our first Medicare Advantage plan likely early Q4, and so I would say, you know, at that point, we'll probably be close to that critical mass point. We'll start sort of spending more capital around it. But, but it all comes, what I think you're alluding to, it all factors into, right, the ultimate contribution analysis for trying to solve for and how we go about marketing to those members.

Jon Cohen: will be announcing our first Medicare Advantage plan, likely early Q4. And so I would say, you know, at that point, we'll probably be close to that critical mass point, but we'll start through spending more capital around it. But it all comes

Jon Cohen: What I think you're alluding to, it all factors into right.

Jon Cohen: The ultimate contribution analysis we're trying to solve for and how we go about marketing to those members.

Jon Cohen: I want to, you know, say, one of the important really unknowns for us and anybody on the Medicare market is. We don't know what the, we don't know what the LTV is going to be on Medicare, right? So it's not just the issue of what we're going to get reimbursed, but how long are they going to stay on the platform. But how much longer than a commercial pay or quite a or younger person, let's put it that way. So those, those are all contributing to the, you know, a little bit of what's going to happen.

Jon Cohen: I want to, yeah, Stephanie, what are the important really unknowns for us and anybody on the Medicare market is?

Jon Cohen: We don't know what the we don't know what the LTV is going to be on Medicare, right? So it's not just the issue of what we're going to get reimbursed, but how long are they going to stay on the platform? How much longer than a commercial payer credit or a younger person? Let's put it that way

Jon Cohen: So those are all contributing to the, you know, a little bit of what's going to happen and it's, you know, but so there's just a bunch of unknowns still.

Jon Cohen: And it's, you know, but so it's just a bunch of unknowns.

Unnamed Speaker: Okay, I understand. I guess, you know, foot side of that, looking at your call structure, we've seen some pretty steady declines in the off-ex over the past few years, and starting to flatten out this quarter.

Speaker Change: Okay, understood. I guess, you know, flip side of that, looking at your cost structure, we've seen some pretty steady declines in OffEx over the past few years, and it's starting to flatten out this quarter.

Ian Harris: So, can you walk us through kind of the buckets of cost optimization and what's best, or is that flattening more a function of the cost associated with this Medicare rollout and the Tri-Care women's? And all you guys are doing behind the scenes, I guess, these lives up and running. It's more the former, right? I wouldn't look at our current quarter and assume we're holding back our marketing initiatives overall, targeting member media. If that's what's in your question.

Speaker Change: Can you walk us through kind of the buckets of cost optimization and what's left?

Speaker Change: or is that flattening more a function of the costs associated with this Medicare rollout and the TRICARE wins and all you guys are doing behind the scenes to get these lives up and running?

Ian Harris: It's more of the former, right? I wouldn't look at our current quarter and assume we're holding back our marketing initiatives overall, targeting member media, if that's what's in your question. I would say, obviously, with me coming in and being able to sort of take a fresh look at our cost base overall, I do think there's some opportunity, which we're already sort of acting on a few initiatives.

Speaker Change: It's more the former, right? I wouldn't look at our current quarter and assume we're holding back our marketing initiatives overall. Targeting member media, if that's...

Ian Harris: I would say, obviously, with me coming in and being able to sort of take a fresh look at our cost based overall. I do think there's some opportunity, which we're already sort of actioning a few initiatives to call it save in certain area and reinvest those savings into more revenue generating things, whether it's new marketing initiatives, right, talking about Medicare is just one of those, but also importantly, I think a lot of the sort of longer term. Revenue generating investment for making, both on product, new product development, and also just in our platform overall. So, one of the things sort of wrestling a little bit is there's no shortage of really exciting, high-impact, sort of attractive ROI projects that are competing for capital inside the business.

Speaker Change: If that's

Speaker Change: What's in your question? I would say, obviously, with me coming in and being able to sort of take a fresh look at our cost base overall, I do think there's some opportunity, which we're already sort of actioning a few initiatives.

Speaker Change: to call it save in certain G&A areas and reinvest those savings into more revenue-generating things, whether it's

Speaker Change: New Marketing Initiatives.

Speaker Change: Right, talking about Medicare is just one of those. But also importantly, I think a lot of the sort of longer term revenue generating investments we're making both on product, new product development, and also just in our platform overall. So one of the things I'm sort of

Speaker Change: wrestling a little bit is there's no shortage of really exciting, high impact, sort of attractive ROI projects that are competing for capital inside the business. And so the more we can sort of optimize around the margins and save a little bit, the more budget we'll have for those sorts of things.

Ian Harris: And so, the more we can sort of optimize around the margins and save a little bit, the more budget we'll have for those sorts of things. And that's it.

Charles Rhyee: Thank you, Max. Your next question comes from the line of Charles Rye from TD Colwyn. Please go ahead.

Speaker Change: Your next question comes from the line of Charles Rhyee from TD Cowen. Please go ahead.

Lucas Romanski: Hi, this is Lucas Humphor Charles. I wanted to ask about your tremendous track care, East Contract, and get some more details there. By our math, this contract could represent somewhere in the neighborhood of 12 to 14 million in annual contract value. One, does that math seem right or in the ballpark?

Speaker Change: Hi, this is Lucas Tomford-Charles. I wanted to ask about your Humana TriCare East contract and get some more details there.

Lucas Tomford-Charles: By our math, this contract could represent somewhere in the neighborhood of $12 to $14 million in annual contract value. One, does that math seem right or in the ballpark? And then two, how should we think about the timing of...

Jon Cohen: And then two, actually think about the timing of that contract and how it rolls out. Should think that as a one one start, or should we think that being a little out period across multiple states? Yeah, so, well, I'll talk about that. The rollout is not, you know, once we're live, we're live. There was always been the matter who we add on. Yeah, I'm having someone with your hero. You're typing in the background. I can't hear you. Sorry, somebody's typing. The Medicare rollout is across states, but it is a national rollout, and it just takes some time to get everybody on board, although we're, you know, as I said, we announced the purpose because we were ready to go.

Lucas Tomford-Charles: [inaudible]

Speaker Change: Yeah, so, well, I'll talk about that.

Speaker Change: The rollout is not, you know, once we're live, we're live. There has always been, no matter who we add on.

Speaker Change: You're typing in the background. I can't hear you.

Lucas Tomford-Charles: Sorry, somebody's typing.

Lucas Tomford-Charles: across states, but it is a national rollout, and it just takes some time to get everybody on board. Although, as I said, we announced it purposely because we were ready to go. I would say on just...

Jon Cohen: I would say on the just on the opportunity side. Just some data, the current rate of depression on military, at the military is 23%. The suicide rate in the last several years has increased by 40%. So we know that the, unfortunately, the opportunity in the military and dependence actually is fairly high. Probably close to and similar to what we're seeing in teams and what we suspect we'll see in seniors over the age of 65, in terms of the rest.

Lucas Tomford-Charles: On the opportunity side,

Speaker Change: Just some data. The current rate of depression on military, active military, is 23%.

Lucas Tomford-Charles: The suicide rate in the last several years has increased by 40 percent.

Speaker Change: So we know that the, unfortunately, the opportunity in the military and dependents actually is fairly high, probably close to and similar to what we're seeing in teens and what we suspect we'll see in seniors over the age of 65.

Ian Harris: Yeah, we don't, we don't comment on sort of pair by pair contract by contract values, but I think he can maybe back into a little bit just given yesterday's press release around to cover lives and to Jon's point. I would, you know, we're in market already. We're working very closely with them to try to figure out how to most effectively and quickly roll this out to their population because, for all the reasons Jon laid out, it's very high priority for them and very high for us. And so, as we've said before, we typically would tell folks externally to budget, call it six or so months to really see that sort of initial step up in revenue from a new population launch, and that's just, you know, a little bit of integration back office, less interesting stuff perhaps, but also just getting the word out to those cover members to let them know, hey, this benefit is available successful today and it's a diminimates to their out of pocket free and so.

Speaker Change: Yeah, we don't we don't comment on sort of payer by payer contract by contract values but I think you can maybe back into it a little bit just given yesterday's press release around the covered lives and to John's point, I would

Lucas Tomford-Charles: You know, we're in market already. We're working very closely with them to try to figure out how to most effectively and quickly roll this out to their population, because for all the reasons Jon laid out, it's a very high priority for them and very high for us. And so

Speaker Change: As we've said before, we typically would tell folks externally.

Speaker Change: to budget call it six or so months to really see that sort of initial step up in revenue from a new population launch. And that's just, you know,

Speaker Change: A little bit of integration back office, less interesting stuff perhaps, but also just getting the word out to those covered members to let them know, hey, this benefit is available, it's accessible today, and it's a de minimis to zero out of pocket for you.

Ian Harris: You can, yeah, maybe back into a little bit, but I would say, give it a couple quarters to really start to see the revenue shelf and our consolidated, you know.

Speaker Change: You can, yeah, maybe back into it a little bit, but I would say give it a couple quarters to really start to see the revenue show up in our consolidated P&L.

Unnamed Speaker: Okay, appreciate the call on that.

Jon Cohen: And then my last question is, when your competitors recently announced that it was look to implement a pair coverage for what is large has been a direct consumer. I told them to be able to help business. We'd like to hear a little bit about how you're thinking about this change in the competitive landscape. Yeah, so I'm, you know, I'm not going to, I'm not going to comment specifically on any specific, you know, competitor what they do or what they want to write, but I what I will do is is. You give you a little bit of color on what it takes to go in network so that, you know, you have an idea where we've been.

Speaker Change: Okay.

Speaker Change: Appreciate the call on that and then my other question is one of your competitors recently announced that it would look to implement

Speaker Change: We'd like to hear a little bit about how you're thinking about this change in the competitive landscape.

Speaker Change: Yeah, so I

Speaker Change: You know, I'm not going to, I'm not going to comment specifically on any specific, you know, competitor, what they do or what they want to, but I, what I will do is, is,

Speaker Change: I'll give you a little bit of color.

Speaker Change: on what it takes to go in-network so that, you know, you have an idea of where we've been.

Jon Cohen: Basically, a two-and-a-half-year journey to get to where we are, and it is really four areas to consider when anybody is going to move. Like we did from a consumer market into a. Well, a fee-for-service reimbursement model through the insurance so that the first is a product design. The designer product for a person who has insurance is significant and it takes a fair amount of investment of time and resources to be able to establish the workflow for that kind of patient, which is very different than a consumer, which includes building, you know, a total eligibility. Capability to be able to determine eligibility, determine copay, determine deductible, and give the patient a really adequate look at what it could or could not cost them as they go into network.

Speaker Change: on basically a two-and-a-half-year journey.

Speaker Change: to get to where we are. And I think there's...

Speaker Change: There's really four areas to consider when anybody is going to move, like we did, from a consumer market into a fee-for-service, reimbursed model through the insurer.

Speaker Change: The first is a product design. The design of a product for a person who has an insurance is significant, and it takes a fair amount of investment of time and resources.

Speaker Change: to be able to establish the workflow for that kind of patient, which is very different than a consumer, which includes building a total eligibility.

Speaker Change: capability to be able to determine eligibility, determine copay, determine deductible, and give the patient a really adequate look at what it could or could not cost them as they go into network.

Jon Cohen: That's an addition to being able to bill and collect from the payers, and they're, you know, the remaining revenue that may or may not sit on the table. So that's the first; is product design the second. is actually getting into network. The ability to go to a pair, negotiate a contract, complete the contract, and then operationalize it. Like we just talked with military, we launched military yesterday, but the time from when we first began discussing to them to now has been a significant amount of time. Now an addition is, once you get the contract, is the ability to operationalize that for a pair.

Speaker Change: That's in addition to being able to bill and collect from the payers and the remaining revenue that may or may not sit on the table. So the first is product design. The second...

Speaker Change: and Oprah Gar is actually getting into network.

Oprah Gar: The ability to go to a payer, negotiate a contract, complete the contract, and then operationalize it, like we just talked with military. We launched military yesterday.

Speaker Change: But the time...

Speaker Change: from when we first began discussing to them to now has been, you know, a significant amount of time.

Speaker Change: Now, in addition, is once you get the contract, is the ability to operationalize that for a payer. That's bringing on, that's a.

Jon Cohen: That's bringing on that's a significant issue relative to making it so that it could actually happen based on what the contract is and the certain contract metrics is. I would say that also getting into network, you've probably seen some of the major pairs have made formal announcements about narrowing their networks. They've decided that they may have too many telehealth companies, so there has been an announcement recently to an arrow. I would say the third is credentialing, credentialing therapists. Four pairs is a significant uplift of which we've spent an enormous amount of time investing in our pair, in our therapy network to get to where we are, and that means particularly experience with adherence to NCQA standards, establishing formal credentialing processes, verification, certification, deployment history, etc.

Speaker Change: significant issue relative to making it so that it could actually happen.

Speaker Change: based on what the contract is and the certain contract metrics. I would say that also getting into network, you've probably seen some of the major payers have made formal announcements about narrowing their networks.

Speaker Change: They've decided that they may have too many telehealth companies, so there has been an announcement recently to narrow.

Speaker Change: I would say the third is credentialing. Credentialing therapists for payers is a significant uplift of which we've spent an enormous amount of time investing in our therapy network to get to where we are and that means

Ian Harris: Particularly experienced with adherence to NCQA standards, establishing formal credentialing processes, verification, certifications, employment history, et cetera, ongoing monitoring to be able to ensure compliance because what's gonna happen is the payers audit us. They audit our therapists, and they audit to see how they're doing. And each payer, believe it or not, has unique requirements and certain processes that they want you to put in place.

Speaker Change: particularly experienced with adherence to NCQA standards, establishing formal credentialing processes, verification certifications, employment history, etc. Ongoing monitoring to be able to ensure compliance because what's going to happen is the payers audit us.

Jon Cohen: ongoing monitoring to be able to ensure compliance, because what's going to happen is the pairs audit us. They audit our therapists, and they audit to see how they're doing. And each pair, believe it or not, has unique requirements and certain processes that they want you to put in place. The fourth is really maintaining quality control. It's a really significant issue in terms of developing recording metrics, which could include things like clinical impact, clinical documentation, switching dates, and then all of this leads eventually to value-based contracts. So the reason I tell you all that is we're two and a half years into this journey, so any entity out there, and there are several who are considering or talking about getting into network, it's just that they're going to take them some time to get there.

Speaker Change: They audit our therapists and they audit to see how they're doing. And each payer, believe it or not, has unique requirements and certain processes that they want you to put in place.

Speaker Change: The fourth is really maintaining quality control. It's a really significant issue in terms of developing reporting metrics, which could include things like clinical impact, clinical documentation, switching dates, and then all of this leads eventually to value-based contracts.

Speaker Change: So the reason I tell you all that is, you know, we're two and a half years into this journey, so any, you know, any entity out there, and there are several, who are considering or talk about getting into network, it's just going to take them some time to get there.

Unnamed Speaker: Understood.

Unnamed Speaker: Thanks for all the color.

Speaker Change: Understood. Thanks for all the cover.

Jack Senft: Here, next question comes from the line of Orion Daniels of William Blair. Please go ahead. Hey guys, this is Jack Sunstein for Orion Daniels. Thanks for taking the questions. First, and this is similar to Stephanie's question, but can you just kind of talk about the early momentum? I mean, if any that you're seeing within the Medicare population, then kind of if there have been any challenges you have identified within this population, and then maybe just a quick second part. Are there any learnings for when you launch in the States beyond the 12s that you're already launched?

Speaker Change: Your next question comes from the line of Ryan Daniels of William Blair. Please go ahead.

Jack Sunstein: Hey guys, this is Jack Senft, on for Ryan Daniel. Thanks for taking the questions. First, and this is similar to Stephanie's question, but can you just kind of talk about the early momentum, I mean, if any, that you're seeing within the Medicare population and kind of if there have been any challenges you have identified within this population and then maybe just a quick second part, are there any learnings for, you know, when you launch in the states beyond the 12 that you're already launched? Thanks.

Jon Cohen: Thanks. Now I would say this is any learnings. I would say that there is a significant market at interest on Medicare. We know that because we know how many people have already gone to the site to determine whether or not they are Medicare eligible or not. That is a significant number. over. I'll reiterate what Ian said.

Ian Harris: Now, I wouldn't say there's any learnings. I said, I, I, then I would say that there, let's say we know that there is a significant market and interest in Medicare. We know that because we know how many people have already gone to the site.

Speaker Change: Now I wouldn't say there's any learnings, I said, I, I, the

Speaker Change: I would say that we know that there is a significant market and interest on Medicare. We know that because we know how many people have already gone to the site.

Speaker Change: to determine whether or not they're Medicare eligible or not. That is a significant number.

Ian Harris: I'll reiterate what Ian said. The reason why our launch plan is developed the way it is is, but I'll reiterate the interest. The cost we announced has been significant.

Ian Harris: The reason where our launch plan is developed the way it is, is we don't want lots of people to come to the site and then find out that they're not eligible yet because we're not in their state. So Anne, in addition, you remember you have two very large Medicare populations. You have standard Medicare, at which 80% has covered, and then a lot of people have, you know, have a secondary insurance. The other huge part of the market is Medicare Advantage. So, as Ian said, as we get launched into Medicare Advantage, a little bit further down, and the Q3Q4, that gives the, that means that the opportunity for essentially any Medicare person to become eligible.

Speaker Change: I'll reiterate what Ian said, the reason why our launch plan is developed the way it is

Ian Harris: We don't want lots of people to come to the site and then find out that they're not eligible yet because we're not in their state.

Speaker Change: So, and in addition, you remember you have two very large Medicare populations. You have standard Medicare, of which, you know, 80% is covered, and then a lot of people have, you know, have a secondary insurance.

Speaker Change: The other huge part of the market is Medicare Advantage.

Speaker Change: So, as Ian said, as we get launched into Medicare Advantage a little bit further down, MF2324, that gives the, that means that the opportunity for essentially any Medicare person.

Jon Cohen: So that's really what we're trying to do; we're trying to time it so that we have the best possibility to capture as many patients as possible. But I'll reiterate that the interest the cost we announced has been significant.

Speaker Change: to become eligible. So that's really what we're trying to do. We're trying to time it so that we have the best possibility to capture as many patients as possible.

Speaker Change: But I'll reiterate the interest.

Ian Harris: Yeah, Jack, I'll just add on. So a lot of inbound interest, simply from our sort of one-off press release in May. You use the phrase launch for those 12 states. I would say the way we think about more internally in terms of our planning is we're actually having a launch where we've made available in 12 states, or really holding back, because again, there's a trade-off on paying a premium to sort of hyper-focused our marketing outreach into those 12 states versus we believe a better cost benefit of waiting for that sort of critical mass and having a bit more scale of the tipping point, which what we're communicating is think about that as like an early Q4.

Speaker Change: The cost we announced has been significant.

Jack Sunstein: Yeah, Jack, I'll just...

Jack Sunstein: So a lot of inbound interest simply from our sort of one-off press release in May. You used the phrase launch for those 12 states. I would say the way we think about more internally in terms of how we're planning is we actually haven't even launched. We've made available in 12 states.

Jack Sunstein: We're really holding back because again

Jack Sunstein: There's a trade-off on paying a premium to sort of hyper-focus our marketing outreach into those 12 states versus, we believe, a better cost-benefit of waiting for that sort of...

Speaker Change: critical mass and having a bit more scale of the tipping point which

Speaker Change: What we're communicating is, think about that as like an early Q4.

Jack Senft: And so it's really to sort of forecasting opportunity. Just to remind you what we've said last quarter is this has always been for us of fairly modest, I'd say very modest contributor to 2024 revenue, given the sort of Q4 ramp up. And so I would view it much more as a material driver of top line in 25. Okay, understood. Thanks for the color.

Speaker Change: And so as it relates to sort of forecasting opportunity, just to remind you what we said last quarter is this has always been for us.

Speaker Change: A fairly modest, I'd say very modest contributor to 2024 revenue, given the sort of Q4 ramp-up, and so I would view it much more as a material driver top line in 2025.

Ian Harris: As a follow-up too, and I made this in your prepared remarks, but GNA expense was up to a bit sequentially and you know as a percent of revenue. Is there anything that drove this specifically? And maybe how should we think about the quarterly cadence of GNA expense going forward from here? Thanks. No, nothing to call out for this quarter of percentage sales, but I would say this sort of level that we're at, this quarter is probably a fair sort of benchmark baseline going forward. And again, the composition of that she named to me matters a lot, right?

Speaker Change: Okay, understood. Thanks for the caller. As a follow-up to, and I may have missed this in your prepared remarks, but G&A expense was up just a bit sequentially and, you know, as a percent of revenue. Is there anything that drove this specifically? And maybe how should we think about the quarterly cadence of G&A expense going forward from here? Thanks.

Speaker Change: No, I mean, nothing to call out for this quarter as percentage of sales, but I would say this sort of level that we're at this quarter is

Speaker Change: probably a fair sort of benchmark baseline going forward. And again,

Ian Harris: And so I think the absolute number is a fair baseline here, but where that capital is actually being spent underneath is a huge focus of mine. And so to the earlier question, right? I'd like to save in some areas more on the GNA side and be able to either let that follow the bottom line and or and it'll be a combination of all three invest in these long-term sort of product initiatives through our product and tech team and that will drive revenue sort of medium and longer term as well as reinvest some of those savings into some of our marketing initiatives.

Speaker Change: The composition of SGNAME, to me, matters a lot, right? And so I think the absolute number is a fair baseline here, but where that capital is actually being spent underneath is a huge focus of mine. And so, to the earlier question, right,

Speaker Change: I'd like to save in some areas more on the GNA side and be able to...

Speaker Change: Either let that fall to the bottom line and or, and it'll be a combination of all three, invest in these long-term sort of product initiatives through our product and tech team, and that'll drive revenue sort of medium and longer term.

Unnamed Speaker: Again, carefully and deliberately, which obviously contributes to sort of near-term and medium-term revenue in that it helps drive new members and innovation. Thank you. Okay, perfect.

Speaker Change: as well as reinvest some of those savings into some of our marketing initiatives, again, carefully and deliberately, which obviously contributes to sort of near-term and medium-term revenue in that it helps drive new members and utilization.

Unnamed Speaker: Thank you and congrats again.

Speaker Change: Okay, perfect. Thank you and congrats again.

Ryan Macdonald: Thank you. Your next question comes from the line of Ryan MacDonald of Needham. Please go ahead. Thanks for taking my questions. Maybe just another one on the Medicare rollout. Do you expect to be rolled out in all 50 states in time for open enrollment later this year, and how should we think about the magnitude of maybe the marketing span? And that would be associated around open enrollment given the importance for Medicare, and is this sort of baked into your expectations currently for adjusted EBITDA for the full year. Thanks. Yeah, so I don't know the concluding date on open enrollment, but you know my, but I would say we're going to be right in the middle of it.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Ryan McDonald of Needham. Please go ahead.

Ryan McDonald: Thanks for taking my questions. Maybe just another one on the Medicare rollout. Do you expect to be rolled out in all 50 states in time for open enrollment later this year?

Speaker Change: And how should we think about the magnitude of maybe the marketing spend that would be associated around open enrollment, given the importance for Medicare, and is this sort of baked into your expectations currently for adjusted EBITDA for the full year? Thanks.

Speaker Change: Yeah, so...

Speaker Change: I don't know the concluding date on open enrollment but you know my but I would say we're going to be right in the middle of it so and in addition we'll we'll be

Jon Cohen: So, in addition, we'll, we'll be. What I believe is enough of the Medicare Advantage to benefit to some degree for the rollout in the mid to late fall of the Medicare Advantage rollout also. So I think we're going to be honestly, we'll probably be right in the middle of it. So we should be able to take advantage of that. Remember, there are, there are existing 65 million medical lives. So, so this is just, you know, a huge number of patients who currently are in. But my predictions will be right in the middle and I, you know, reiterated is we now, at least of some indication of the size and interest of the Medicare population to get the therapy through Talkspace.

Speaker Change: [inaudible]

Speaker Change: What I believe is enough of the Medicare Advantage to benefit to some degree for the rollout in the mid to late fall of the Medicare Advantage.

Speaker Change: roll out also. So I think we're going to be, honestly, we'll probably be right in the middle of it, so we should be able to take advantage of that.

Speaker Change: Remember, there are, there are existing 65 million Medicare lives, so...

Speaker Change: So there's just a huge number of patients who currently are in, but my predictions will be right in the middle. And I reiterated is we now at least have some indication of the size and interest of the Medicare population to...

Ian Harris: And to your question, I think on spend I wouldn't, we're not assuming a massive spike in sort of this grand reveal when we launch Medicare. I would say it factors into just our overall. Sort of marketing budgeting and where we want to deploy capital for similar to the teens contract, right where it's a very. Sort of unique demographic unique population that consumes media differently than the sort of 18 to 64 general commercial population. That's obviously a similar case here with Medicare. And so we're actually exploring a lot of interesting partnerships, new channels, sort of potential.

Speaker Change: to get their therapy through Talkspace.

Speaker Change: And to your question, I think on spend, I wouldn't, we're not assuming a massive spike in sort of this grand reveal when we launch Medicare. I would say it factors into just our overall

Speaker Change: sort of marketing budgeting and where we want to deploy capital for similar to the teens contract, right, where it's a very sort of unique demographic, unique population.

Speaker Change: 18 to 64 general commercial population. That's obviously a similar case here with Medicare. And so we're, we're actually exploring a lot of interesting partnerships, new channels, sort of potential, but what we'd hope to be ultimately tacked creative ways to reach these folks efficiently and sort of cost effectively. So I, I wouldn't, I wouldn't expect any material impact.

Ian Harris: So, but we'd hope to be ultimately cap executive ways to reach these folks affectionately and sort of cost effectively. So I wouldn't, I wouldn't expect any material impact. See the dog driven by this. This year in a negative sense in terms of roll out.

Ryan Macdonald: See the doc given my list.

Thibaudat: See the dot given by this.

Speaker Change: this year in a negative sense in terms of rollout.

Jon Cohen: I appreciate the color; there may be second on the direct enterprise channel, specifically your commentary around the employer channel. We're starting to see in some survey data for 2025 that benefits and wellness, and particularly mental health mental wellness, is increasing in priority for organizations with 500 employees and less, and then 500 to 5000 employees. Just wondering if you're starting to see maybe this sort of increased level of demand and so the early stages of your pipeline development and whether you feel like it's strong enough environment to incrementally invest on that employer channel. So, yeah, I could confirm what you're saying is that on the mid to lower level number of employees firms, we are seeing continued significant interest in supporting mental health as an issue.

Jon Cohen: I appreciate the call there. Maybe second on the direct enterprise channel, specifically your commentary on the employer channel. We're starting to see in some survey data for 2025 that benefits and wellness, and particularly mental health, mental wellness is increasing in priority for organizations with 500 employees and less and then 500 to 5000 employees. Just wondering if you're starting to see maybe this sort of increased level of demand at the early stages of your pipeline development and whether you feel like it's a strong enough environment to incrementally invest on that employer channel side. Thanks.

Speaker Change: I appreciate the color there. Maybe a second on the Direct Enterprise channel, specifically your commentary around the employer channel. We're starting to see in some survey data for 2025 that benefits in wellness and particularly mental health, mental wellness.

Speaker Change: is increasing in priority for...

Speaker Change: organizations with 500 employees and less and then 500 to 5,000 employees.

Speaker Change: Just wondering if you're starting to see maybe this sort of increased level of demand and sort of the early stages of your pipeline development and whether you feel like it's, you know, strong enough environment to incrementally invest on that employer channel side. Thanks.

Speaker Change: So, yeah, I could confirm what you're saying is that on the mid to lower level number of employees firms, we are seeing continued significant interest in supporting mental health as an issue.

Ian Harris: An hour, interesting enough, our offering because it's a pure play mental health is getting a lot of attention because it is a number one issue, and there are quite honestly a lot of employers that are not prepared to deal with a large number of other small point solutions in their EAP programs, and there what they're doing is they are concentrating on the mental health. So, we have seen and our pipeline continues to be to grow for that particular environment. And then we have we also have a small company, so actually self-signing up, we have on the web the ability with if you have 100 employees or less to actually sign up with Talkspace for your employees, and we're seeing traction there also.

Ian Harris: Interesting enough, our offering, because it's a pure play in mental health, is getting a lot of attention. And our pipeline continues to be to grow for that particular environment. And then we also have small companies who are actually self-signing up. We have on the web the ability, if you have 100 employees or less, to actually sign up with Talkspace for your employees, and we're seeing traction there also.

Speaker Change: Interesting enough, our offering, because it's a pure play mental health, is getting a lot of attention because it is the number one issue and there are quite honestly a lot of employers that

Speaker Change: are not prepared to deal with a large number of other

Speaker Change: small point solutions in their EAP programs, and what they're doing is they are concentrating on mental health. So we have seen and our pipeline continues to grow for that particular environment.

Speaker Change: And then we also have small companies who are actually self-signing up. We have on the web the ability, if you have 100 employees or less, to actually sign up with Talkspace for your employees, and we're seeing traction there also.

Ian Harris: Yeah, we just just on DTO role, so the short answer is yes. I mean, absolutely, we're seeing that demand. We see that in our pipeline, sort of both in terms of growth, but more in boiling in terms of development. And John mentioned we introduced recently the self serve portal for SMB for sub 100 employees. We may actually, we're getting like organic amount interest without doing very much. Just yet around sort of getting the word out there we've we've also made lots of progress in recent quarters with the sort of broker community who works more in the middle market right, so.

Ian Harris: Yeah, we're just on DT overall. So the short answer is yes, I mean, absolutely. We're seeing that demand. We see that in our pipeline, sort of both in terms of growth, but more importantly, in terms of development. As y'all mentioned, we introduced the self-serve portal for SMB for sub-100, you know, VARs or in software resellers to really leverage these existing relationships that are being sold into the middle market and sort of piggybacking on those discussions to add mental health. Talkspace is a point of sale.

Speaker Change: Yeah, just on DT overall, the short answer is yes, I mean absolutely we're seeing that demand. We see that in our pipeline sort of both in terms of growth but more importantly in terms of development. As Jon mentioned, we introduced recently the self-serve portal for SMB for sub-100.

Jon Cohen: employees, we may actually...

Jon Cohen: We're getting like organic inbound interest without doing very much just yet around sort of getting the word out there. We've also made lots of progress in recent quarters with the sort of broker community who works more in the middle market.

Ian Harris: In the sense of trying to variableize our sales force, we're working with a lot of think of them as like. You know, bars are in software resellers to really leverage these existing relationships that are being sold into these middle market and sort of piggybacking. On those discussions to add mental health. Talkspace is a point of sale. I would say, I mean, just brought in DT business. Taking a step back is another strong quarter of year in your growth, right? We agree 20%. You know, last quarter we mentioned the timing of met new wins being variable quarter to quarter, just like any sort of enterprise business is.

Speaker Change: In a sense of trying to variabilize our sales force, we're working with a lot of, think of them as like

Speaker Change: VARs or in software or resellers to really leverage these existing relationships that are being sold into these middle market and sort of piggybacking on those discussions to add mental health.

Jon Cohen: Talkspace is a point of sale.

Jon Cohen: I would say, I mean, just broadly in the DT business.

Speaker Change: Taking a step back, it was another strong quarter of year-on-year growth, right? We grew 20%.

Jon Cohen: You know, last quarter, we mentioned the timing of met new wins being variable quarter to quarter, just like any sort of enterprise business is. I spent a lot of time with enterprise software businesses, and it's very similar dynamics, but based on what we're seeing in terms of RFP flow.

Ian Harris: I've been a lot of time with enterprise offer businesses, and it's very similar dynamics, but based on what we're seeing in terms of RFP flow. Our pipeline health the pipeline development we're very confident in the growth of that businesses here on the team side. We continue to get a ton of amount of interest, a lot of that's driven by obviously what's now. Our reviews are proven ability. To really excel here, right just pointing to New York and Baltimore and that sort of core set of capabilities, that's very difficult to replicate on the product side. And we've talked before about how popular they think is.

Ian Harris: Our pipeline health, our pipeline development, we're very confident in the growth of that business this year. On the team side, we continue to get a ton of inbound interest. A lot of that's driven by, obviously, what's now. While we don't give sort of product-level guidance, what I will say about DTE just to help frame sort of your modeling, on a year-on-year basis from 2023 to 2024. But overall, we feel really confident about what we're seeing in the pipeline and the RFP flow.

Speaker Change: Our pipeline health, our pipeline development, we're very confident in the growth of that business this year. On the team side, we continue to get a ton of inbound interest. A lot of that's driven by, obviously, what's now

Ian Harris: While we don't give sort of product level guidance, what I what I will say about DT just to help be all frame sort of your modeling. On a year-on-year basis from 2023 to 2024. Or we expect annual growth to sort of be in the high teens or better. So hopefully that can give you a little bit of guidance in terms of the cadence, but overall we feel really confident about what we're seeing in the pipeline and the RFP flow.

Speaker Change: While we don't give sort of product level guidance, what I will say about DTE just to help be all frame sort of your modeling.

Jon Cohen: On a year-on-year basis, from 2023 to 2024, we expect annual growth to sort of be in the high teens or better.

Speaker Change: So hopefully that can give you a little bit of guidance in terms of the cadence, but.

Jon Cohen: But overall, we feel really confident about what we're seeing in the pipeline and the RFP flow.

Unnamed Speaker: Excellent. Thanks for the call.

Speaker Change: Excellent. Thanks for the talk.

Unnamed Speaker: Okay.

Operator: Okay, that was our final question. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Please wait, the conference will begin shortly.

Operator: That was our final question.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Speaker Change: Okay, that was our final question. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator: Please wait. The conference will begin shortly.