Talkspace, Inc. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Strategic Initiatives:
  • Grow payor revenue: More than doubled payor revenue, with covered lives increasing from 92 million to 131 million and same basis capture rate growing by nearly 50%, nearly doubling session volume. Established business development process to engage new partners.
  • Grow DTE business: Rebuilt DTE sales team, announced partnerships with City of New York, Baltimore County School System, State of Vermont, and American Federation of Teachers. Invested in and improved self-guided product Talkspace Go.
  • Be platform of choice for providers: Grew therapist network by 75% to over 5,300 therapists across all 50 states while improving provider satisfaction rates.
  • Operational Excellence: Reduced total operating expenses 32% from $143 million to $98 million. Improved revenue cycle management and compliance/control processes.
• AI Investment: Committed to leveraging AI across applications to enhance clinical efficiency and operational excellence. Proprietary machine learning model flags patients at risk for self-harm with 83% accuracy, having flagged 32,000 patients since launch.

Segment Performance

• Payor: Fourth quarter revenue was $25.4 million, a 15% sequential increase. Full-year 2023 payor revenue more than doubled to $80.8 million. Covered lives grew 42% year-over-year, and sessions nearly doubled, driven by increased covered lives and a ~50% increase in same basis capture rate.
• Direct-to-enterprise (DTE): Fourth quarter revenue was $8.9 million, up 11% sequentially. Full-year 2023 DTE revenue was $33.6 million, up 19% year-over-year.
• Consumer: Fourth quarter revenue was $8.2 million, a 4% sequential decline. Full-year 2023 consumer revenue was $35.6 million, a 35% year-over-year decline.

Guidance

• 2024: Expect to exit Q1 with break-even adjusted EBITDA. Full-year revenue expected to be in the range of $185 million to $195 million, an increase of 23% to 30% year-over-year. Adjusted EBITDA expected to be in the range of positive $4 million to $8 million. Anticipate overall gross margin to be lower and gross profit to grow at 18% to 23%. Initial estimate for CapEx in 2024 is $3 million to $4 million.
• Three-year outlook: Believe can sustain compounded revenue growth in a range of 20% to 25% and deliver adjusted EBITDA margin in a range of 12% to 15% by 2026, based on continued expansion of payor segment and elevation of DTE experience.

Risks

• Affordability and access to insurance remain challenges for behavioral health patients as 42% of the population with a diagnosed condition cannot access their treatment, and 34% of those with insurance have difficulty finding a therapist to accept their insurance.
• Attorney General of New York issued a report on ghost behavioral health networks where 86% of providers were unreachable or not accepting new patients.

Q: Charles Rhyee asked about marketing channels deployment, differences between payor/DTE and member acquisition costs.

A: Jennifer Fulk said focus on acquiring payor members, made progress in lowering acquisition cost, referral partnerships a catalyst; DTE related to product offering enhancements.

Q: Charles Rhyee asked about update on teens/DTE opportunities, size/scope.

A: Jon Cohen said significant interest, variable by entity (school districts, cities, states/counties), size varies from Baltimore to New York City.

Q: Jack Senft asked about OpEx leverage for three-year margins, therapist turnover, AI traction.

A: Jennifer Fulk said 2024 guidance assumes payor growth, Jon Cohen said majority operating costs taken out, turnover low, clinicians excited about AI for documentation and better care.

Q: Stephanie Davis asked about new markets expansion, consumer opportunity.

A: Jon Cohen said focus on teens, seniors (Medicare), consumer pivot to payor strategy better due to insurance coverage leading to better long-term value.