Talkspace Inc.’s (Nasdaq: TALK) business is at an inflection point, according to the company’s CEO, Dr. Jon Cohen.
Talkspace’s shift away from its business-to-consumer (B2C) roots toward a business-to-business (B2B) operation made significant progress in the fourth quarter and throughout the whole of 2022, helping it redefine its corporate identify amid its ongoing turnaround effort.
“Our business model allows us to take advantage of the large growing under-penetrated addressable market,” Cohen said Wednesday during the company’s fourth-quarter earnings call. “We ended the year with B2B revenue representing more than half of the company’s revenue for the year, an inflection point that started in the third quarter and widened in this quarter’s results.”
The leadership team of the New York City-based behavioral health company said the quarter and year marked a turning point, with 53% of Talkspace’s annual revenue coming from its B2B operation. Talkspace saw a majority of its revenue, about 57%, come from the B2B side for the first time in the third quarter.
Fourth-quarter revenue totaled $30.2 million, a roughly 7% increase year over year. Annual revenue increased 5.2% to $119.7 million.
The company shifted to a deeper B2B focus after Talkspace posted worse-than-expected financial results during its second earnings call as a public company in November 2021. That shift resulted in the founders, which included the CEO, being terminated from the company.
The company’s move away from the high-churn and high customer acquisition cost B2C comes with lower expenses — and apparent confidence from Talkspace’s leadership team that the behavioral health business will soon hit breakeven.
Talkspace predicts it will hit breakeven at the end of the first half of 2024 and have about $95 million or more in cash. It presently has about $138.5 million in cash and equivalents, about 30% less than it had a year ago.
The company’s IPO in 2021 gave it a huge cash infusion on top of the millions it raised as a private company.
Neither management nor analysts on Wednesday’s call mentioned a sale of the company. Last year was marked with rumors that Talkspace would sell as its share price tanked. This included chatter that Talkspace received offers from the private equity-backed, Sacramento-based Mindpath Health and Boston-based telehealth provider American Well Corp (NYSE: AMWL), commonly known as Amwell.
Last year, activist investor Firstime Ventures sought to pressure the company into greater transparency about its turnaround strategy and slammed Talkspace for apparently not taking acquisition offers more seriously.
Talkspace’s priorities
Cohen detailed four major priorities as the company enters 2023:
— Grow the behavioral health plan and employee assistance plan (EAP) business
— Build larger and more focused B2B business solutions
— Be the platform of choice for providers by increasing network hours, improving satisfaction scores and decreasing churn
— Develop operational and compliance excellence
Talkspace has thousands of providers in its network, though Cohen didn’t specify how many. The company reported growing its provider headcount by 11% in the fourth quarter compared to the third quarter. The CEO added that the company’s national provider practice, a group of full-time therapists with the company, also saw greater productivity and utilization in the fourth quarter.
The company also decreased its monthly churn in its provider network, halving it in the fourth quarter year over year. At the same time, it decreased patient match times by 50% in the fourth quarter compared to the third quarter.
Last year, Talkspace cut down its national provider practice and put greater emphasis on its network of contracted therapists. It also instituted productivity measures for full-time therapists that some criticized.
Looking toward the future, the company is exploring greater use of artificial intelligence (AI) tools — an increasingly popular topic of conversation in health care as of late following the emergence of ChatGPT.
On AI, Talkspace already uses this form of tech in its operations. The company uses AI to assess individual therapists’ sessions for quality and, in the aggregate, to assess new value-based care measures. Cohen teased more information about AI use in the future.
Along with AI, data privacy is an increasingly relevant point in the behavioral health space. While Talkspace invests in tracking its users across its digital footprint, Talkspace CFO Jennifer Fulk said that Talkspace does not share that information — or the personal information of Talkspace users — with marketers.
“I can assure you that it’s not how we’re operating,” Fulk said.
The company, instead, Cohen said, seeks to optimize its advertising and marketing spend by investing in tracking data. Sales and marketing spending has been a pain point for Talkspace in the past.
Throughout 2022, the company cut its spending as part of its profitability efforts and shifted away from its B2C business.
In 2021, Talkspace’s sales and marketing costs totaled $100.6 million, about 63% of its annual operating expenses.
Sales and marketing costs shrank by about 28% in 2022 to about $72.8 million.
Cohen noted that some degree of marketing will be necessary to drive utilization in its B2B line, which covered about 92 million lives at the end of 2022, a 33% annual increase.
“The investment in the marketing spend is targeted to tall members; it is not a breakout specifically targeting the B2C market,” Cohen said. “It’s a somewhat of a different approach … it’s no longer like we’re saying this is the amount of money we’re going to put into marketing on the B2C side.”
By the numbers
In addition to increased revenue and a shift to more revenue from the B2B part of the business, Talkspace also saw changes in profitability and utilization.
On an annual basis, Talkspace had 15.4 million active B2C users in 2022, a roughly 35% dip compared to the previous year. Meanwhile, the company completed 426.4 million B2B sessions in 2022, about 56% more than in 2021.
Operating expenses dipped about 11% to $143.5 million. However, Talkspace’s net loss deepened by 27% to $79.8 million.
On an adjusted basis, EBITDA totaled a $58.7 million loss or a total loss per share of $0.51. This misses the Zacks Consensus Estimate of a $0.44 per share loss.
Talkspace also released its financial guidance for the year, projecting between $125 million to $135 million in revenue and an adjusted EBITDA loss of between $32 million and $28 million.
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