Talkspace, Inc. (TALK) Earnings Call Transcript & Summary

Good morning, everybody. Thank you so much for being here today. My name is Chris Holt, I'm an associate in the health care group at JPMorgan. Very happy to be here. Today, we'll be hearing from Dr. Jon Cohen, CEO of Talkspace; and we're also joined here by the CFO, Jennifer Fulk, who will help out with the Q&A. Dr. Cohen is planning on doing about a 20-minute presentation, followed by the Q&A session. So thank you very much.

Thanks very much, Chris, and thanks to all of you who, for some reason or another, are still here. I can imagine that you probably have flights either at midnight or tomorrow, which is why you're here still. But thank you for attending maybe the last session of the day. So good morning. My name is Jon Cohen. I'm the CEO of Talkspace. I've been in the job for almost 10 weeks now. So it's been interesting, to say the least. I'm accompanied here today with Jennifer Fulk, who's our Chief Financial Officer. So I want to make a couple of observations about the company after having been here for 10 weeks. And more specifically about what I'll call the macro environment in which we live. There -- if you look at any list of trends in the U.S. health care system right now and any top 10 trends, you'll see that there are 2 things that will definitely be on any list. One is mental health services; and the other is telehealth. So it's really -- it's -- the time has come, I would like to say. It continues, telehealth services and mental health services in general continues to be a massive market, which I'll get into in a couple of minutes. Rapidly growing with really a huge amount of unmet need and I would like to say as a physician that the time for mental health in the delivery of health care system in the American health care system is now. It has finally come for those of you who've been around for -- in medicine for a long time. And I would point to one interesting anecdote. For those of you who've been following what's happening with Damar Hamlin, the guy, obviously, the NFL player who had the cardiac arrest and had an amazing recovery. If you look at the story in the last 48 hours, it's all about how we're going to provide therapy to the teams and the team members, how are we going to deal with those people and what their responses are going to be before they go back on the field and what are teams doing relative to the players. I will tell you right now, that discussion never would have happened 5 years ago. It just wouldn't happen. So it's just, as I said, is mental health and mental health services, the time has come. Having said that, having been here, as I said, for 10 weeks, a very high level, which I will get into observations. Talkspace has been around for 10 years. It continues to have an amazing brand and a very strong brand in the market. It has amazing product. We have an amazing team, executive team and a really, really engaged terrific Board. And more so, as important is the strategy, which I'll talk about, is really the correct one relative to what usually is going on in health care, and I'll get into that in a couple of minutes. This is the usual disclaimer, which I'm sure all of you memorize at this point. So let me get into what I'll call the key differentiators for Talkspace and our strategic imperatives. So we deliver therapy to members, and I'll talk about the 4 different ways that we deliver that, which has been traditionally B2C, but mostly, it's now related to the payer environment, which includes both direct through employer and through EAP programs and through the payer coverage. That is our diversified revenue stream, which is across multiple channels. We have a very, very strong commercial pipeline with established relationships with both national payers and a huge number of both large and small employers. Product innovation is a very big deal for us. I'll get into that in a couple of minutes as I go through the differentiators. We, as I said, continue to have a leading brand across all of our channels, which you'll see. And then we have an amazing national network of therapists, both part-time and full-time which is we call a hybrid model. And most importantly, which I'll get to both now and in the end, Talkspace has a defined, very significant path to profitability within a very, very short period of time or a very short period of time, and we'll maintain a very strong cash position as a result of both the path to profitability and the cash that we currently have on hand. And as I mentioned earlier, it's just -- it's amazing having been in my prior life, what it looks like now that you have this unpenetrated total addressable market that continues to have a tremendous demand. So let me get into some of those specifics as I run through this. As I said, the market is -- continues to grow. Some of the data that we like to talk about, the number on the left, you'll see it says greater than 30% of U.S. adults have experienced symptoms of anxiety or depression. We've seen studies now that it's up as 40% post-COVID. It's gone probably to over that at this point. COVID has had a remarkable impact on people's anxiety levels. What I haven't had here is 1 in 4 Americans actually have a diagnosable mental health condition, 1 in 4. 40% of all employers, or the 40% people will tell you as an employee left their jobs in 2021, they cited burnout as their major reason. In addition, if you look in the middle part of the graph, we have the CAGR at 5.5%. It's probably greater than that. You'll see that the prediction is at 2027 $137 billion. I've seen numbers, quite honestly, as I said, it's an unmet need. It's a really, really hard to look at what the size of the market is, but I've seen numbers of $300-plus billion in the next 10 years for mental health services. 47% of mental health visits are currently conducted by telehealth. And think about that. Almost half of the mental health visits in the country are currently delivered through a telehealth solution. I will also tell you that if you look at all the telehealth visits, 65% of all telehealth visits are related to mental health. And there's a 2x increase in mental health claims as a percentage of total telehealth. So the market, as I said, is just pretty extraordinary. Again, if I move now towards the -- what our products are and what we actually have to offer, we like to -- not like to, but we talk about people -- talk to people, is that we now offer the full spectrum of care across our entire platform. This is a huge differentiator for us in the market relative to other people. There are obviously a bunch of other mental health, telehealth companies in the market. Some of them deliver specific niches relative to certain populations. And then some will offer specifically different segments of the product that we offer. They can offer video only. They can offer asynchronous texting only. There are different parts, but our platform is both comprehensive and across the entire spectrum. Messaging, text messaging, is where Talkspace really grew up. They were essentially the pioneers in texting that approved to the public and through all the HIPAA regulations that we could provide a safe product through a therapist by asynchronous texting. And then, of course, we move to live video. Some of the more common diagnoses, it's -- the list is very long there, as you can imagine, is anxiety and depression, PTSD. Familial relationship issues is a big deal, and so is the adjustment disorders, just to give you a couple of top 5 or 6. But if you look in the middle where it says therapy, that is our core. And in our core is the texting. It is the voice and it is the live video. What we've recently done is we expanded to 2 parts of that spectrum. The first is we have a self-guided product. The self-guided product is really particularly interested for businesses in large organizations. It's what we call curated content with workshops and exercises, which they're able to provide to their employees or their constituents. It really does help the HR executive and their large employers to have the self-guided program. On the other side is we also have expanded into psychiatry. Psychiatry is session based. It's a -- it's a group of several hundred nurse practitioners and MDs who deliver. We actually -- so we can treat and prescribe, but we don't do -- well, I like to refer to as hard core. We don't do schizophrenia and bipolar, et cetera. But we do have the ability now to refer within our network so that if people do need specific treatment and/or prescription, we can actually provide that service. Okay. So let me move a little bit to our platform. Now when I say platform, they are really -- right now, there are 4 products that give us our revenue stream. I'm not going to talk about out-of-pocket or B2C because it's somewhere where we moved off of. We do have a vigorous business in B2C, but it's not what I'm going to talk about today. I'm going to talk more about where we are with our other 3 big products or revenue lines. The first is the payer side. So if you look -- if you see where it looks, if we relist behavioral health and employee assistance program and some of the brands that are in there, which are called the trusted brands on each one. The biggest, I think, positive of the company right now and probably the strongest strategic advantage and what differs for us than anybody else in the space is we have over 86 million covered lives, over 86 million covered lives. We're going to update that number after our -- with our Q1 call in February. But that's a huge differentiator for us in the market. And why is that so important? Well, if you look now and -- well, within virtual operator probably today -- and if you look for a therapy and you end up finding Talkspace, what all you'll see now is that you'll go online, and they'll say, "Well, how would you like to get your therapy " You can pay out of pocket. But by the way, most likely you're covered. And if you're covered, we look at your insurance plan, and we'll tell you what that is and what your out-of-pocket will be. That, as you can imagine, is a big deal because basically, we're telling people pretty good chance you can get therapy, and it's not going to cost you anything, or it will cost you a $10 or $20 out of pocket. So let me reiterate, it's a huge differentiator for us in the market compared to the other bigger players and some of the other smaller players. The other is, which I don't want to ignore is, of course, the direct through employer. We've been in that business for a long time. It continues to be a very vigorous part of the business for us. That's where we contract directly with employers or large entities. What I mean by that, universities and colleges and schools and entities like that, where they pay us a per member, per month or in some cases, per student per month fee, and the employer or the employer layers it on as a benefit. It's very, very attractive for employers to have a direct relationship with us because it actually does make it -- it just makes it easier for employees to navigate. If they know they have a DTE therapy program, 1 number, they know where to call, they know what their benefits are going to be, how many sessions they're going to get, it just makes it easier for people. We also know we have the data now in terms of employers, what the result is of therapy. It turns out retention rate is higher, productivity rate is higher. Absenteeism, as you can imagine, is lower because you're not leaving work for a couple of hours to go somewhere to get therapy and come back. And we have some data to suggest that actually morale is actually improved on a direct -- on a DTE program. So those are the 3 big business lines. So if you have those business lines, I know I'm going to continue to talk about the, we call BH, Behavioral Health, which is the coverage by either direct through your payer or through your EAP, your employee assistance program through your employer. The question then is, how do we drive people and how do we drive that business. And there are what I call what we refer to as 4 different levers. First off, we are adding a very significant amount of covered lives to that 86-plus million lives. That's A. B, the current payers that we have, and it's public. You know that it's the big ones you think about, which is Optum, United, Aetna, Cigna and multiple others in the Blues, et cetera. Those they themselves are adding lives as we are in network. So not only are we adding more payers, but we're also seeing an additional lives, lives being added, as a result of their current client. We're currently a client of them or a service provider. So that's the first. The second thing is to increase the capture rate. So you may have the benefit. The question is, how do you let people know. And that's a really, really big initiative of ours right now is how do we let people know or what -- not how, but what our strategy is for targeted marketing to let people know that this benefit exists for them. So that's another -- a fairly significant change for us to increase member awareness. Once we capture that patient, then what happens is they have a certain number of sessions that they want to be able or can use, we need to make sure that we increase utilization. So for instance, at the end of this year, we knew that we had a whole bunch of clients who had used maybe 2 or 3 other sessions, and they had 2 or 3 left and we were encouraging them to use their sessions before the end of the year by -- to increase utilization. And then, of course, it's pricing. And for those of you who've been in health care a long time, it's unusual to actually have the payers interested in something that you have and are actually willing to pay for it, and actually are quite honestly, appropriately sitting at the table with us as we tell them what our prices are and what we need to do in terms of increased pricing because of the cost of therapy, again because we're in a market where the need is so enormous and everybody is looking for mental health services. So let me move now to the cost side, which is my CFO sitting next to me, her responsibility. Of course, she has to be the bad person, she gets take care of all the cost. They have done -- I've been here, as I said, 10 weeks. In the last year, a remarkable job at Talkspace in taking out the costs. And as you could see here, if you look at the ratio of the recurring operating expenses relative to the percentage of revenue, you could see which way the graph is going. They've really, really gotten control of what the cost looks like, and that will continue to come down, right, as we move towards breakeven. The measures that have been taken -- that they've used is no surprise is, of course, labor cost efficiencies, which is how much is your headcount and how much you can survive with or without optimizing the marketing spend, which was a big deal. For those of you who got to follow Talkspace, you know that we've significantly decreased our marketing spend, consolidated and renegotiated vendor contracts, focusing on sales force productivity, improving the network productivity and, of course, a disciplined corporate spend rate. So those are all the issues that have gone into making sure that we're taking out a fair amount of cost to get to where we need to do on the expense side. If I move now towards our brand and our brand awareness. This is -- I think this is particularly interesting. It turns out that the strength of our brand continues although we spend less. The Talkspace brand is really, really strong and continues to be extraordinarily strong in the marketplace. And we're obviously very proud of that. Recently, we received the award. We actually received the award for the industry's best large provider of telehealth mental services in 2022. And many, many people, of course, have always associated us with Michael Phelps. He continues to be a partner with us. He's been a great ambassador for mental health services. He continues to regard our product really highly and shares his views frequently, as all of you know, to support the issues of therapy for everybody. So that continues to be really a great partnership. So let me talk now a little bit about product innovation. One of the most important things we can do is to continue to focus on the core business and what we can do to innovate to actually drive the business priorities. And that's really important because sometimes you get a lot of ideas. A lot of people come every week and say, look, we should do this, we should do that. We should expand into this. And our view is we have an amazing product. We need to concentrate on that product and make it even better. So I'd say there's 2 parts of the innovation that's going on right now. One is how do we drive an increase in revenue, which means improved bookings conversion, improved member satisfaction, which is the people who are signing up and retention and increased reimbursable session rates. And there's a couple of screenshots of what the scheduling looks like when you go online to schedule, and there's a little photo of when we introduce you to your provider. On the other side of the innovation is actually is to decrease costs. What can you take out? What can you actually do relative to your business priorities to take out cost, which is increasing provider efficiency? How efficient are your providers? How efficient are both your part time and your full-time people in utilizing their bandwidth? The next is how do you increase the network utilization. And then the third, of course, is the providers have to be happy. I mean we have, I will tell you, even more very recently, a very, very strong, engaged and very, very positive network sort of providers who really do like working for us. We did, Jennifer and I, did a couple of focus groups about a month ago, and they like working for Talkspace. And that's a really big deal for us and the way we need to do to enhance that. So this is the network. The network is 3,000-plus providers across all 50 states. Those 3,000 are the part-time therapists. It's an interesting work dynamic for them. Many of them, to be honest, are at home. They're doing this part time. They take sessions as they need them, and they can increase the number of sessions whatever where their need is. We've had a 30% growth in the number of providers in the last 12 months, and 34% -- I'm particularly proud, 34% of our clinicians identify as a person of color to be able to serve diverse networks and diverse communities. It is hybrid, as I said, both independent full-timers and -- independents and full-time people. Some of the reasons why we're the platform of choice, we do these awards, we try and recognize people, they do form a community that interact with each other. We do provide them with developmental options and learning options. We try and make it as convenient as possible for them. And really no surprise that people who are doing therapy find it to be just incredibly meaningful work. So let me talk about the -- our outcomes. We have a fairly robust R&D part of the company which does research into what mental health, telehealth delivery looks like. Our flagship study is listed in this slide here, where we studied 10,000 individuals across 50 states and looked at how they did with 12 weeks of asynchronous messaging therapy. And it turns out 67% resulted in remission, 67%, or improvement of symptoms on measures of depression and anxiety. And that's a really high number. And that was really the flagship study for Talkspace to really tell people, you know what, you can do asynchronous texting to people, and it really has a big impact. The study on the other side, we are just about to report. I wanted to talk about it today because, to be honest, I spent a lot of time dealing with COVID for the last 2.5 years in my prior life, and I was really interested in what this resulted in. And the data essentially is we've studied 820 health care workers who went through and post COVID. What's interesting is 35% was -- who entered into this study was the first time on therapy. I find that actually more fascinating that 65% of people were actually in therapy. So it gives you an idea of actually how an incredibly relevant mental health therapy is. So it is 1 month, 1 month therapy for this group of patients, 56% result in a remission or improvement of the symptoms on measures of depression and anxiety with just 30 days of care. And when you really think about it, it's probably no surprise, just a lot of people need somebody to talk to. They just need somebody to talk to and talk to what's going on and why they're so anxious after COVID and what their feelings are. And all of us, I think the American public will never -- I should say never. It's going to be a long time before anybody recovers from COVID. I think it's an unfortunate reality. I will tell you again, as -- even myself, that we've all had this incredible flu, COVID season. But even now, honestly, if I wake up with a cold, the first thing I say to myself is, should I test for COVID. I have a home test and should I get tested. I don't think that's going away for a long time. I think, unfortunately, people have a little bit of PTSD related to what's going on there. So anyway, that's some of our data. So -- sorry. Here we go. So what's our -- reiterate our near-term priorities. First and foremost, when I came here is what I've committed to, as much as I can, is we will get to breakeven profitability, and we have line of sight to that. We will talk about that in terms of giving the Street a little bit better idea, more than a little bit of better idea when we do our Q4 earnings in February. At the same time, we will end up with a significant amount of cash on the balance sheet, which will give us an opportunity to do a lot of other things within a reasonable period of time. We'll continue to invest in innovation to improve the product on both sides, both the payer -- both -- I'm sorry, both the provider side and the member side. Our go-to-market strategies in terms of managing the customer is a really big deal, as I mentioned, is how you will now look at Talkspace when you go online and find us, and the issue being, oh, by the way, your therapy is probably paid for. So that's a really big deal for us generating profitable solutions. We will continue, as I just said, on the national payer side, add as many lives, which is lots, to continue to be on the forefront on the behavioral side relative to the payers. And we want to continue to be the platform of choice for the providers. We can't provide the product. We can't do anything we can in terms of how good our product is or provide it without having an amazingly very significant platform of providers that are happy and want to work for the company. So these are the key takeaways, which I won't run through. In summary, I am highly confident and remain optimistic that Talkspace is really well positioned to achieve our goals for 2023, given our strengths and significant market tailwinds, and I'm happy at this point to answer any questions. Thank you.

Jon, thank you. I worked for Premera Blue Cross, so a big payer and client. So my question is about your quality programs. Our -- we serve a lot of national large household name clients. And they're very -- for any provider we partner with, they're very interested in quality and management. And we know there are some in the industry who have issues with that, whether it's overprescribing drugs that can be prescribed so freely? Or in some cases, there are, I'd say, maybe competitors of yours that use not fully licensed providers like trainees who are being supervised, and that's how they generate the access they need. So love to hear your thoughts on how -- what you do and how that fits into your plans?

So we have an entire quality organization metrics that oversees our providers. We have full-time chief -- we have a Chief Medical Officer whose job is to maintain the quality of the therapy, the entire network. So that, again, coming from where I am, I'm originally actually on the health system side, quality is a big deal to me. Let's -- I mean it's just -- it's almost rhetorical, but it is a big deal. We need to know what the -- and listen, no surprise. You have therapists "who are good" and a therapist who are a lot better at their jobs than other ones. And things come up all the time. Every week, something comes up about this, how do they deliver. And remember, we are a service provider. We have notes. As you know, we submit our notes. We submit documentation. We are a full-fledged provider. So we have to do all the things that you need to do to not only just provide a great service, but actually to get reimbursed. So the quality metrics is a pretty big deal to us, and we have certain things that we monitor to know how people. And then there -- how long does it take a therapist, how long -- did they get back to you in time? What did the members say about that? So all of that is actually ingrained before I got here into the company. So a big deal. Sure.

The original consumer product was the text messaging product, and then you broadened from there. So in your view, how do you see that mix evolving going forward? That's my first question. And then my second question is, of the 86 million people who have the benefit through you, do any of them have what would be first dollar coverage like -- or is it all subject to the deductible and the standard co-pays of the medical benefit?

Yes. So an answer to the second question is, as everything with the insurers, it depends on your -- the design of your program with your employer. So if the employer says, "Oh, we want to offer x through our EAP program, and there's not going to be a co-pay or out of pocket, there's not going to be a co-pay. If it's just like you're your PBM and your prescription, right? If they say no, no, if you need therapy, we want your employees to pay $20 out of pocket. So the answer is there can be 0 covered, there could be 0 out of pocket, and there could be a co-pay. It just depends on what the benefit design is relative to the employer. So that's -- in terms of your first question, the async texting versus video. I would tell you that the answer is really, from what I could tell, a lot of it is based on population. So there is a huge tendency, as you can imagine, for college and university students and youngers to text. No shock, no shock, all right? So that they like the texting async because they could do it all the time, they can do it any time in terms of the convenience factor. The video, it really depends on who, what and where you are and when you're more comfortable. We had a discussion. Actually, it was actually part of -- if you saw CNN last night relative to Hamlin at what they're doing with the players, they actually ended up the whole discussion, which you may know is that men are less likely to do video than women. There are some uncomfortableness until they've been getting therapy for a while, then they will move into live video. And the discussion that I called last night is, this is an ex-football player, for the players here and you say, listen, we guys got to stop saying that you can't man enough to do like video. And it was -- it's a really big issue. I didn't realize it till the last couple of weeks. But -- so I would say it depends, right? Men, women, age, it just depends on the group. But I -- we've seen in certain populations, obviously, a pretty big uptake in the video, no surprise because some people think it's just better to do it because it's live. It's interaction, right? So it depends on the population.

Just wanted to get an understanding of the self-guided therapy side. How do you keep people engaged and motivated to continue using that?

So how do we get paid for it?

How do you keep people engaged and motivated?

So I don't know if it's the -- so what happens is that you go through the self-guided, right? I ask a bunch of questions and it tells you. And then there's a lot of -- then there's feedback every day, right? It's similar to some other probably apps and things out there. But in addition, we have these classes and content. So if you're an employer, if you say, listen, I'm really having trouble with my child. I'm just having some parenting issues. There is a class, one of like a lot, that will just say, do you have parenting issues. And you could sign up for that, and it goes a couple of times a week, and it's with a live therapist. Class, I like to compare it to Peloton, meaning you go on, you may have 100 other people who you don't see who are taking the class, but the therapist is there live, giving you the information. So that's how it works. And it's -- for the employers and the HR, the Chief HR Officer or the benefit agent, it's really good because it's something that your employees could do. There's all these different topics. And by the way, if they're using the self-guided and DTE, by the way, the feedback to the HR executive is much more significant than on an EAP program because the data is just more obvious for us to be able to feed back. So anyway, that's how the self-guided works.

I just wanted to ask a quick question about if you're managing to get a 67% improvement on asynchronous messaging with AI generative kind of tools that are coming out and being pretty present, how you guys are thinking about that and from a defensibility point of view and as well as the margin that those kind of technologies can bring in, and yes.

Can you -- I didn't hear the first part that well.

I'm sorry. So just saying, if you're getting 67% improvement from asynchronous messaging, something like an AI generative chatbot, shall we say, or whatever you want to say, is able to probably do that at a larger scale. I was wondering how you're thinking about that in terms of your business model?