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

Good morning, everyone. Thank you so much for joining us this morning. My name is [ Chris Holt ]. I'm an associate in the Healthcare Investment Banking Group at JPMorgan. Today, we have the opportunity to hear from Talkspace. We'll be hearing from Dr. Jon Cohen and Jennifer Fulk, the CEO and CFO, respectively, of the company. They plan for about a 20 to 25-minute presentation followed by Q&A. So we look forward to any questions that you may have. Thank you so much.

Thanks Chris. Good morning. First off, I want to thank all of you for attending this early morning session on the last day of the conference. So doesn't go unrecognized. As you probably know, the United States is facing a behavior health crisis. There's not a day that goes by when some mental health, behavioral health issue that's not in the news. The presence of behavioral health issues is actually quite staggering, with 32% of adults reporting symptoms of anxiety or depression in 2023. Furthermore, the economic cost and the loss of productivity to the country from mental health issues is close to $50 billion. The projected growth of behavioral health market is close right now to about a 5% CAGR, estimated to be $137 billion by 2032. Yet affordability and insurance access remain a major challenge for behavioral health with 42% of the population with a diagnosed condition cannot access treatment. And of those who actually have access or have insurance, 34% of those people, 1 in 3 have difficulty finding a therapist to accept their insurance. Most recently, some of you may have noticed the Attorney General of New York reported recently on what we call the Ghost networks that are occurring all around the country, particularly in New York for behavioral health, where investigators actually found that 86% of providers were ghosts. Meaning that they were unreachable, not in network and not accepting new patients. So it is our vision and has been to be the solution of choice, which means to provide accessible, affordable and effective mental health support to all. And today, I'm excited to share our journey our impact and the road map for the future. What Talkspace is, is it provides several different solutions. First and foremost is therapy. We match a therapist within 1 to 2 days frequently, it's actually within several hours. Our therapists to treat multiple, multiple conditions listed as possibly 120-plus conditions that they are able to treat. But most importantly, Talkspace, which did most of the pioneering work on texting and messaging provides asynchronous therapy, which is really texting and messaging, which occurs, although not, as I said, exactly when someone reaches out, but it is available essentially 24/7. We also provide live video and live audio. The texting and the messaging part of Talkspace is really one of the big differentiators in the market. So when you look at a lot of the telehealth providers out there who say that they provide telehealth mental services, it's true, but most of them are providing video and most of them do not have the platform to provide messaging and asynchronous care. The coverage, which I'll get into in more depth is by insurance, your EAP program, employers, schools and then of course, we still have a consumer business where people have cash pay. We also have a self-guided, Talkspace self-guided called Talkspace Go. It's a whole slew of personalized courses, daily journaling, prompts every day, live classes with a therapist and literally hundreds of different sessions that we offer. And with, as I said, messaging, sometimes that only occur the way need to do 5 minutes a day with an easy referral if need be to [ help ] the therapy. And the third, although a small part of our growing business is psychiatry, which is available in all 50 states. It includes a psychiatric evaluation, prescriptions and ongoing medication management. We all -- we right now don't provide -- we only provide it for people 18 years old and older, and we do not prescribe controlled substances as of right now. It's made up of a 200-plus network of nurse practitioners and physicians. In terms of our therapy network, the network is growing substantially. We now have about, if not more than 5,000 therapists on the network. As I said, we're covering all 50 states. And within the last year -- within the last year, our network grew 60%. It's approximately 1,600 therapists were added on to the network in the last year. It's a hybrid network. What do we mean by that? It's a combination of people who get paid through the 1099s or about the 200-plus who are full time and work for us only as in-house full-time providers. As I mentioned earlier, there's a huge number of conditions that we treat. The most common of course, is anxiety, depression, family issues, grief, trauma, loneliness, eating disorders and others. It's interesting, of course, after you match. Usually, we'll see a therapist within 24 hours. And if you want a live video, it takes you somewhere between 3 and 5 days to get scheduled. It, of course, addresses the clients' needs, particularly around language, ethnicity and LGBTQ needs of the particular member. Meaning that, of course, for our therapists and the reason that people are joining Talkspace and why we've had such a significant increase, it is what we believe, one, if not, the platform of choice. It is meaningful work for the therapists. We obviously pay them what we think is -- what they and us think is appropriate, but we also provide them with an environment for learning and an environment for development, an environment to be part of a bigger community and really, an environment to be part of the ongoing culture that exists at the Talkspace. And of course, the most -- probably the most important thing is it addresses what I talked about earlier is the issue of availability. If you look at Talkspace, we have 2 very distinct, although obviously, some are related, growing lines of businesses. There is the payer side of the business, and then there is the direct to enterprise side of the business. The payer side of the business, we continue to maintain that right now. We are the largest in-network telehealth mental health provider in the country. Recently, we announced the addition of [indiscernible] of another 15 million lives, which brings our total now up to 130 million covered lives throughout the country. That means that all of the national players on the payer side are in network plus many several of the blues across the country. And in 2024, and I'll get into it a little bit more later, but we will increase that -- another significant amount by adding more blues, more regional coverage and then Medicare. As just said, as I'll get into in a couple of minutes. But it's not just about the covered lives. It's very important that even though it's covered that we capture -- we have what's called the cap rate, we actually get people noted, identify the fact that they're actually covered and actually sign up. And then it's an issue of how do we increase utilization by providing a better service so that they stay on the platform and get as much coverage as they need. The major emphasis in 2024 is not just the adding lives would actually increase the capture rate and increase utilization. And then, of course, we still do offer cash pay. People come to us, they find Talkspace, and we say, well, if you would like, you can pay for it [ out of ] pocket as we've done in the past. But by the way, let us determine your eligibility. And by determining eligibility obviously moves them towards the payer side of the equation. If you look at the other side of the business which is the direct to enterprise side, as I said, we're one of the leaders in providing enterprises to employers, schools, government and multiple entities. We have listed some of them here, which includes retail, healthcare, technology, hospitality, and I'll talk a little bit more in a minute about education. These are some of the targeted verticals, but we obviously serve very large and small employers. The financial relationship on the direct-to-enterprise is usually either a per member per month, meaning really a per employee per month fee or per student per month fee, depending if it's a school, [ teen ], college or university. We literally serve hundreds of clients from large corporations to small corporations to small businesses. And then as I said, we have a significant amount of business related to employers that are looking for a solution. We've been clear about it. We've been public about it. We know that if someone has a true mental health offering, if their mental health offering is through Talkspace, there is an increase in productivity, decrease in costs, decrease in absenteeism and increase in retention rate for people, employees. So let me turn a little bit more towards the education piece and go a little bit deeper into combating the youth mental health crisis. The U.S., as again, many of you have seen is truly facing a dire crisis among our youth. It's in the press again mostly every day. You've probably seen the Surgeon General Report. The Surgeon General has said that mental health is the defining public health crisis of our time and that social media addiction is the greatest threat to the lives of our children and teens more so than in the past than cigarette smoking was, to give you an idea. 40% of teenagers, 40% say that they struggle with persistent feelings of sadness or actually hopelessness. And 62% has been the number in terms of an increase in suicide rate among young people between the ages of 10 and 24 from 2007 to 2021. You hear a lot about the problem. But quite honestly, there has not been a pull now. Obviously, a lot of solutions that have gone on the table. We know that the schools have a lot of councils and those councils truly do an amazing job. But if you speak to the councils, you'll find that they are just incredibly overwhelmed. They cannot handle the volume of what's coming through, the students relative to schools. President Biden, you probably saw it recently, committed another $1 billion to be invested in schools in support of mental health. If you look at what we've done, we're a big believer in public-private partnerships. So recently, we announced 2 big announcements. November 15th, we announced our relationship and partnership with the City of New York. Our relationship with the City of New York is contracted to provide every single teenager between the age of 13 and 17, 465,000 teenagers in New York access to Talkspace on a direct contract with New York City. 4 weeks later, we announced our contract with the Baltimore City school system, where we are now providing Talkspace to every single high school student in Baltimore. Those 2 announcements, obviously, are very important, not just for the moral imperative that we have to provide, what we can for teenagers, but important for the company relative to the issue of mental health for teenagers and us [ "leaning in" ] on that vertical. I've been asked about the market before for teenagers and again, 13- to 17-year-old roughly, and it's conservatively approximately a $500 million market. Now if I could do this right, I'm going to play a 30-second video about making the difference in teens. [Presentation]

So those are real. Those are a couple of clips we took from our recent initiative relative to talking to teens and some of the focus groups. It's just incredibly impactful what these kids are going through and how much it could help them. So I want to move now onto innovation. Talkspace has had a very strong history of innovation and pioneering the original work on messaging therapy. Innovation and technology is core to who we are. We are in an unusual position to accelerate our clinical efficiency and operational excellence. We will lean in on artificial intelligence this year in multiple different applications. Our AI tools are meant to be assistance to our therapists, helping them to be more efficient, but not replacing them. Integrating the power of AI insights with the expertise of human therapy. As an example, in our proprietary machine learning model, it alerts our therapists when a patient may be at risk for self-harm. It detects language patterns consistent with high-risk behaviors that place individuals at risk for self-harm or suicide. It is 83% accurate. We reported it in 2019 and since 2019, we have flagged 32,000 patients since the launch who are at risk for suicide. The model has been revalidated recently for teens. And moving forward, we will look to add additional clinicals to clinical alerts. It improves the therapist workflow and it increases the comprehensive notes, and intake summary is something we'll do. And we will also increase our business operations and customer support tools. To give you an idea of our structured and unstructured dataset, our data contains approximately 4 billion words sent by 1.4 billion users over 75 million messages. Our messages contain 26 million audio messages and 400,000 video messages. The deidentified data is also augmented by other data types that provide a holistic view of our users and their behavioral health. It is an incredible dataset. At Talkspace, we believe that digital therapy provides an unprecedented opportunity for us to improve mental health through data science and machine learning, all securely HIPAA compliant. Our goal is to leverage our unique data to identify patterns and improve the way that behavioral health is delivered. So in reviewing 2023, you can see basically, we did what we said we would do, and the results speak for themselves. In terms of EBITDA, we took it down from $60 million to $16 million in 2023. Our reduction in operating costs went from $120 million to $88 million. We grew the network by 60%. We increased covered lives from 92 million to now 130 million lives. We increased our payer sessions, essentially doubling them from 2022 to 2023 to 830,000. And as I said, we've launched 2 major teen initiatives for New York and Baltimore. We've also talked about a business development process and partnerships and possibly a little bit later in the Q&A, we'll talk about what those 2 partnerships look like with a lot more to come. In terms of what does 2024 look like and where we're headed. First off this quarter, after 12-plus years of Talkspace's existence, this quarter, end of Q1, we will be breakeven and then profitable. We will also maintain our very strong cash position with greater than $120 million of cash on the books. We will continue to grow profitability. We will substantially grow covered lives. We will maintain our strength with employers, and we will continue our momentum -- sorry, continue our momentum in teens and public schools. As I said a couple of minutes ago, we will make pioneering investments in clinical AI tools, and we will launch a whole much more of what we call needle-moving strategic partnerships. So in addition to our big initiative in AI, the other really important announcement we'll be making this morning is that in 2024, we will be a Medicare provider for both Standard Medicare and Medicare Advantage. We will roll it out in all 50 states by the end of 2024. Medicare has 62 million lives, 34 million standard Medicare, 32 million in Medicare Advantage. The importance of the Medicare mental health changes in the 65-year-old is, again, hopefully obvious. Currently, it's increased 2.5x since 2020, the number of people that have said they have mental health challenges. 61% of those 65 years old and older have a cell phone. And if you look at the data a little differently from 60 to 70-year-old have 80% of them. I would say that for anyone who thinks that seniors don't use their cell phones, you have not been a grandparent. I'm fortunate enough to have a 4 and 7-year-old, 2 grandchildren. And the amount of time that we already began to spend with them face timing with their parent phones or just talking to them. As I said, just look at any grandparent, the major communication route right now is through the cell phone. For those of you who don't believe the seniors [ use ] cell phones. We believe that it is a really, really important initiative. We might be -- we're not sure, but we might be the first and possibly the only telehealth mental health provider to be in network with Medicare across the country. I want to close by restating, we've had an amazing and terrific year. The market continues to grow. Our solution addresses the criticality of accessibility, availability and affordability. With our payer and DTE strategies and the way the businesses are going, we are looking forward to another great year in 2024. Thank you.

Are there any questions from the audience just yet? Maybe up here in the front row.

You mentioned the mental health crisis among the youth population. What is the most pressing issue when we talk about the mental health crisis specifically that you guys are most focused on? And is it really just having talk therapy accessible that you think will be the solution to whatever those -- the [ top one is or at ] the top 2?

Sure. So we have done a bunch of other [ school systems ] before, but we did a fairly significant amount of focus groups relative to talking to teens and trying to -- what is it that you want? What is it that's going on? And the message is very clear. One, I want to be able to talk to somebody like now. Two, I wanted to be really available, so I could talk to them anywhere. I want the privacy. I want it to be at my convenience. And of course, I don't want to have to pay for it, right? The Talkspace solution addresses all these issues, frequently text on your phone. And by the way, it's 24/7. We match with the therapy. We know already on the data from New York. We're matching therapists within an hour available. And what they're saying is we want it then, we want somebody to talk to, we want it available now and then addresses those issues. And by the way, in New York, just for the record, it is with parental consent, which is part of the workflow.

I think the text messaging platform is really good because it really kind of allows you to triage like the [ acute ] patients from the ones that can [ later ] have a different level of care, for the patients that need more acute care from a psychiatrist, maybe in person. How are you guys bridging that relationship or that need.

Sure. So we've always had in place SOPs and operating procedures. We have devoted partners who are specifically available for what we call a warm handoff. If the therapist gets into an issue where they think that they cannot deal with it, which is unusual, by the way, because the therapists deal with a lot of these issues all the time, we will hand off to -- for people for that need acute care, which is usually crisis management. And it's not just 90-day, it is part of it [ in our ] New York City, but there are other partners that we have that deal specifically with this issue for a warm handoff [indiscernible] the child needs it. And that includes ongoing therapy, possibly emergency room visit, urgent care visit or actually admissions to a hospital. So we have all those resources available as part of the standard operating procedure for the therapist.

What do you expect from a consolidation perspective in the industry? Because we at [indiscernible] were investors in health care companies. And we're receiving for the past 2 years a lot of mental health companies, some of them smaller focused on treating particular disorders within mental health, let's say, PTSD, anxiety, obesity. Is that something that can sometimes confuse the user or the consumer when you have so many options out there that you could use? Is Talkspace expecting like more consolidation in the industry? Are you willing to kind of keep the M&A and acquisition path or?

So it's a great question because there are smaller businesses that are delivering services to a very specific need. You said like PTSD, OCD, then there are a bunch of -- there are hundreds of other, which we're talking about the partnership side that are looking for therapy, weight loss, diabetes management, cancer diagnosis, cardiovascular. You can go through and what's happening in all of these smaller companies frequently are looking for therapy. So the first part of your question is yes, if there is somebody out there that's looking for -- to be part of Talkspace, then we certainly would talk to them and say, does it make sense for us to get together on that kind of relationship. On the other side, because we're national, because we're in network, we are what I call the obvious solution for all these other populations that need coverage and need therapy. And what we've seen as a result of that is a lot of incoming. As you can imagine, people talking to us saying, "I have this group of patients. We're treating them for X. But by the way, they need therapy. If we go to Talkspace, it doesn't cost them anything. Well, cost of [ $20 ] out of pocket if it's a co-pay. But basically, they can begin therapy anywhere, all 50 states, and it doesn't cost them anything.

Maybe I'll just elaborate because I think it also speaks to our conviction and others that were really at the beginning stages of mental healthcare and what that could mean. We talked a minute ago about the higher acuity end of the spectrum. There's also a lower acuity. So when it comes to digital services to support this market. But I think you will continue to see players come in, just given how massive we believe this addressable market is and how rapidly it's growing.

Thanks for your talk. With the 60% growth that you've had in therapists, I'm just wondering how you're thinking about onboarding. Do you do training, standardization? And then as a second part to this, just sort of quality measures, are you doing rating scales with patients, or how are you thinking about that?

Sure. So what we found is the therapists, I mentioned earlier, they like coming on to the network because they -- one is we have a whole standard set of primers and training that they need to go through to get on. Once they get on, they like the community. They like being part of it. And quite honestly, when they come on to Talkspace, they know there's a pretty good chance they're going to get pretty busy. So that helps them, too, in terms of knowing that there's going to be, quite honestly, a funds flow. So that's the way we're visualizing the network work, which is probably the -- at least some of the reasons that it grew substantially.