Talkspace CEO Jon Cohen, M.D., is bullish about the online therapy company's growth in 2023 after reporting solid first-quarter results boosted by its payer and enterprise businesses.
The company's revenue grew 11% from a year ago to reach $33 million, buoyed by 70% growth in its business-to-business segment. Talkspace's payer business brought in $14.8 million in first-quarter revenue while its direct-to-enterprise segment brought in $8.7 million for total B2B revenue of $23.5 million.
But Talkspace's direct-to-consumer business continued to struggle with first-quarter revenue dropping 39% from a year ago to $9.8 million.
Talkspace connects people via an app with therapists who provide counseling remotely, either over the phone, by video chat or by text.
The company went public in 2021 via a SPAC deal but has struggled with losses. Its stock has fallen by 52% in the past 12 months and is now trading at less than $1.
Talkspace tapped Cohen as CEO back in November 2022, capping off a year’s worth of leadership shake-ups. He is a surgeon and a veteran healthcare executive who had served on the company’s board. The company started with a consumer focus but signaled last year that it was shifting to a B2B model as part of a larger turnaround effort.
That strategy shift appears to be paying off as the virtual mental health company says it is accelerating its path toward profitability.
Talkspace ended the first quarter with 98 million covered lives but added an additional 14 million lives in April, according to Cohen. The company's digital therapy services are now available to 112 million people through its B2B business, representing 50% growth, or an additional 35 million lives, since the first quarter of 2022.
Cohen says Talkspace now has the largest payer network for telehealth mental health services in the U.S.
"We are thrilled to have added approximately 20 million covered lives year-to-date, including 5 million additional lives in the first quarter from expanding our Optum EAP relationship and recently becoming an in-network provider for a new large national payer for all of their behavioral commercial book of business," Cohen said during the company's first-quarter earnings call Tuesday. "We have made great progress during the first quarter of 2023, building on our strong momentum we established in 2022. Our strategy to shift the business to a B2B enterprise with member growth predominantly through a payer model continues to gain significant traction."
The company's direct-to-consumer business had 33% fewer active members than a year ago.
Cohen said he expects DTC revenue to stabilize by the middle of this year as a result of Talkspace's "improvements to the member experience, which is resulting in a higher retention rate," he noted.
Despite the current macroeconomic environment that is impacting the direct-to-consumer business, Talkspace is betting big that mental health issues will continue to be a top priority for employers and health plans.
"I will tell you that if you look at what the No. 1 or No. 2 priority for HR executives, if you go to the meetings and you talk to them first-hand, what they're going to tell you is we need to continue to add mental health services for our employees," Cohen said. "I had the opportunity recently to go to one of these very large employer conferences and got a chance to walk the halls and talk to people, and the interest in mental health continues to be just incredibly high. I think that along with our reinvigoration of what we're doing on the DTE side to be able to look at the pipeline and grow the pipeline, we'll have a significant impact."
The company reported 172,000 completed therapy sessions through its enterprise business, which includes payers and employers, up 90% year over year from 91,000 sessions in the first quarter of 2022.
The company is seeing strong session growth as it focuses efforts on increasing employees' awareness that they can access therapy through Talkspace at little or no out-of-pocket cost, Cohen said.
"We continue to experience strong momentum in our payer business as we expand our relationship with commercial partners and further activate our member base. We further increased the size and efficiency of our clinical network, as we continue to build a holistic suite of products to provide high-quality care to a broad range of customers. We believe we have a tremendous opportunity in front of us, and we remain confident in our ability to deliver profitable growth," he said.
Talkspace's operating expenses in the first quarter were $25.8 million, down 29% year over year, driven by a reduction across all its operating cost categories.
The company also narrowed its losses in the quarter, reporting $8.8 million in net losses compared to a loss of $20.4 million a year ago.
The company had a rocky 2021 after losing its two founders and pushing out its chief operating officer. The online therapy app also was hit with a securities fraud lawsuit alleging that it misled investors before it went public by misrepresenting its financials and growth.
There were media reports in November that telehealth company Amwell was exploring a buyout.
Cohen told investors and analysts during the earnings call Tuesday that he is optimistic about Talkspace's growth potential, citing the strength of the brand and its position as a virtual behavioral health provider at a time when there is a massive need for mental health services.
"Mental health has entered the mainstream as no longer a nice to have, but finally is recognized as an integral part of any health care delivery model," he said. "We are facing the greatest mental health crisis in history and are witnessing a seismic shift in the way the government, employers and payers are prioritizing the need for mental health services."
Based on its first-quarter results, Talkspace raised its previous guidance for the full year 2023 while accelerating its path to break-even adjusted EBITDA, which is now expected by the end of the first quarter of 2024, one quarter earlier than initially guided, with a cash balance of over $95 million.
The company now projects full-year revenue to be in the range of $130 million to $135 million, improved from $125 million to $135 million. It also expects adjusted EBITDA loss to be in the range of a loss of $21 million to a loss of $24 million.