Welcome to the Talkspace Second Quarter Earnings Conference Call. My name is Richard and I'll be your operator for today's call. I'll now turn the call over to Mr. Mark Hirschhorn, President and Chief Operating Officer. You may begin.

Good afternoon, everyone. This is Mark Hirschhorn, Talkspace's President, Chief Operating Officer. I'd like to welcome you to our earnings conference call for the second quarter of 2021. Leading today's call is Oren Frank, Talkspace's Co-Founder and Chief Executive Officer, will be joined by Jennifer Fulk, the company's Chief Financial Officer and myself. Management will offer their prepared remarks and we'll then take your questions. Talkspace's press release and webcast link are available on the Investor Relations section of Talkspace's website. On this call, we will be making forward-looking statements. These statements reflect our best judgment, if and factors currently known to us and actual events or results may differ materially. Please refer the documents that we file at the SEC including the form 8-K filed in today's press release and the disclaimer posted on Talkspace's website. I'll now turn it over to Oren Frank.

Thank you, Mark. Welcome and thank you all for joining us on our first earning as a public company. We found Talkspace with a mission of making high-quality behavioral healthcare accessible to everyone. And we are proud of the impact that we have had to find millions of clients. Our purpose built technology platform is designed to personalize treatment to lower costs and most importantly improve clinical outcomes at a very large scale. We continue to invest in product and service innovation with the aim of providing individuals greater choice and address and even broader array of conditions that will make our portfolio extremely attractive for individuals, health plans and enterprise clients. We continue to develop our distribution channel that will further expand our market reach, we believe that our clinical and technology capabilities allow us to offer and unparalleled product stats. We're dying to address the best unmatched and growing demand for mental health services in innovative ways. I'm delighted to start today's call by introducing Jennifer Fulk, who joined us as the Chief Financial Officer. Jennifer joined us from Eli Lilly and brings with her an accomplished track record of success across the diverse set of leadership roles in finance strategy and investor relations at the world class healthcare organization. Jennifer, over to you.

Thank you, Oren, and good afternoon everyone. I'm thrilled to have joined Talkspace and has been very impressed by the passion and commitment of our talented leadership team. It is clear that we have differentiated medical grade clinical capabilities, a unique technology stack and a highly recognized brand. This gives us an incredible foundation to capitalize on strong demand tailwind as we revolutionize virtual behavioral healthcare. And I'm looking forward to speaking with our investors in the coming weeks.

Thanks, Jennifer. I also want to mention our two incredibly important recent hires, Dr. Varun Choudhary, who joined us as Chief Medical Officer. Varun was previously at Magellan where he managed the national behavioral health program and Erin Boyd, who joined us as Chief Growth Officer for our enterprise business and previously served as Director of the Behavioral Network Strategy for Cigna. Erin's hire further strengthens our commitment to taking advantage of what we view as a massive B2B opportunity. Recognizing that many of you are new to the Talkspace story, I would like to spend some time talking about our company more generally. After this, we will review some of the highlights of Talkspace's second quarter results and then touch on the exciting growth opportunities ahead of us. Talkspace is the only public pure-play virtual behavior health provider delivering same day access to high-quality mental health resources by a text, video, and audio messaging, and also via life video/audio sessions. Our platform treat a wide range of mental health conditions and activities across over 20 clinical specializations and addresses the needs of individuals, couples, adolescence and psychiatric patients. Clinicians can also write a prescription and had it sent directly to the patient's local or virtual pharmacy in all 50 states. Since the finding of Talkspace, we've been a technology first company because of our belief that virtual therapy can dramatically improve engagements and treatment outcomes through the application of data science. Our proprietary machine learning and natural language technologies leverage a vast and anonymized dataset to identify patterns into personalized treatment. These allows us to improve the speed and accuracy of matching and diagnosis, empower clinicians to deliver personalized care and optimize and enhance clinical outcomes. Of course, we have designed our ecosystem and information practices to achieve and…

Thank you, Oren. As Oren noted, we had a very solid second quarter. During the second quarter, revenues increased 73% year-over-year to $31 million. Direct-to-Consumer revenue in the second quarter increased 36% year-over-year to $21 million, driven by a significant increase in our active membership as well as consumer preferences shifting towards higher subscription tiers. B2B revenue from the second quarter increased 321% year-over-year to $10 million and grew to represent 32% of total revenue compared to 13% of total revenue in last year's quarter. This is exactly where we want it to be at this point in the year and underscores our success and moving aggressively into the enterprise arena. We are reaffirming our 2021 revenue guidance at a $125 million which reflects 64% year-over-year growth. Turning to membership and access, we ended the second quarter with 61,500 active members, an increase of 41% over the prior year's quarter. At the end of Q2, our B2B business reached over 56 million eligible lives. Between July 1, 2020 to June 30, 2021, Talkspace was added as an inter-work benefit for over 22 million eligible lives. Direct-to-Employer clients increased to a 107 as of June 30, 2021 up from 41 clients as of the end of the second quarter 2020. As Oren mentioned, our Direct-To-Employer offering continues to gain traction in the marketplace as we just experienced our largest Direct-To-Employer weekly wins in the company's history. In fact, our sales pipeline today stands on a greater than 10x increase in opportunities than which stood at this time last year. Our enterprise clients as well as those pending enterprise opportunities including some of the nation's largest health plans have been slowly transitioning to the recognition net virtual behavioral care as an absolute necessity as a permanent modality for care. This nation's shortage…

Thanks, Mark and Jennifer. Before I turn over the call to Q&A, I would like to take this time to thank our investors for your trust in us and in our mission. I would also like to use this opportunity to acknowledge the hard work of the Talkspace team members around the world. We are grateful for your passion, talent and incredible execution, all while managing the exciting and demanding transition into a public company. I'm proud to share these results on your behalf and tell the world that TALK is good. And with that, we'll open the call for questions. Back to you, operator.

Thank you. We will now begin the question-and answer-session. Our first question on line comes from Mr. Charles Rhyee from Cowen. Please go ahead.

Yes. Thanks and congratulations on the merger and congratulations on the quarter. Just had a quick question here. really about sort of, I think Mark you noted that a lot of the gross margin erosion was from actually the mix shift and in B2B, can you give us a breakdown of the active members between the B2C and the B2B business and just looking at how that mix, how we're thinking about that as we go forward into the third quarter guidance here in particular, obviously a nice step up from first to second quarter a little bit less so in the third. Can you kind of give us a sense on what might be driving that?

Yes, Charles, thank you. This quarter, we saw a significant increase in B2B active membership to the extent that B2B members are now essentially representing slightly more than half of the active members on the platform. As those B2B members come to us at a far reduced acquisition cost. They generate, however, a slightly lower gross margin, but a far improved bottom line net margin. We would continue to look towards the B2B contribution of membership as well as revenue to continue to represent a growing portion of consolidated revenue both in the third and fourth quarters of this year as we continue to see just tremendous traction from both our health plan clients and our Direct-To-Employer clients. We have now exceeded our expectations for annualized revenue as our quarter came in at $10 million and clearly we'll be looking to exceed our original guidance on the enterprise contribution to total revenue.

The active members in the B2C side, were down sequentially. Anything to comment on that, and what do you expect for the rest of the year? Thanks.

Sure. We were very deliberate this quarter, and we continue to really focus on the fact that there's really punitive pricing in the market today. There is a tremendous price disparity in customer acquisition costs this year as compared to where we were in the second quarter of 2020. The frequency of price increases is somewhat dramatic from Facebook and Google and the other digital properties. And we are spending what we believe is appropriate to maintain our competitive advantage in our leading brand. But, we're going to continue to look to obviously now diversify our acquisition channel through investments in non-traditional channels as well as looking to partner with some of the nation's leading companies. I think it's unlikely that we are going to see a dramatic shift down word in the next quarter or two but we do believe that CAC will stabilize because these are quite frankly levels, I'd say elevated levels that we don't believe are sustainable nor have we ever seen increases like this really since this, I'd say past two to three years has been. We've been tracking this clearly over the last five years.

Charles, this is Oren, a couple of additional comments. First of all, to your question about Q3. We've been doing this for 10 years now, this is purely seasonal. Historically, the demand for psychotherapy and psychotherapy is likely lower during the summer. So we've been a little conservative on Q3, although when you look at what's going on with Delta variant it's very unclear as to how the markets will behave. We feel very strong tailwinds as Mark mentioned. Regarding the CAC question, we are optimizing this very, very carefully and thoughtfully as to achieve two things. First of all, we have a unique, I would say advantage of differentiation that we're active on both B2C and B2B and therefore the power for brands to actually help both penetration and utilization on B2B is part of our consideration how much do we invest in CAC and in B2C. It will take cross feeding and helping each other in a very, very unique manner. So we are investing the money there to keep our brand the number one brand in this market, but as Mark said, there are certain levels of rises prices. If you guys saw the Q2 Facebook release, you will have seen that they raised their prices close to 50% year-over-year that we just don't think are worth it. So it's a curve for optimizing game.

Great, appreciate it. Thank you.

Thank you. Our next question on the line comes from Stephanie Davis from SVB Leerink.

Hi, guys, congrats in the first quarter and Mark, welcome back to the public earnings call arena. You have been missed.

Thank you, Stephanie.

I was hoping to hear a little bit about how things are going in your key selling season just because the employers are beginning to look at different benefits for the following year and maybe how that could tie into any forward growth we're going to see in the B2B eligible lives metric and any lumpiness or seasonality to consider there?

We are extremely excited about where the B2B business sits today. We've obviously seeded our internal projections. We're going to exceed our objectives, both from individual sales performance as well as for the entire group of our colleagues that work on the enterprise side and business. They've seen uptakes clearly coming from both the payer sides and the direct employer sides. What we're seeing today, I think is they accelerated interest in trying to align with the benefit. So the traditional benefits commencement on January 1, moving towards a Q3 and Q4 adoption and implementation Talkspace services ahead of those, ahead of the introduction of additional revised benefits. We're seeing a tremendous amount of interest from traditional companies and now we're beginning to really get traction with some of the nation's largest consultants and brokers. We've added and we continue to add some extremely experienced individuals from the markets as we saw, we've brought, employed on, we're going to announce a number of additional hires on the enterprise side. Quite frankly, we are just, we are in a position that somewhat enviable as we have, I believe a solution for both enterprise clients and health plan clients, through modalities of live video, through messaging, through voice that can help to attend to the most critical issues in the marketplace today that being access and cost.

Then waking to the early days of Teladoc, I remember improving user penetration into the health plan base with and you guys end up spending a lot on a lot of your marketing budgets on. So how should we think about improving the penetration of active users and that health plan revenue base and maybe some strategy and cost metrics around that?

Well, I think the analogy is 100% spot on. we're still at a point where we're evangelizing the access point and the expansion of networks to all of our health plan clients and those health plan prospects that we're speaking to find us extremely appealing because we add thousands of available therapists to their platform in almost overnight. I believe we are likely going to see additional traction as some of our product innovations are rolled out in the fourth quarter and those innovations really align us with where the consumer is deciding that they want to receive their care. So the consumerization and the fact that we believe that we're striving towards some degree of commercial ubiquity as 10s of millions of individuals have access to our psychotherapists and psychiatrists, the term Talkspace could very quickly become the verb and I think is very similar to those breakthrough years when people were being introduced to teladoc and other virtual care, urgent care solutions. Ours, of course, has a far greater depth and tenure of the relationship as our subscribers are normally with us for many months through their condition and through their, of course, successful remission.

Stephanie, I want to add one thing, which is Teladoc the time, 9 or 10 years ago, had to really evangelize the notion of telemedicine of remote care. We don't have to do any of that. That is a done deal, I think we've crossed that particular threshold. And so we have, I would say, an easier job in educating. Secondly and unfortunately, the pandemic has generated the second pandemic of mental health, and we don't have to look at the Olympics and to read the newspaper, I think we all know somebody and understand the level of stress and anxiety and depression that are around us. So the tailwinds of demand are very, very strong. And that helps us to, I would say, reached the levels of both penetration and equalization that are, that should be easier than teladoc today give you one example, which is fascinating and points to the alignment between very large employers or health plans and Talkspace during Q2, we launched coverage for EAP, also one of the largest employers in the United States. In the first couple of weeks, we have quite a few 1000s of their employees looking for help. Our ability allowed us to match about 95% of their employees, to a licensed therapist in all 50 states in under three hours, and 100% match rate in under 24 hours. That capability of our platform, our technology and our network does not exist elsewhere. And I think this is what really large employers and plans are looking for, for that immediate access, as Mark mentioned, accompanied by proven quality, when we actually report the clinical outcomes, the level of engagement and all the data that can be used for those employers to assess whether the launch was successful.

I hear that. There is an easier list usually within it, was a few years ago.

Exactly.

Thank you guys.

Thank you.

And thank you. Our next question on line comes from Ryan Daniels from William Blair. Please go ahead.

Yes, guys, thank you for taking the questions. I want to go back to some of the new product offerings that are coming out over the next two quarters or I think you referenced the fourth quarter in particular. Can you talk a little bit about which of those are going to be targeted more towards the B2C market because employers are demanding there and which would be the B2C?

So, thanks for the question. I have to tell you that we look at the member or the patient as one individual person that will need our services and I think the issues of the needs are crossing our go to markets. And you will be surprised at how many of those requests for additional services are actually from people that access us privately or through employers and health plans. With that in mind, I'll give you just a taste what we are looking at and planning with the kind of I would say a better fit for B2C or B2B or both. And as we deliver psychotherapy and psychiatry in all 50 states including prescription management for various audiences around over 20 clinical specialty. So all the major conditions, and acuities are already covered. In terms of modalities we are planning to add, as Mark mentioned, live messaging, which is actually something that was requested by both go-to markets, and come up with I would say, a better suite of live sessions, something that, again, comes from both users, and more people that have used traditional face to face therapy in the past are moving to Talkspace the closest proxy for them, of course, is a live video session. So we are seeing growth in that and more demands. We are planning to add forms of group therapy or therapy in the group, which is again, on both ends, but I would say more on the plan or the B2B side. And then we look at the other vector, which is conditions and acuity, we're definitely very interesting in helping substance use disorder patients. This is a clear request from some of our partners in the large plan. But also something that again, if you follow the news, you will see that alcohol use disorders has grown dramatically to the pandemic. And represents a major issue. We already treat many of those conditions through our network, but we want to build products and services that are dedicated for that. And with those that would also include other forms of chronic ailments that are associated with behavioral health. That could be diabetes that could be hypertension that could be a lot of issues that has a very huge overlap with the other half. In essence, when we look at our strategy, which is the full stack, which is providing I would say the vast majority of conditions and acuities with a properly strong clinical solution we think this is very much in demand from the plans and our large partners. They want the full solution for the vast majority of their cases. But also we find that as virtual care for behavioral health becomes I would say the first line or the first choice of treatment in the consumer world, more and more conditions and acuities are looking for solutions online versus face to face. So I guess the short answer is both.

That's helpful color and it actually leads into my next question, as you try to reduce customer acquisition cost, it would seem like one potential way to do that would be strengthening partnership with primary care groups across the country. Obviously with the mental health crisis, there's a lot of need to better integrate behavioral and physical health care. Those doctors probably see a lot of patients and want them to get care. But realize in local markets even if there is access to care, there might be long matching periods, not the greatest matches, there is a lot of private pay only so you might have to go out of network and spend more money. So is urban thoughts to kind of working with as a referral channel to try to drive preferred referral relationships with larger PCP groups across the country as you have such a broad platform and service offering relative to some of your peers?

Mark?

Ryan let me take that. I think there is naturally going to be aggressive M&A over the next several quarters as people move towards designing a platform that can give the consumers the optionality and give some of these physical practices, the opportunity to leverage a lot of I would say a lot of their resources, but also enable them to have an array of services where the consumer can select, perhaps intervals of once a month to come in and be seen in person by somebody but then either for a co-morbid condition that they're being treated or in order to just ensure that they can make a weekly or bi-weekly appointment, they'll engage over live video or over messaging. The fact that this comprehensive type of care is not available today, anywhere in the nation through any scaled provider group is something that we believe we'll be able to facilitate regionally, as well as likely nationally over the next several years. I think this will come about as a result of small acquisitions and in certain geographies, and I think it's going to be a very active part of our inorganic growth.

That's very helpful. Then final one, I'll hop off just, again, on the customer acquisition cost. I think you mentioned Facebook raising their prices. I'm curious if you've seen that across kind of all mediums. So paid search if that is having similar year-over-year price increases? And then also, is this just generally across the marketplace? Or is it specific to the behavioral market, given the big uptick we've seen in utilization and then some of the funding that a lot of the competitors saw inflows of hundreds of millions of dollars earlier this year, they kind of spending that money really actively to try to drive up their membership base. So is it specific to the tele-behavioral industry, or just very broad? Thanks.

So Ryan, the price raise is very broad. If you look at the big platforms, namely Facebook and Google, which are essentially the majority of online advertising in the United States, you will see that the growth is across all categories. And so, I would say that's the majority. Of course, there is an element of competition, but it's less pronounced than people, I would say, tend to see it because of all the noise, a lot of money is being invested. And of course, as I spoken with some of you before, we strongly believe this is the decade of behavioral health. So there's a lot of attention, it's red dots. When we look at the CAC, what we see is the growth in costs across most of the large platforms, and therefore we definitely will channel much of our efforts into alternative channels, alternative solutions, in order to generate the, I would say more direct and organic growth. We will keep investing in our brand. And as I mentioned before, we're not going to pay the growth needs of Facebook, because they raised their prices so aggressively. We believe it's an optimization game that's going to take a little bit, it's doable. The only thing I can't really tell you is how long this environment is going to last.

Thank you. Our next question on line comes from Vikram Kesavabhotla from Baird. Please go ahead.

Yes. Thanks for taking the question. I'm curious if you can talk about what you're seeing with respect to member duration on the platform across both the B2C and B2B channels relative to what you've seen, historically, and any expectations for how that can trend going forward just based on the behavior of some of the newer members on the platform?

So let me take the consumer side of it, Vikram, you for your question. And then I'll hand it over to Mark for enterprise. In essence, lifetime on the platform has been relatively stable, through many of the years that we're doing this and actually improve recently, as you will see in our ARPU number and we think this is related mostly to the condition the acuity of the people that come to seek help of our members. It's very difficult to forecast what it will be. We always work in order to provide a better service, which translates into longer lifetimes and better clinical outcomes. Those are highly correlated. I think, I mentioned earlier on very large investment in the quality of our network by hiring fully employed W-2 clinicians. This generates a higher quality of care which in turn, translates into longer lifetimes and better clinical outcomes. So we did see an improvement in the last quarter. I hope and plan for it to continue. We definitely didn't see a decline. And again, if you come in, it's very simple to understand by who the people that are seeking care are. If I come in and I suffered from depression for many long years, I'm probably going to be a member of Talkspace going back and forth for quite a few years to come. And if I came here, because I had an argument with my girlfriend, I'm probably going to stay a few weeks, solve that particular issue and go back. Over time this normalizes, because we want to help both, I would say personas. I hope this answers your question.

Thanks. And then maybe just as a follow up on the provider network, and can you talk about the mix of fully employed versus independent providers in the network today and any expectation on where that can go through the balance of the future and longer term as well? Thanks.

Yes, thank you. So first of all, I think something is very, very good is happening to those set of professionals, both psychotherapists and psychiatrists. They are being recognized as a huge value as they are, and they are being treated with the right kind of respect. And they're all now essentially post COVID, or through COVID, depends on your point of view on Delta. There are all ritual providers now. So we have a huge opportunity to actually I would say, recruit the best ones. And we believe that because of the way we manage our data platform, we have a far better view into who the real therapists and psychiatrists are. Therefore, earlier this year, in January, we changed strategy and we started to hire them. We have now out of the I would say roughly 2,700 psychotherapists on the platform, and around 300 to 400 prescribers and around 250 psychotherapists are fully employed from January this year. And we aim to continue this trend very aggressively. We find that the providers are very happy to join us, from the people that we are, as from the beginning of the year, the W-2 the churn is very, very minimal. And their alignment, of course, is very strong. And I would also think that we have, again, a very clear advantage in hiring the best therapists, because most of their alternatives are being hired by brick and mortar network. And of course, the flexibility and the lifestyle is associated with the kind of hire is very different to, to the data power, very independent, very flexible nature of working with Talkspace. So we're very, very bullish on this. And we think this is a great development for the industry and for us.

Thank you. Our next question on line comes from Richard Close from Canaccord Genuity. Please go ahead.

Yes. Thanks for the questions. And congratulations on the transaction. Just had a couple housekeeping here, maybe clarification on some of the answers to the previous questions, just on the B2B and direct to consumer just the breakout in terms of the active users. Am I on target, saying like B2B was like 31,400 around there and B2C 30,100 is that sort of like 51% - 49%?

Yes. You're on target there, Richard.

And then on retention or and I appreciate train stable. I just going through my notes. I think I had five months is like average duration. Is that the right number we should be thinking about?

Well, Direct-To-Consumer. That's exactly right.

Mark, on your comments. I think this was for Stephanie's question. Just to be clear, I took from your answer in terms of the selling season that were you implying that new winds here in the selling season could actually start prior to January 1. So they'd be launching call it late third quarter, fourth quarter timeframe?

That's exactly right. We're currently in finalists positions in a number of RFPs. One or two of them are some of the large they'll represent in the top 100 employers in the nation. And there are a number of other initiatives that are launching with some brokerage houses. That will also enable us to accelerate the on-boarding and go live dates prior to the traditional January 1 start dates.

Thank you. And our last question on line comes from Mr. Charles Rhyee from Cowen. Please go ahead.

Yes. Thanks for taking the follow up. Mark, just wanted to ask a little bit about what the thing about for EBITDA for the rest of year? I appreciate you saying that there are certainly uncertainties around customer acquisition costs and the like here. But same time sounds like you are optimizing for that environment, and if right now is sort of this kind of peak, kind of CAC pricing. And so I think the EBITDA loss in the quarter was about $11.8 million roughly, let's call it roughly in ballpark from last quarter, $12.5 million or sorry, $10.5 million on an adjusted EBITDA basis. Is that sort of the right run rate to think of for the rest of the year, anything else that we should think about that would pull it in one way or the other as we look at our model?

I think Charles, it's fair to assume that this third quarter is experiencing very similar metrics to what we've seen in the first reported six months of the year. So I would suggest that your approach is correct. We really don't have any insight into where this CAC pricing will be. Clearly additional lives coming on to the platform that we've already contracted. We will begin contributing obviously additional revenues to offset some of that, but we'll continue to moderate our spend to ensure that we can optimize and develop those additional channels. But our run rate today is most likely going to be seen throughout the next several months. Can't really apply on Q4 as Q4 typically experiences the highest CAC inflation just as a result of all that retail demand. If we pull away from that, we'll see lower spend clearly but there's a degree to which we obviously are going to plan on investing in the brand.

Thank you. There are no further questions at this time. I'd like to turn the call over to Mark Hirschhorn for any closing comments.

Thanks very much, everyone. We're very excited for this quarter and for the rest of the year and as I mentioned that, perhaps the rest of this decade Talkspace is uniquely positioned to help millions of people in need. With the tail away of this industry that's finally getting the right recognition, right, prioritization. So thanks again for your trust and for your support.

And thank you ladies and gentlemen, this concludes today' conference. Thank you for participating. You may now disconnect.