Thank you for standing by and welcome to the Talkspace Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. As a reminder, today’s conference call maybe recorded. I’ll now turn the conference over to your Mr. Mike Lovell, Director of Investor Relations. Please go ahead, sir.

Good evening everyone. Thanks for joining Talkspace’s first annual earnings call. I hope you've had the opportunity to access the press release. We've also added a presentation to our earnings materials that you should see on Talkspace's IR site. We use the presentation to walk you through today's remarks. We will begin with comments from Chairman and Interim Chief Executive Officer, Doug Braunstein, followed by Chief Financial Officer, Jennifer Fulk. Both are available for questions following their prepared remarks. Certain measures we'll discuss on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of one-off items. Reconciliations of these non-GAAP measures are included in our earnings release and on our website talkspace.com. I also want to remind you that, we'll be discussing forward-looking information today, including forecasts, targets, and other statements regarding our plans, goals, strategic priorities, and anticipated financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. Important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. For more information, please review our Safe Harbor disclaimer on slide two. And now, I'll turn the call over to Doug, who will begin on slide three.

Thanks Mike and welcome to Talkspace. Thank you all for joining us today to discuss both our fourth quarter and our full year 2021 results. I'm going to begin with a snapshot of summary financial performance on page three. But I want to spend the majority of my time discussing the progress we've made in the past three months, since we outlined our operational and execution priorities during our third quarter earnings call. You can see on slide three, the 2021 full year revenue grew 49% year-over-year, driven by significant growth in our B2B business as demonstrated by the significant rise in B2B sessions, which more than doubled in 2021, as well as a continued shift towards higher subscription tiers in our B2C business, which drove an increase in ARPU. This was partially offset by a decline in B2C active users at the end of the period, which reflects our decision to reduce media spend in the fourth quarter, in order to more effectively optimize B2C returns. As we highlighted at the JPMorgan Conference in January, the B2B channel has increasingly been the driver of growth in our business as we grow the number of eligible MBH and EAP lives, focus on initiatives to increase penetration in that membership base, and continue to grow our enterprise accounts. Our B2B business covered approximately 69 million eligible lives as of December 31st, up 75% from the prior year period, driven by new client wins, including Cigna and regions. We expect to continue to add covered lives in the first quarter of 2022. We recently expanded our partnership with Optum in Q1 by adding a meaningful number of lives to our existing coverage. And we're planning to go live with a new large national insurer by the end of the quarter. Importantly, we…

Thank you, Doug and good evening everyone. Much of my discussion will be presented on a sequential basis comparing the fourth quarter 2021 results to the third quarter 2021. We believe this presentation is most useful to understand the business performance, given the shift in the revenue mix, the initiatives we started to implement in November, and the rapidly changing competitive landscape. Starting with slide six, fourth quarter revenue was $29.2 million, up 11% sequentially, on a reported basis from the third quarter. B2B revenue was $12.7 million, up 64% on a reported basis from the third quarter, attributable to approximately 18% growth in the underlying revenue from both an increase in B2B sessions and DTE customers. The remaining growth was due to changes and revenue reserves related to prior periods. When we normalize for these adjustments, B2B revenue would have been $10.1 million and $11.9 million in Q3 and Q4 respectively. Our B2C revenue declined 12% in the quarter to $16.5 million, driven by a lower number of active users as we reduced our advertising spend by 15% sequentially, offset in part by an improved mix in consumer plans. Our fourth quarter gross profit grew 13% sequentially to $16 million, with a gross margin of 54.7%, up sequentially, primarily due to lower revenue reserve on B2B receivables versus a third quarter. Absent these adjustments related to prior periods, fourth quarter margin would have been 53.5%, impacted by an increasing shift and revenue toward B2B and a greater number of full-time therapists. Turning to slide seven, GAAP operating expenses in the fourth quarter were $44.5 million compared to $39.4 million in the third quarter. Our GAAP cost base grew by $5 million quarter to quarter, mainly due to higher stock-based compensation and non-recurring items. Excluding these, fourth quarter operating expenses…

Thank you. Our first quest comes from Ryan Daniels of William Blair. Your line is open. Please make sure you phone is on unmute.

Hi, sorry. Can you hear me?

Yes.

Hello. Hi, this is Nick in for Ryan. Thanks for taking my question. I guess, just to start, if you can provide a little bit of an update on the W2 workforce transition. I know, I think we asked in the past if there’s, kind of, a timeline you guys are going out if you have gotten any changes there. I’d appreciate that.

Yeah, thanks for the question, Nick. So we have not mentioned the specific timeline, but I can tell you just the evolution that we made and the progress we've made over the last few months. So we did hire -- we hired W2s overall for the fourth quarter, but we did make progress on some operational efforts related to that. So as Doug mentioned earlier, enhancements around productivity and capacity of the network. At this point, we don't have a specific plan for the network overall, but we do have those operational efforts in place to improve the capacity and utilization of that.

Okay. Thanks for that. And then I guess, you've mentioned in the past, you need to do a better job kind of bundling product offerings. I'm wondering how you're tracking there? And is there any other metric other than just, kind of, like RPU that you guys are tracking, like multi-bookings or something like that you guys are tracking you can update us with?

Yeah. So we did have a few advancements and we have initiatives with regard to bundling our product offering and I would say that has gotten traction with our peers. We mentioned the progress that we made both with regard to enterprise clients as well as expanding live within our peer accounts. I would attribute a lot of that success to us bundling our services across our self-help platform as well as our therapy and our psychiatry services. Outside of that, I don't have anything other specific to recognize as far as the portfolio combination.

Okay, great. I appreciate that. I'll hop back. Thanks.

Thank you. Our next question comes from Charles Rhyee with Cowen. Your line is open.

Yeah. Thanks for taking the question. Doug, maybe you wanted to talk about -- you talked about optimizing media spend and obviously, we can see there's a direct correlation between media spending and membership of growth. Can you give an example, when you say optimizing, can you give us some examples of what you are doing in this regard, like how can we sort of -- what does that actually entail?

Yeah. Jennifer, do you want to…

Yeah, yeah. I’ll start, Charles. Thanks for the question. So in our third quarter call and then at JPMorgan, we talked about our rising cost of acquisition and that primarily being driven by a decline in conversion. Our stabilization of conversion was really positive to see in the fourth quarter. On top of that, we've made specific efforts as we look to optimize the spending the channel, so specifically as you ask related to analytics and working with a third-party to better understand the ROIs of our spending channels as well as investment in a marketing agency to better make sure that we're spending an optimizing, getting the most efficient ad spend from those dollars.

And I would just add, as both Jennifer and I talked about the unification of the funnel, so taking the same traffic that is coming to our website, but easing the access and experience for our covered lives, our insured lives, directly impacts CAC, LTV and all of the key metrics. So it's -- it is literally turning the live that otherwise a potential visit to the website that would otherwise decide not to pay out-of-pocket that gives them an alternative. And I would add for those that are paying out-of-pocket, the super bill function that we've just recently launched, is another -- it's early, early days of that new product. It's another way to extend the duration of that customer and increase retention. So a lot of what we're talking about both in terms of the specific optimizations that Jennifer talked about, as well as the unification of the funnel, really go to improving the economics of our media spend.

Good. That's helpful, and maybe if I could just follow-up. Your competitors – one of your largest competitors here in this space talked about that, they're seeing media spend or sort of those kind of costs, they're seeing it kind of down a little bit from a year ago. Can you give us a sense of what you're seeing in terms of cost for media spending right now, and in sort of, what do you what do you kind of expect here for, at least maybe for the first part of the year?

So, just on the first -- the first element there, Charles, I wouldn't say that higher cost of advertising has not been a significant factor for us and continuing on into the fourth quarter and to-date. The bigger factor, the things that we've talked about as far as conversion goes with -- as far as our level of media spending, as we mentioned, we reduce that in the fourth quarter. We'll continue on about that same level of spend as we look to prioritize investments outside of media, into our talents and our processes and infrastructure, building out the process, building out the product, so that we can scale.

Thanks.

Yes, I mean, just to be clear, Charles, the economic driver for us is conversion. The marginal cost of advertising at this point isn't the material mover value. It's driving conversion and retention. Those two elements are where -- and obviously, as Jennifer said, we're going to optimize the dollars that we spend and take advantage of better analytics and methodology in doing so. But the real driver of value for us is going to be around conversion and retention.

That's great. I’m sorry, one last follow-up for me, and I'll jump back in. I think Talkspace had a lot of -- what do you call, a lot of awareness driven by some strong spokespeople that you had gained. Wanted to see if you still have some high profile spokespeople engaging for the company and sort of there's any kind of change in the strategy for that going forward? Thanks.

Yes. I'll answer by saying, we continue to have really outstanding brand recognition. And we continue to invest behind that because, again, Charles brand not only works in driving our B2C business, but it is increasingly an important component of building out our B2B business and the utilization of those millions of lives we have. That's very important. We're not going to comment on the specific spokespeople other than to say, you may have seen -- we just watched a series of new advertising and you can certainly go on YouTube and look at the Michael Phelps ad. It's an excellent one.

Great. Thank you.

Thank you. Our next question comes from Daniel Grosslight with Citi. Your line is open.

Hi, guys. This is Anna Kruszenski on for Daniel. Thanks for taking the question. First, I had a question on how membership duration is trending, and how that varies between the B2C and B2B channels. I think in the past, you guys have said that the average duration was about five months on the platform. I'm just curious if that still holds and how that compares to your numbers? Thanks.

Yes, Anna. Thanks for the question. We see in our current data in our B2C business, we have roughly four months of average duration of those numbers. In the B2B business --

Can I just interrupt one second? That's -- we haven't seen a decline in that Anna. We're just saying it has been consistent at around that level for a very good time now.

That's right. And as we look to the B2B business, the equivalent of duration we would call utilization and I would say at our current rates, we're much less than what we see in the B2C business and that is why it is such a significant opportunity for us. So as we work on efforts across the platform, both on conversion, which is penetration in our B2B business, as well as retention, which is equivalent to utilization and duration in the B2B business. Those efforts will pay off as we look to increase that duration of our members.

Okay. Got you. Thank you. And then as a follow-up on that, you guys are noting like a higher mix of video visits in the B2C channel last quarter, which has led to ARPU uplift. I was wondering if the average durations of the video visits was also about four months like that?

We don't measure duration as far as what kind of modality our members choose. So our comments on higher mix, so higher selection of the more premium subscription areas includes asynchronous communication, as well as the video sessions.

Okay. That’s it. Thank you. That’s helpful.

Thank you. Our next question comes from Stephanie Davis with SVB. Your line is open.

Hi. This is Joy Zhang on for Stephanie. Thank you for taking my question. Given that you had a departure in your C-suite of someone who's heading the shift towards B2B, how should we think about the growth outlook for the B2B business compared with the projections you provided when you came public? Thanks.

Yeah. I'm not going to comment on the projections provided by the prior management. I will say that, as you know, the first two quarters with the prior management were misses in estimates. What I will comment on is that as I mentioned on our call in January, December was our strongest month for DTE signups. It has actually been exceeded in the month of January. We added covered lives in December, in January, and we continue to do so in February. We have added resources in the first quarter of two our B2B business. We've added marketing spend in our B2B business, and we've also added a whole series of control functions, pricing discipline and billing discipline to optimize – to ultimately optimize not only our revenue, but the cash generation from those businesses. So I would say today, our B2B business is stronger than it was on November 15, and we expect it to continue to gain momentum through the course of 2022. We have not and we are not for the moment, providing any guidance around where those businesses will be. In part because as we said -- I said at my opening comments, and Jennifer said, while we're making lots of changes, many of those things will take time to come to fruition, but where we believe confident that the changes we’re making will ultimately strengthen the business. So that's how we feel about it today. We feel better today than we did on November 15.

Maybe just a follow-up….

Sure. Sure.

Go ahead.

Maybe just a follow-up. We've seen some high profile transactions in the health Talkspace in the past few months. So maybe can you just walk us through the value of being a standalone company versus being acquired by maybe a large pair or provider?

I would say we're focused as a management team on optimizing the value of the company to our shareholders. As the chairman of the board, I would say that we always have the interest of optimizing value in whatever fashion creates the most value for our shareholders. Right now the things under our control are to run the business better, to grow our B2B franchise to optimize our B2C business, to improve our network, to increase and improve our controls and financial rigor and discipline and cash flow generation. And so those are the things we're focused on and we think that's going to deliver a lot of value over time and we will remain open to any paths that get us to value.

That's very helpful. Thank you.

Thank you.

Okay, that's our, unless I'm mistaken. I think that's our last question. So thank you for everyone for the excellent questions, and for participating in the fourth quarter and year end call. And Jennifer and Mike and I look forward to speaking one-on-one with our shareholders and our upcoming performance in 2022. So thanks very much everyone.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.