Ladies and gentlemen, thank you for standing by. And welcome to Talkspace Second Quarter First Half 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. Mike Lovell, Senior Director, Investor Relations, you may begin your conference.

Good evening, everyone. Thanks for joining Talkspace's 2022 second quarter earnings call. I hope you've had the opportunity to access the press release. We posted on Talkspace's IR website a presentation of our earnings results. We'll 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 will be discussing forward-looking information today, which may include 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 2. And now I'll turn the call over to Doug who will begin on slide 3.

Thanks, Mike and thanks for all of you for joining us today to discuss our second quarter results. I'm going to start with a summary of our second quarter financial performance on page 3, and then I'll provide you an update on the progress we've been making on our strategic priorities. We continue to see solid demand for our services and we're pleased with our performance in the second quarter particularly against the backdrop of a more challenging macro environment. Revenue for the second quarter was down 4% year-over-year and essentially flat quarter-on-quarter driven by an expected decline in B2C revenue mostly offset by strong growth in B2B. As I noted last quarter, we continue to experience sustained momentum in our B2B business, which was up 47% year-on-year reflecting a meaningful increase in the number of sessions, active members, number of accounts and employees served in our DTE business. We instituted a number of changes to our B2B product during the second quarter and those had some negative short-term impact on the sessions completed for the period and that contributed to a slower growth quarter-on-quarter for our payer-related businesses. As others have noted, the macro environments also impacted the selling cycle in our DTE business with many larger accounts deferring additional benefits until January. While growth in that business was quite positive quarter-on-quarter we expect growth may slow given tightening spending parameters for some of our DTE customers. As you know, we're also very focused on optimizing returns in B2C. In line with prior quarters, we continued to reduce our marketing spend and we also implemented a number of product enhancements that led to declining consumer acquisition costs for the second consecutive quarter. Year-to-date our actions continue to be accretive to our unit economics. And importantly, despite a meaningful reduction…

Thank you, Doug, and good evening, everyone. Consistent with prior quarters, I'll speak to sequential trends as we believe this view provides useful context, given the meaningful operational initiatives we implemented since November and the ongoing revenue mix shift driven by strong momentum in our B2B business. Starting with Slide 5. Second quarter revenue was $29.8 million, down 1% sequentially from the first quarter. Second quarter B2B revenue was $14.6 million, up 13% sequentially on a reported basis. Performance was driven primarily by double-digit growth in DTE revenue and more modest growth in B2B sessions. B2C revenue was $15.3 million, down 11% from the first quarter on a reported basis. The lower number of active users was partially offset by lower promotional activity and an increase in ARPU as a larger portion of our members selected subscription plans with live video content. As you see in our footnotes, we classified post-session member payments as B2B revenue in the second quarter. Our work to improve collections resulted in a meaningful increase in post-session payments in the first half, which drove further analysis regarding this revenue classification, which we believe is better matched to B2B revenues. We have previously reported this revenue as B2C in the first quarter. On a comparable basis, B2B revenue would have been up 6% and B2C revenues would have been down 7% quarter-on-quarter had we not made this adjustment in Q2. We do expect continued improvements in collections and resultant cash flows. Second quarter gross profit declined 3% sequentially to $14.5 million. Gross margin at 48.7% was down approximately 110 basis points from Q1 due primarily to our revenue mix shifting toward our B2B business as well as a full quarter impact from the therapist compensation increase that we implemented in Q1. Turning to slide 6. Second…

Your first question comes from the line of Ryan Daniels with William Blair. Your line is open.

Hey, guys. This is Jack Senft on for Ryan Daniels. Thanks for taking my questions. To start off I'm just kind of curious what you guys are seeing on the wage inflation front. And if you have any more color on that does it pertain to hourly wages versus salaried? And then to even kind of take this further, are you seeing any further headwinds as it relates to this, or I mean even other opportunities or initiatives you can implement to help kind of curb this. Any color you'd have on this would be appreciated. Thanks.

Yes. Jack, it's Doug Braunstein. Thanks for the question. We -- as we spoke about earlier on the call, we took an increase to the level of compensation that we paid to our therapies early in the first quarter and that took effect mid-first quarter. And so the -- in part the pressure on margin in the second quarter was reflecting in part that increase in compensation. We believe based on where we are today our level of compensation is quite competitive and attractive. And as you heard, our recruiting in our independent contractor network our 1099s, we recruited more therapists to the platform this quarter than we did in the previous two quarters combined. We have much more work to do on the efficiency level of our W2 network, but that's really not an inflationary issue. That's an efficiency issue for us. And I would say, across the platform for our full-time non-therapist employees, we like others face the challenges of a more difficult recruiting environment. The good news for Talkspace in part is, we tend to attract individuals who also are quite mission-driven. And that has worked to our benefit in terms of people being attracted to come work on the platform and stay on the platform, because of the important work we do for our members.

Awesome. Thank you. No, I appreciate that. As a quick follow-up into I know one of your goals was to target larger accounts, which was seen in, I mean, evidenced by the $1 million consigned last quarter. Just kind of curious if you have any updates on selling to these larger accounts you can comment? And then two, are you having to kind of change your strategy on selling to the B2B side just given the reduced B2C spend? Just kind of thinking about this with the less B2C spend just thinking maybe less possible brand awareness and maybe a possible challenge for selling to B2C. Just any update you have on that would be great. Thank you.

Yes. So actually part of what we mentioned in the call is actually our traffic to the site and our cost -- our traffic went up in the second quarter and our cost per visitor went down both very favorable. And what we also mentioned is because of that unified funnel change we made late in the first quarter, we're now driving through our B2C site a significant increase in B2B customers who are able to come into the website now and seamlessly find whether or not they have coverage through one of our payer partners or EAP plans and then to stay within the site and literally sign on as a B2B member. So that's been actually quite advantageous for us and we expect to continue to see more traction there particularly as we add additional covered lives in the back half of 2022. I would say the first part of your question around DTE. We did sign up a number of large accounts during this quarter. But what we are seeing is for many of the accounts, which were in active discussions, they are deferring implementation and decisions to the beginning part of 2023, as a much more holistic view on what benefits and what cost they're going to commit to for their employee populations. We've got quite a number of very attractive engaged discussions with large clients. So our targeting and our efforts there are improving the flow of discussions that we have. But I – as both Jennifer and I cautioned, the timing to actually get the implementation for a number of those large accounts given the macro environment it may be lumpier than we would have otherwise hoped and expected it to be during the course of 2022. But you should rest assured for most employers today and for many, many of their HR executives, delivering incremental benefits for behavioral health care remains a top-tier priority. And so the level of engagement and discussion remains very robust for us.

Great. Thanks, guys.

Your next question comes from the line of Stephanie Davis with SVB Securities. Your line is open.

Hi guys. This is Anna Kruszenski on for Stephanie. Thank you for taking question. I was wondering, if you would be able to pivot some of the B2C cost base into the business to improve the B2B margins, or have those margins may really be able to expand as the business scales?

Yes. So Anna one of the things that we absolutely have done during the first six months of 2022 is we have pivoted a fair amount of the savings that we experienced in the B2C business by our almost 50% reduction in media spend and deployed that against more salespeople in B2B, more customer support in B2B more technologists to do implementation of new product in B2B. So much of that savings has really been designed to drive revenue and then improve our collection of that revenue and improve the customer journey and experience for our B2B members. The margin is really partially a function of optimizing our W2 network, which as I said that was for me a little bit of a disappointment in terms of the progress in Q2. We didn't make as much progress as I had anticipated, but we've taken a number of actions at the beginning of Q3 that we hope will begin to demonstrate improvements in margins in the back half of the year. And the other opportunity that we've got in the B2B space quite frankly is to optimize our pricing strategies which again we look forward to the back half of the year as an opportunity to really take advantage of that.

Got you. Thank you. Great. That's really helpful. And then just a quick follow-up. I was wondering if you could talk about the current macro and so I will pack under nameM&A?

Well, -- I don't think our position has changed at all which is we continue as a management team and as a Board to be extremely focused on optimizing shareholder value. And the course in front of us, which Jennifer and I feel quite strongly that, we've made a lot of progress in the last several quarters is to improve, the revenue with the B2B business optimize our B2C and really begin to focus on reducing our cash burn and moving this company towards cash flow breakeven. We remain open to doing that both on a stand-alone basis and open to any strategic dialogue that we think get to the shareholders to value creation in a more expedited and more efficient manner. But we're going to keep the management team focused on doing what we can to improve our business. And then we remain open to whatever opportunities are out there. I will say, by the way, on the growth side from a strategic standpoint, there are -- we've had -- we've been approached by numerous companies in the -- that are private today where funding has become much more challenging and we are taking a very disciplined approach to thinking about are there product extensions that we can add, but we maintain our focus on our path towards profitability and cash flow breakeven.

All right. Got it. Thank you. Great color.

There are no further questions at this time.

So, operator, thank you, and I appreciate everyone participating. Obviously, we know it is a very busy period in time. There's lots of calls to make. We look forward to engaging both with our sell-side research and our investors in the coming days to answer questions that they might have. And again, on behalf of Mike and Jennifer and myself, we appreciate the time and we look forward to continuing to update this group on our ongoing progress to really deliver value to our constituencies. So, thanks for participating in today's call.

This concludes today's conference call. You may now disconnect.