Good morning, and welcome to Talkspace's Earnings Conference Call for the Second Quarter of 2023. I'm Jeannine Feyen, Director of Communications. I hope you've had the opportunity to access the press release we posted on Talkspace's IR website and the presentation of our earnings results. We'll use this presentation to walk you through today's remarks. Leading today's call are our CEO, Dr. Jon Cohen; and our CFO, Jennifer Fulk. Management will offer their prepared remarks, and we'll then take your questions. 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. Now, I will turn it over to Dr. Jon Cohen.

Thanks, Jeannine, and thank you all for joining us today. I am pleased to report that Talkspace had another strong quarter as we continue to execute against our strategic initiatives and rapidly progress on our path to profitability. The strong results in this quarter provide us with the confidence that we will exceed our original guidance and to raise our fiscal 2023 revenue and adjusted EBITDA targets as I will discuss shortly. In addition, I am particularly excited to relay that this quarter we were cash flow positive for the first time since becoming publicly traded, which Jennifer will discuss later. Before I turn to our financial results, I want to call out three important mental health reports that were published this quarter. The [surgeon] (ph) general issued a new advisory about the effects of social media use on youth mental health as one of the greatest threats to teen health since cigarette smoking. In another report, loneliness is a huge issue for 36% of Americans, 61% of youth and 51% of mothers, reporting serious loneliness with associated increases in depression and anxiety and a third report, a 22% increase in mental health emergencies in teenage girls related to a sharp rise in hospitalizations for eating disorders and suicidal behavior. On the positive side, in June, we released our latest study, the new normalization survey. This describes the recalibration of how people view mental health services. The study found that more people than ever are open to help -- seeking help for mental health issues. And just as importantly, are talking about it without fear of the stigma usually associated with mental health conditions and feel that mental health conditions and therapy are now socially acceptable and normal. For example, 90% of respondents currently in therapy say they've shared their…

Thank you, Jon, and good morning, everyone. My comments today will be based primarily on second quarter results on a sequential quarter over quarter basis. I will cover highlights from our financial results and then give more details on our updated 2023 revenue and adjusted EBITDA guidance. Turning to Slide 5. Total revenue for the second quarter was $35.6 million, a 7% increase over the first quarter and a 19% increase from a year ago. B2B payer revenue increased approximately 25% sequentially to $18.5 million, with session volume growth of 17% and net price growth of 7%. Session growth was driven by another quarter of increased capture rate. This was the result of continuing to leverage our brand recognition and focus our marketing efforts to drive awareness of our covered benefit and to optimize our funnel. We also grew covered lives by 12% or 12 million in the second quarter. As we mentioned in our last call, we added the entire commercial book of business for a large payer in April, and we are very pleased with the current ramp up rate for this new book of business. Regarding net price growth, as Jon noted, we have made significant progress within our revenue cycle management capabilities. The net price growth we recognized in Q2 was primarily driven by an increase in our collections rate. Healthcare claims processing is highly complex, but we have firmly established our revenue cycle capabilities as a core competency and the results demonstrated in Q2 reflect the product enhancements, refined processes with our payer partners, and enhance internal reporting capabilities. Looking more broadly at this category, our payer member unit economics improved meaningfully in the quarter as a result of progress in revenue cycle management as well as higher user engagement and retention. In the direct…

Thank you. [Operator Instructions] And our first question comes from the line of Charles Rhyee at Cowen.

Yeah. Hey, guys. Thanks for taking the question and congrats on the results here. I wanted to ask about the DTE side. You talked about sequential decline and some of that being some shift in the customers moving to a different product, but some that you mentioned around COVID funding Can you go into that a little bit more? Just trying to understand what percent of your clients over the last few years were coming in using COVID funding, and how many of those clients have been signed on for continued services relative to the ones that may have stopped because of the lack of funding.

Hey, Charles. Thanks. It's Jon. we don't give a percent, but what I'll tell you is, a significant number of small to medium size at best school districts particularly utilize COVID funding for mental health services. I think what we're seeing and actually, we're at the tail end of that right now because the funding has run out, I would say, several months ago if not long already. So those districts or whatever are just going to have to make a decision about what they're going to need going forward. It's not a -- I don't consider it a substantial risk moving forward at all. It's just something we're calling out because that was a cause of some of the intruded accounts.

Yeah. I'm just curious because I was just thinking of the reverse. Have you seen a lot of these school districts and others that have used that funding find other sources of funding to continue the service for their…

Yeah. So what I would tell you is that, the market for K-12, particularly 13 and above is actually -- that's what they say, there's significant interest in the market right now to fund those schools and the school districts. So there's an enormous amount of activity relative to what's the next movement for that particular group of individuals. So I would say that despite the COVID funding, what we're seeing in the market is significant interest.

Okay. That's helpful. And then, I think -- Jennifer, you talked about obviously cash flow positive in the quarter, and that's great news. And that seems like it's -- is that really just more from your side of the cleans processing with risk cycle management. Or has there been a change at the payer level? I know in other areas of health care people have kind of noted that payers have kind of slowed down payments or there's been a lengthening of PSOs. Just curious if this is really more just from internal improvements, or is this -- are you seeing payers reimbursing faster?

Charles, it's certainly due to the hard work that we've done really within the whole process of revenue cycle management, including the treasury operations and ensuring we've got line of sight and we are as quickly as possible collecting the cash from that. So it's certainly all the progress we made in the second quarter is a reflection of our really hard work that the teams have done.

Great. I'm sorry. And then my last question, I know you talked about launching with a big partner, I think, in April. Can you talk a little bit more about how that's going? I know you made some comments that it's going well and is ramping well. But I just want to understand, like, sort of the dynamics of, like, where -- how you interface with their members, is it really driven by -- are you able to go in directly, or is it still really driven by your health plan customer to really push the product. Just trying to understand where you can push to be able to increase enrollment and et cetera.

Yeah. So, Charles, as it turns out before, the payer utilization and our interaction from our payer teams and our relationship teams really varies by payer. What we're excited about and with the pair that we launched in the second quarter is a really great collaborative approach. So we were brought on with a lot of excitement from their internal sales team and it means that we're often at the table helping to explain the value that Talkspace brings to their customers and with this new interest. So, we're really pleased with the way that launch has gone and with the collaboration with that payer. And like Jon said, we look forward to more of that this coming year.

And just to clarify, this is on the EAP side. So, right, you can sign on at any point of the year versus maybe just the behavioral health side, which would be more for traditional [one-one] (ph) start next year?

Yes. And so, the lively launch in April were behavioral health. But what we're seeing as far as they're not being necessarily one-one trigger since we're -- as we're put on both for behavioral health and for EAP lives where we are set as an in network provider, and that can really be at any point during the year.

Okay. That's helpful. Thank you.

Thank you.

Your next question is from the line of Ryan Daniels at William Blair.

Yes. Hi. Good morning. Congrats on a good quarter. This is Jack [Malik] (ph) on for Ryan. Yes. Sort of back to the DTE part of the business. I know you mentioned that school districts would have been a good component of these lost clients. But I guess, could you provide a little bit more color on the low utilization of any clients that you lost and then any sort of implications you're seeing for the overall demand environment going forward. Are they shifting to lower cost options? Or are they no longer seeing a need for mental health benefits given the low rates of utilization?

Yeah. I would I would say couple of things. One is, we talked about some of the COVID funding. There was also some other client really one particular, but the client that have shifted to a different part of the Talkspace platform. So they've moved from a DTE relationship to more of an EAP Behavioral Health relationship that that has occurred. So we didn't -- there's no -- I just want to be clear, it's not like they don't want mental health services. They were just looking at a different way for us to supply them that need. I would say, in general, we are spending a fair amount of time or the commercial team rather to make sure that the HR executives utilize the service and actually promote it to their employees to make sure that the employees know that the service available. So we partner proactively with the employers if there's low utilization to actually improve it. Certainly some of them are going to see low utilization, but we continue to refine our market strategies with them to increase that need.

Got it. And then I guess my second question would be around gross margins and how you're thinking about that, kind of in the long term given your mix shift towards the payer category that looked to be about 70% of your B2B revenue. So, just kind of curious how you're thinking about gross margins going forward.

Yes. Jack, as I mentioned earlier, we foresee being able to maintain margins, this 50% level that we did both in the first and the second quarter. And the offsetting items within there are the continued shifts, particularly this year and the second half of the year of the payer mix and revenue, but that also being boosted by our progress that Jon has been talking about in the DTE category. And then also later this year is the consumer category stabilizing. That's how we see the evolution of gross margin through 2023.

Okay. Thank you.

[Operator Instructions] At this time, there are no further questions. I will now hand the call over to CEO, Jon Cohen.

Thank you, and thanks everybody for joining us on the call this morning. I want to take the opportunity to again emphasize my continued and our team's continued enthusiasm and confidence in our business' ability to address the growing need for covered mental health services throughout the country. We believe and know that the Talkspace platform, which encompasses our leading brand, comprehensive suite of products and clinical and operational capability is strategically situated to meet this growing demand with high quality care and to reach profitability in the near term. Thank you again, everyone, and have a great rest of your day.

This concludes our call. Thank you for joining. You may now disconnect your lines.