Talkspace Inc.’s (Nasdaq: TALK) enterprise business growth was not enough to save its struggling financial results in the second quarter of the year.
The company’s revenue shrank by 4% year-over-year to $29.8 million. Lower marketing spending on its direct-to-consumer (D2C) products led to 28% less revenue in that segment. This was not totally offset by a 47% growth in business-to-business (B2B) revenue, according to financial data released by the company.
“Media spend is down nearly 50% sequentially in the last three quarters,” Talkspace Interim CEO and Chairman Doug Braunstein said during the company’s second-quarter earnings conference call.
He added that the cuts in marketing spending mark progress in the company’s effort to lower its customer acquisition costs (CAC). In 2021, Talkspace spent $100.6 million on sales and marketing, about 63% of all expenses, according to its annual financial report.
Sales and marketing costs are down 17.2% for the first half of 2022 and down 28.4% in the second quarter.
The company released high-level user stats for the quarter and how they compared to the same period last year in a news release.
— Total B2B lives covered: 77 million, up 40%
— B2B sessions completed: 96 million, up 44%
— B2C active members: 20.1 million, down 34%
The company is plowing much of the savings from a slimmed-down marketing budget into its B2B business — hiring more salespeople, adding customer support, hiring more technologists and implementing new products, Braunstein said.
Talkspace, a New York City-based virtual mental health provider, has made the B2B line of its business the priority as it seeks to rebound after major troubles since going public via a $1.4 billion SPAC in June 2021.
The company revealed worse-than-expected financials for the third quarter of 2021. At the same time as the quarterly earning report, the company announced that Oren Frank, cofounder and CEO, and Roni Frank, cofounder and clinical services head, were out.
A week later, President and COO Mark Hirschhorn resigned, effective immediately, following “an internal review of Mr. Hirschhorn’s conduct in connection with a company offsite that took place late last week.”
Today, the company’s share price is down 84% from its IPO price of $10 to $1.64, according to Google Finance.
It has also continued to post quarterly losses after pulling 2021’s financial guidance.
“Overall, the company continues to make slow and steady progress but much remains to be done,” a note from Jefferies Research Services released early Tuesday states. The note also points out that Talkspace has not yet provided financial guidance for 2022.
M&A talk
Braunstein left the door open for M&A activity despite hedging comments that the company was focused on improving its operations.
Talkspace could also have its pick of growth acquisitions as well, Braunstein said.
Talkspace has been approached by “numerous” privately held companies that find that the private funding markets have “become much more challenging” during a downturn in the U.S. economy, according to Braunstein without adding any more detail.
If the company were to be an acquirer, Braunstein said that Talkspace would be “thinking about ‘are there product extensions that we can add?’”
“We’re going to keep the management team focused on doing what we can to improve our business,” Braunstein said. “We remain open to doing that both on a standalone basis — and open to any strategic dialogue that we think gets the shareholders to value creation in a more expedited and more efficient manner.”
In June, talk bubbled up around the virtual health care provider American Well Corp. (NYSE: AMWL) making a pass at Talkspace. Better known as Amwell, the company has made other M&A moves to expand its behavioral health offerings.
In part, Talkspace is seen as a potential acquisition target because of its much-deflated valuation. As of Tuesday morning, the company’s market cap stood at about $252 million.
Talkspace also is attractive for the span of digital services it provides. Its services range from self-guided content and tools to therapy to psychiatric services.
In March, Jefferies Research Services wrote in a note that massive demand has amped up investor interest in behavioral health and upped the interest of health care entities in tech-focused services.
By the numbers
Talkspace’s financial situation in the second quarter was a mixed bag.
Talkspace’s revenue diminished, but the company’s net loss shrank by 24%, compared to the second quarter of last year, to about $23 million. Earnings per share totaled a $0.15 loss — compared to $1.15 per share in 2Q 2021. However, revenue shrank 4% year-over-year to $29.8 million.
Average analyst estimates from Yahoo Finance were a $0.13 loss per share and $31.1 million in revenue for the second quarter.
The company’s cash and cash equivalents continue to dwindle. Talkspace’s cash and cash equivalents totaled $167 million as of June 30. Last quarter, that number was $184 million and about $248 million a year ago.
“We believe this offers great flexibility to fund operations and invest in our growth initiatives for the next two years,” Talkspace CFO Jennifer Fulk said on the call.
The recent Jefferies Research Services note points out that Talkspace has not provided annual financial guidance for 2022.
Talkspace’s therapists
Braunstein said that Talkspace didn’t operationalize clinical efficiency efforts in its full-time staff therapist group, called the National Provider Practice (NPP).
Earlier in the year, Talkspace changed the NPPs efficiency standard to require 30 hours of patient contact in sessions or answering patient messages. Several therapists with the NPP who BHB has communicated with said that the new 30-hour standard was too high. Dozens of the therapists were recently reclassified to the contractor network or let go.
“This network’s inefficiency negatively impacted our margins in the second quarter,” Braunstein said. “You’ll see us convert a number of W-2 therapists back to independent contractors and reduce the size of this network temporarily.
“We’ve also now begun to hire a new full-time therapist with clear expectations for the role on the platform as full-time employees.”
Talkspace added more contract therapists in the second quarter than we’ve added in the two previous quarters combined, Braunstein said without offering specific figures. Braunstein attributed the growth of the contractor therapist network to higher wages for contractors, improvements to its therapist platform interfaces, and additional recruiting efforts.
New contract therapists will spend more of their time with B2B customers, he added.
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