The metamorphosis of digital mental health company Talkspace Inc. (Nasdaq: TALK) reached a new stage on Tuesday.
Talkspace named Dr. Jon Cohen as CEO, capping off a year’s worth of leadership shake-ups. The company also revealed it laid off staff in the third quarter as part of its efficiency efforts. It will also further accelerate its focus on its business-to-business (B2B) division.
Cohen joined Talkspace as a board member in September. He succeeds Board Chair Doug Braunstein who held the CEO role on an interim basis.
Braunstein became interim CEO following the departure of founding CEO Oren Frank. Frank, along with his co-founder Roni Frank, left the company a year ago after worse-than-expected financial results.
Soon after the Franks’ departure, then-COO Mark Hirschhorn left following an internal review of his conduct.
New York City-based Talkspace offers virtual live and asynchronous mental health services. The company went public in June of 2021.
“I’ve taken on the CEO role because I believe that we have an enormous opportunity,” Cohen said during Talkspace’s third-quarter earnings call. “I am personally committed to expanding access to mental health care and have the greatest degree of confidence in the long-term growth opportunities for Talkspace.”
In September, Talkspace investor Firstime Ventures needled the company over the lack of a permanent CEO. The Tel Aviv-based investment firm is one of Talkspace’s largest shareholders. It also expressed frustration that management passed on multiple takeover deals.
Under Braunstein, Talkspace was widely considered an acquisition target. Braunstein largely dismissed the notion of selling Talkspace. Rather, he said he was focused on improving the value of the company through better performance.
Talkspace was worth about $1.4 billion when it went public in June 2021. The IPO gave Talkspace $250 million in working capital. Its market capitalization is now $121 million.
It’s not yet clear what other strategic initiatives Cohen will take up at the outset of his tenure as CEO. He didn’t offer specifics during the earning conference call when asked by an analyst.
During the third quarter, Talkspace made a number of other changes and additions to its leadership team.
It hired Katelyn Watson as chief marketing officer, who replaces Samara Braunstein in the role. Samara Braunstein is Doug Braunstein’s wife.
It also hired Andrea Cooper as senior vice president of human resources; Richie Nguyen as senior vice president of network and provider operations; and Steven Dziedzic as chief product officer.
Cohen brings 30 years of experience in health care to the role. He has previously worked as the executive chairman and CEO of BioReference Laboratories, a medical laboratory company. In that role, he led the development of the in-home blood phlebotomy company Scarlet Health.
Scarlet Health serves major telehealth companies. In July, BioReference Laboratories landed a partnership with Teladoc Health (NYSE: TDOC).
He has also held executive roles with Quest Diagnostics (NYSE: DGX) and Northwell Health.
Cohen is a vascular surgeon by education and training.
Driving efficiency
Talkspace’s effort to stem losses continued in the third quarter and included layoffs.
“I’d say like many companies today, in our third quarter, we underwent a thorough review of our cost base,” Braunstein, who remains the company’s board chairman, said on the call. “As a result, we implemented headcount reductions and organizational changes at the beginning of Q4.”
He didn’t specify how many or what kind of roles Talkspace cut.
Talkspace united its B2B, business-to-consumer (B2C) and business-to-business-to-consumer (B2B2C) marketing teams and continued to cut its marketing costs, Braunstein said. He added that the company made progress on revenue cycle management and its customer service operations.
Talkspace reduced its marketing spending by 30.5% year-over-year in the third quarter. It totaled $18.4 million. For the nine months of the year so far, marketing costs are down 22% to $58.7 million.
Marketing spending drove most of Talkspace’s losses in 2021. It totaled $100.6 million, about 63% of all expenses, according to its annual financial report.
Braunstein also said it made improvements in the Talkspace National Provider Practice (NPP). The NPP is a cadre of W-2 employee providers. Most of its providers are independent contractors.
“While this network has been reduced, we’ve significantly improved engagement of our remaining [national providers] with members and we’re now once again adding selectively to this network,” Braunstein said. “These actions also helped to improve gross margins in the quarter.”
In late July, Talkspace forced dozens of NPP providers to switch from full-time employees to contract roles. This came after it rolled out higher workload standards, which some said were too high.
Talkspace’s shift to B2B and other numbers
B2B revenue shifted to accounting for 57% of total revenue through rapid growth and parallel dips in B2C revenue.
Talkspace has long signaled its shift to a greater focus on its B2B revenue.
“The big opportunity is B2B,” Cohen said. “The way I view [it] is not B2B versus B2C. I view it as ‘How do you get consultative mental health services to the most … people in whatever fashion you can.’
“B2B is a much more efficient way to get people services that they need than B2C.”
The B2B division is the company’s “largest and most profitable growth opportunity going forward,” Talkspace CFO Jennifer Fulk said on the call.
Third-quarter revenue totaled $29.3 million, an 11.3% annual increase.
B2B revenue increased by 117% to $16.8 million during the quarter. The revenue increase corresponds with 111,400 B2B sessions completed during the quarter, a 56% annual increase. Talkspace services covered 56% more lives during the quarter, increasing to 86.1 million.
The number of B2C active users shrank to 17,900, a 36% annual reduction. This is tied to cuts in marketing spending.
Talkspace posted a $19.9 million loss in the third quarter. The company’s efficiency efforts cut losses by 21% year over year. That translates to an $0.11 per share loss in the third quarter.
The company slightly beat Yahoo Finance’s analysis consensus earnings estimate of a $0.12 loss and missed the $29.8 million revenue projection.
The continued losses eat away at the company’s balance sheet. Cash on hand declined by 32% to $152.6 million in the third quarter. Talkspace ended the second quarter with $167 million and the year 2021 with $198 million.
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