Talkspace Inc. (Nasdaq: TALK) continues to thin its financial losses as it grows its payer- and government-focused business lines. 

The once direct-to-consumer, texting-based digital therapy company continues to move closer to profitability. On an adjusted basis, earnings totaled about $774,000. This is the first profitable quarter since the company’s IPO in 2021. Its net loss, however, was $1.5 million for the quarter, an 83% improvement from the year before.

The company’s future is clearly in working with payers. Talkspace CEO Dr. Jon Cohen said its push into commercial and, more recently, into Medicare is “cementing our position as the behavioral health company with the most covered lives across the United States.”

Talkspace will “go live” in traditional Medicare by the end of the month and be in 11 or so states in a short period of time, Cohen said. Soon, Talkspace will cover more than 10 million Medicare lives. The company intends to serve traditional Medicare patients in all 50 states by the end of the year. It is also in advanced talks with Medicare Advantage plans — privately administered, federally funded versions of the Medicare program.

In Cohen’s estimation, the largeness of the Medicare and Medicare Advantage populations and the large incidence of untreated mental health issues make it a compelling segment to serve. He also said no large, national player in the space catering to those aged 65 and older.

Talkspace isn’t alone in its push to provide seniors with digital mental health services. Brightside Health, a growing privately held digital mental health provider, also announced that it is building a business that serves seniors in Medicare.

Despite the news, Talkspace’s stock price slipped. As of the writing of this article, it was worth roughly $2.74 a share, down 10% over the week but up 211% over the previous year. Talkspace had previously faced the threat of being delisted. It went public with a $1.4 billion valuation. Now its market capitalization is $466 million.

The company’s progress in the first quarter has been pushed forward by increased revenue from payers and organizations that pay it directly for its virtual mental health services, referred to as its direct-to-enterprise (DTE) business. Meanwhile, its legacy direct-to-consumer (DTC) business continues to shrivel.

In part, the membership of the DTC business as well as the DTE business, but to a lesser degree, has been cannibalized by its payer business. Both DTC customers, who are paying out-of-pocket, and DTE customers are accessing in-network services through the growing payer business.

In the first quarter, Talkspace had 131 million covered lives, 284,000 completed payer therapy sessions and 11,000 active DTE customers. Those figures increased by 34% and 65% and decreased by 26%, respectively.

This translated to a boost in revenue. Total revenue was up 36% to $45.4 million in the first quarter. Here’s the breakdown of specific revenue segments compared to the same period last year:

The DTE business previously announced it had secured deals with high-profile local government and quasi-government entities to support youth mental health. This was a win Cohen highlighted on the call, adding that the partnerships with Baltimore Public Schools and New York City sparked a wave of interest in similar partnerships.

Still, the DTE business has faced other headwinds. Increased inflation over the last few years, concerns about constituent utilization, being exclusively focused on the U.S. and improved access via payers have led to enough non-renewals that Talkspace executives felt compelled to mention on the call.

“It’s not just one or the other,” Cohen said, describing the DTE segment’s headwinds.

The company has also entered into “strategic conversations” on value-based care contracts with payers, Cohen said. Previously, experts have told Behavioral Health Business that digitally backed or digital-only behavioral health organizations may have an advantage in establishing value-based care contracts given their in-built penchant for tracking and assessing data. Cohen did not discuss specifics.

“The Talkspace platform was built to continuously improve quality and increase efficacy in the delivery of mental health care,” Cohen said. “Our ability to measure these parameters and report them is a competitive advantage as we discuss value-based arrangements.”

The company also launched an AI-based note taking and summary tool that produces “smart notes” for therapists. The tool is estimated to save full-time therapists four hours a week on administrative work. Cohen said the company’s AI team is working on other care quality and workflow tools for therapists.

Many organizations anticipate that AI tools will be a boon for mental health clinicians, who point to administrative burdens driving burnout and turnover. This is true across the behavioral health industry because workforce shortages and turnover are a top concern.

The company now has about 5,600 therapists in total, a 6% increase compared to the fourth quarter of 2023.