Talkspace’s (Nasdaq: TALK) B2B bet has finally paid off. The digital behavioral health company has more than doubled its B2B payer sessions in the last year.
It has also turned its revenue composition upside down, with B2B sales making up nearly three-quarters of its revenue in Q2 of 2023. Comparatively, B2B sales accounted for about 48.8% of its revenue in Q2 of 2022.
“Our first priority is to drive payer revenue growth,” Talkspace CEO Jon Cohen said during the company’s second-quarter earnings call, “which is achieved by expanding the number of active users who are covered by their behavioral health benefits and employee assistance plans, as well as focusing our efforts to make aware that these benefits are available, and improving utilization.”
This comes roughly a year after Talkspace’s CEO announced that it would prioritize its B2B efforts as a way to turn around its struggling financial performance. Cohen noted that this success affirms the company’s B2B focus going forward.
These changes have helped the company become cash flow positive for the first time since it went public in 2021. It expects to hit breakeven by the end of the first quarter of 2024.
Talkspace will also likely break even with about $100 million of cash on its books, which is boosted by remnants of the company’s previous fundraising and IPO efforts.
Specifically, payor revenue at Talkspace increased 135% to $18.5 million during the second quarter. That contributed to a 19% revenue increase, totaling $35.6 million.
The improved performance in the payer revenue line, as well as improvements to company costs and its direct-to-enterprise (DTE) business, has led the company to raise its annual revenue estimate range by $7 million to $137 million to $142 million and lower its estimated adjusted earnings loss for the year to a range of $16 million to $19 million.
“We remain very enthusiastic about our progress and future within the payer category and have line of sight to continue expanding covered lives, capture rate and utilization,” Jennifer Fulk, CFO for Talkspace, said on the call. “We continue to believe this to be our largest and most profitable growth opportunity.”
Talkspace’s time as a public company has been marked by the unceremonious departure of its founding leaders, worse-than-anticipated financial performance, rumors of an acquisition, the threat of being delisted and an evolution from its historic business plan.
Founded in 2012 as a direct-to-consumer (D2C) text-therapy provider, Talkspace has since cleared an inflection point to be a largely business-to-business operation.
Talkspace continues to operate a D2C business. The segment has shrunk over the last several quarters. That shrinkage continued in the second quarter. Talkspace’s D2C business had 32% fewer active users (about 13,700) at the end of the second quarter compared to the same period last year.
The shrinkage in the D2C business correlates in a reduction in overall marketing spending and a refocusing on marketing efforts that boost engagement in the B2B lines. Talkspace’s marketing costs were a major financial burden for the company. In 2021, Talkspace’s sales and marketing costs totaled $100.6 million, about 63% of its annual operating expenses.
Talkspace’s approach to working with payers includes contracting with them and promoting its platform within its customers’ organizations. The company increased B2B sessions by 109% to 201,000 in the second quarter.
“Session growth was driven by another quarter of increased capture rate,” Fulk said. “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.”
In April, Talkspace added the “entire commercial book of business for a large payer,” Fulk said. She did not name the payer.
The company’s experience reflects payers’ interest in engaging with digital behavioral health solutions to resolve any number of issues, especially network and access issues.
“Such meaningful acceleration in our payer business occurred as a result of our relentless focus on member experience and clinical quality and meaningful improvement in clinical supply and time to access,” Cohen said.
Talkspace is also looking at psychiatry and medication management as another source of growth. Cohen said the company is testing a marketing campaign to raise awareness of its prescribing abilities and trained therapists on efficient internal patient reviews.
Cohen says the company also continues to look to AI to optimize business practices. This continues the remarks that he made earlier in the year.
Talkspace already has its own AI and machine learning engine. It’s used in its patient-matching efforts and addressing therapists’ administrative burdens.
“We believe that AI should not be a replacement for the human component of therapy,” Cohen said. “However, we can leverage AI to support our therapists to improve clinical quality and to help provide clinical documentation.”