Talkspace stumbles with investors at JP Morgan Healthcare conference

  • Talkspace, a mental health company, has had a tough 6 months.
  • Its co-founders and chief operating officer resigned in November, and the stock plunged.
  • Acting CEO Doug Braunstein spoke to investors Thursday about the company’s future.

On Thursday, a senior Talkspace official struggled to allay investor fears about the future of the struggling virtual mental health startup.

Speaking at JP Morgan Healthcare’s annual conference, Talkspace interim CEO Doug Braunstein discussed concerns about the mental health company’s weak stock price, its struggle to grow in line with expectations and the recent reshuffling of its leadership over the past six months.

“Building a business and building it in a very effective, efficient and disciplined way – we expect it to do very well in 2022, but that will take time,” he said.

The stock price fell 6% to $1.58 on Thursday after the company reported disappointing fourth-quarter results. Since the company’s public debut over the summer, shares have fallen around 80% as trouble has arisen on multiple fronts.

Talkspace, a company that offers online therapy and text counseling, is struggling to grow the part of its business that sells mental health services directly to people online. JPMorgan’s presentation of the company showed that it was making less money in this sector than a year ago, in part because it is becoming more expensive to attract new customers through advertising and marketing.

Additionally, the side of its business that caters to employers and health plans that offer Talkspace to their employees or members is growing more slowly than the company previously suggested. The company presented this unit as a major vector of growth.

Analysts at SVB Leerink said in a note Wednesday that the fourth-quarter estimates from JPMorgan’s presentation reflected continued management missteps following the November 2021 departures of Talkspace’s co-founders and chairman.

Braunstein, managing partner at Hudson Executive Capital, the blank check firm that took Talkspace public, stepped in to lead after Talkspace co-founders Roni Frank and former CEO Oren Frank left in November, sparking a downturn actions. Mark Hirschhorn, former COO of Talkspace, left soon after.

“We stay away as we believe any sort of transition could take several quarters to unfold,” wrote SVB analysts Leerink, Stephanie Davis and Joy Zhang.

Talkspace investor presentation.

Talkspace


Braunstein struggled to explain a change in clientele

According to slides from JPMorgan’s presentation, which includes preliminary numbers for the fourth quarter, the company collected $112 million in revenue in 2021 — about $2 million below analysts’ expectations — and about $28 million in dollars in the fourth quarter alone, which was also below consensus. As of May 2021, the company forecast 2021 revenue of $125 million.

The presentation showed that revenue from direct-to-consumer service sales fell to $17 million in the quarter from $19 million a year ago. Braunstein said it was because the company cut advertising spending. Revenue from the sale of services to employers and health plans reached $11 million in the quarter, compared to $6 million in the same quarter of 2020. Both business units missed analysts’ expectations.

Talkspace also revealed new issues. Late last year, Talkspace erred in reporting a key metric that makes it look like there are more members eligible for its services than there really are. Braunstein sought to explain the error on Thursday.

In November, Talkspace announced that its services were available to 75 million people through their employers or insurers in the third quarter, representing 92% year-over-year growth. But in December, the company revised that figure to 56.6 million eligible members in the third quarter, representing growth of 44%.

Braunstein said the error occurred because Talkspace initially counted some members of an agreement with a large insurer, but then it became clear that Talkspace did not have access to those members. It’s not common for companies to retroactively fix their tax returns, and the discrepancy suggests a deal with a major health plan fell through.

Based on the presentation, Talkspace services were available to 69 million people through their health plans and employers in the fourth quarter, up from 39 million at the end of 2020. Braunstein said Talkspace provided a record number of sessions to this subset of patients in the fourth quarter and gained new clients last month.

“We actually grew our B2B business during the quarter, despite concerns about management transitions,” he said, referring to the part of the business that serves employers and health plans.

Talkspace investor presentation.

Talkspace investor presentation.

Talkspace


What future for Talkspace

Talkspace has work to do before gaining more trust on Wall Street, between its recent exits and slowing growth due to challenges such as rising costs to attract new customers.

The company was sued by a shareholder earlier this month alleging it misled investors as it prepared to go public.

Braunstein outlined Talkspace’s priorities going forward:

  • He wants to improve how long users stay on the app and its ability to entice people to sign up after seeing ads. Both metrics declined for Talkspace. One of the ways it aims to improve is to allow people who typically pay out of pocket to use their health insurance instead.
  • Talkspace is looking for a new CEO. He’s making progress on that front, Braunstein said. “But in the meantime, I want to be clear that we work every day as a management team to improve the performance of our business,” he said.
  • It’s also looking to bundle more of its services, which could look like offering a digital self-help tool with clinical therapy and psychiatry, he said.

The slide below outlines Braunstein’s near-term goals for Talkspace, including growing its sales business to employers and health plans and building its network of mental health providers.

Talkspace investor presentation.

Talkspace investor presentation.

Talkspace


Are you a Talkspacer with more to share? Use the Signal encrypted messaging app to contact Blake Dodge (+1 252-241-3117) and Shelby Livingston (+1 843-412-6857).

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