Online therapy company Talkspace grew its revenue 23% in the third quarter, bringing in $47.4 million, and turned last year's net loss into a profit of $1.9 million.
The company continues to expand its business with payers and employers and now covers 158 million people in-network and through Medicare/Medicare Advantage plans, an increase of 40% year over year, Talkspace announced in its third-quarter earnings report released Tuesday. As Talkspace grows, it is increasing access to virtual behavioral health services for seniors, teens and members of the U.S. military, exectives said.
This past quarter marks Talkspace's third consecutive quarter of adjusted EBITDA profitability. Adjusted EBITDA came in at $2.4 million in the third quarter, an improvement from a loss of $2.8 million a year ago and beating Wall Street analysts' consensus estimate of $1.4 million.
However, revenue for the third quarter fell slightly short of the consensus target of $47.5 million.
Operating expenses were $21.5 million, down 10% year over year, driven primarily by lower research and development expenses.
Talkspace's shares are up 14% from a week ago and are up 33% year-to-date.
The company started in 2012 with a consumer focus, but, three years ago, it shifted its focus to a B2B model as part of a larger turnaround effort. That strategy shift appears to be paying off as the virtual mental health company benefits from momentum in its payer and employer segments.
The company, which went public in 2021 via a special purpose acquisition company deal, saw its payer revenue jump 45% to reach $32 million during the quarter, and direct-to-enterprise revenue grew 17% to $9.4 million.
The direct-to-consumer business, however, continues to decline, with revenue dropping 30% to $6 million during the quarter.
"We have made meaningful strides in fortifying our relationships with key payer partners who view us as the leading full-scale, pure-play behavioral health provider and truly recognize the importance of our differentiated focus on clinical excellence,” said Jon Cohen, M.D., CEO of Talkspace, in a statement.
Talkspace connects people via an app with therapists who provide counseling remotely, either over the phone, by video chat or by text. The company has 5,600 licensed providers on its network as of the first quarter of 2024. More than 140 million Americans have access to Talkspace through their health insurance plans, employee assistance programs, the company's partnerships with leading healthcare companies or as a free benefit through their employer, school or government agency.
“The mental health crisis remains a critical issue and Talkspace is at the forefront of addressing this need through our highly qualified network of diverse, clinically-licensed providers and our innovative platform," Cohen said.
"Our innovative approach and strategic growth have positioned us as the largest behavioral telehealth network in the U.S., enabling us to meet the escalating demand for accessible, high-quality behavioral health services," Cohen said.
Talkspace also is making a big push into the Medicare market. "In the third quarter, we continued to make progress on our goal to be in network for all Medicare beneficiaries. As of this month, we are now CMS approved in approximately 40 states, and live in 30 states, including Texas, Florida, California and New York, therefore providing access to the majority of the senior population in the U.S.," Cohen told investors during the earnings call Tuesday.
"Our team is working diligently to complete necessary final state approvals and launch our services in the remaining 20 states, so that we can begin to test our go-to-market strategies more broadly," Cohen said.
The company also continues to expand into Medicare Advantage and recently launched its services with the largest MA plan, broadening Talkspace's reach to another 7 million-plus lives, he said.
Talkspace continues to notch partnerships to expand its reach. The company is working with Wisdo Health, an AI platform that focuses on combating loneliness. The partnership aims to improve access to mental health resources for the 65-plus community.
In September, Amazon announced that it added Talkspace to its health conditions program, a service it rolled out in January to help connect customers with virtual care benefits. The partnership makes it easier for millions of people to discover their behavioral health benefits while shopping Amazon. The online retail giant launched its health conditions program to help customers find and enroll in virtual care benefits available to them through their employer or health plan at no extra cost.
Ryan Daniels, an analyst with William Blair, noted in a research note that this partnership should improve the company’s capture rate (defined as unique users divided by total eligible lives for the service).
"In detail, the Amazon customer base spans hundreds of millions of users and we believe this collaboration creates a new avenue for the roughly 150 million covered lives who have Talkspace as a covered benefit (and are unaware of it) to find out that they are actually eligible—thus increasing the capture rate over time," Daniels wrote.
Talkspace expects to have roughly 200 million covered lives in 2025, up from the 158.1 million this quarter.
"We estimate that this amounts to approximately two-thirds of the total commercial population in the U.S., and we remain optimistic about the growth outlook," Daniels wrote.
"We continue to view Talkspace as a solid growth investment despite the recent weakness seen in the B2C segment, as we believe the virtual behavioral health market is set for material growth over the coming years and we like the company’s focus on the B2B space," Daniels wrote.
The company reaffirmed its 2024 expectations for fiscal year 2024 revenue to be in the range of $185 million to $195 million, growth of 23% to 30%, and adjusted EBITDA to be in the range of $4 million to $8 million.