November 15, 2021

Talkspace, Inc. (“Talkspace”) (Nasdaq: TALK), a leading virtual behavioral healthcare company, today reported its financial results for the third quarter ended September 30, 2021.

Jennifer Fulk, Chief Financial Officer of Talkspace, commented: “While Net Revenue grew 23% year-over-year, driven by continued momentum in the B2B business, the overall financial results for the third quarter were disappointing. Q3 Net Revenue came in below management expectations due to a lower number of B2C customers and a one-time non-cash reserve adjustment for credit losses on receivables related to prior periods. The $223 million of available liquidity as of September 30 will allow Talkspace to invest in important operational enhancements and new initiatives that will continue to drive long‐term growth.”

Third Quarter 2021 Financial Highlights

  • Net Revenue of $26.4 million, a 23% increase over the prior-year period
  • Gross Profit of $14.2 million; Gross Margin of 54% compared to 70% in the prior-year period
  • Adjusted EBITDA loss of ($20.8) million, compared to ($2.0) million in the prior-year period
  • Net income of $1.5 million, compared to a net loss of ($2.7) million in the prior-year period

Key Operating Metrics

  • Total active members grew 21% year-over-year to approximately 60,300 as of September 30, 2021
  • B2B eligible lives grew 92% year-over-year to over 75 million as of September 30, 2021
  • 71,300 completed B2B sessions, a 96% increase versus the prior‐year period

Revenue

  • Net Revenue for the third quarter was $26.4 million, a 23% year‐over‐year increase. This metric came in below expectations due to a lower number of acquired customers in the direct‐to‐consumer business and an adjustment to reserves, which was only partially offset by growth in B2B Gross Revenue.
  • In the third quarter we increased the allowance for credit losses on receivables by $3.4 million, of which $2.8 million related to prior quarters. Excluding the impact of this one‐time non‐cash adjustment, consolidated Revenue would have been $29.2 million, up 37% year‐over‐year.
  • Direct‐to‐consumer Revenue was $18.6 million, a 10% year‐over‐year increase in the third quarter. The slowdown in the B2C business resulted in part from delays in launching new products and features, as well as a decline in conversion rates.
  • B2B Revenue was $7.7 million, a 69% increase year‐over‐year, with the continued strong performance of recurring revenue coming from PEPM fees, which approximately tripled year‐over‐year.

Gross Margin

  • Gross profit was $14.2 million in the third quarter, compared to $15.1 million in the prior-year quarter. Gross margin was 54% compared to 70% a year ago. This decline was due to the increase in the reserve for credit losses on receivables, revenue mix shift towards B2B, and the continued investment in W2 therapist network.
  • Excluding the reserve adjustment related to prior quarters, gross profit and margin for the quarter would have been $17.0 million and 58%, respectively.

Net Income

  • Net income was $1.5 million compared to a net loss of $2.7 million in the prior‐year period. This reflects a $26.9 million non‐cash gain resulting from the revaluation of the warrants’ liabilities, driven by lower share price.