Unless the context otherwise requires, all references in this section to as
"
The following discussion and analysis of our financial condition and results of
operations should be read together with the financial statements and the related
notes contained in this Quarterly Report and the financial statements and
related notes contained in the Company's Annual Report on Form 10-K for the
fiscal year ended
Overview
As a healthcare company enabled by a purpose-built technology platform,
As of
The behavioral health market has traditionally been underserved for a number of reasons, including as a result of inadequate access, a limited universe of qualified providers, high cost and social stigma. We believe virtual is the ideal modality for mental health treatment because it removes or reduces these burdens associated with traditional face-to-face mental health services by improving convenience through 24/7 access to our platform, providing more accessible entry level price points, and reducing associated stigmas by promoting transparency, increasing ease of access and preserving privacy. Our platform connects consumers in need, including many of whom have never had an opportunity to benefit from high-quality behavioral healthcare, with experienced providers across all 50 U.S. states.
Through our psychotherapy offerings, our licensed therapists and counselors
treat mental health conditions in over 21 specializations, such as depression,
anxiety, trauma and other human challenges. Through our psychiatry offerings,
our board-certified psychiatrists and prescription-eligible nurse practitioners
treat a higher acuity patient demographic, including those who may have
pharmacological needs. Like the traditional face-to-face models,
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While optimizing consumers' access to care, we believe our platform also provides benefits to providers through expanded reach, steady access to member leads, reduced administrative burdens, more efficient time utilization and data-driven insights. These features, together with continuous training and professional growth opportunities we offer, empower providers to deliver what we believe will enable an enhanced care journey, higher member lifetime engagement, meaningful outcomes and greater margins when compared to face-to-face treatment.
Operating Segments
We operate our business in a single segment and as one reporting unit, which is how our chief operating decision maker (who is our interim chief executive officer) reviews financial performance and allocates resources.
Key Business Metrics
We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following metrics are useful in evaluating our business:
Three Months Ended March 31, (in thousands except number of health plan and enterprise clients or otherwise indicated) 2022 2021 Number of B2C active members at period end 22.2 33.6 Number of B2B eligible lives at period end (in millions) 76.5 49.5 Number of completed B2B sessions 90.6 53.9 Number of health plan clients at period end 16 10 Number of enterprise clients at period end 189 91 Total number of active members at period end 64.5 58.7
Active Members: We consider members "active" (i) in the case of our B2C members, commencing on the date such member initiates contact with a provider on our platform until the term of their monthly, quarterly or bi-annual subscription plan expires, unless terminated early, and (ii) in the case of our B2B members, if such members have engaged on our platform during the preceding 25 days, such as sending a text, video or audio message to, or participating in a video call with, a provider, completing a satisfaction or progress report survey or signing up for our platform. While a growth in active members typically highlights strong engagement with our members, not all active members are associated with revenue in that particular period.
B2B Eligible Lives: We consider B2B lives "eligible" if such persons are
eligible to receive treatment on the
Non-GAAP Financial Measures
In addition to our financial results determined in accordance with GAAP, we believe adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We use adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. We believe that the use of adjusted EBITDA is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as a tool for comparison. A reconciliation is provided below for this non-GAAP financial measure to net loss, the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review our GAAP financial measure and the reconciliation of our non-GAAP financial measure to its most directly comparable GAAP financial measure, and not to rely on any single financial measure to evaluate our business.
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Adjusted EBITDA
Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes and in evaluating acquisition opportunities.
We calculate adjusted EBITDA as net loss adjusted to exclude (i) interest and other expenses (income), net, (ii) tax expense, (iii) depreciation and amortization, (iv) stock-based compensation expense and (v) certain non-recurring expenses, where applicable
The following table presents a reconciliation of adjusted EBITDA from the most comparable GAAP measure, net loss for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, (in thousands) 2022 2021 Net loss$ (20,360 ) $ (12,738 ) Add: Depreciation and amortization 429 462 Financial (income) expense, net (1) (869 ) 173 Taxes on income 21 8 Stock-based compensation 2,368 1,513 Adjusted EBITDA$ (18,411 ) $ (10,582 )
(1) For the three months ended
Some of the limitations of adjusted EBITDA include (i) adjusted EBITDA does not
properly reflect capital commitments to be paid in the future and (ii) although
depreciation and amortization are non-cash charges, the underlying assets may
need to be replaced and adjusted EBITDA does not reflect these capital
expenditures. Our adjusted EBITDA may not be comparable to similarly titled
measures of other companies because they may not calculate adjusted EBITDA in
the same manner as we calculate the measure, limiting its usefulness as a
comparative measure. In evaluating adjusted EBITDA, you should be aware that in
the future we will incur expenses similar to the adjustments described herein.
Our presentation of adjusted EBITDA should not be construed as an inference that
our future results will be unaffected by these expenses or any unusual or
non-recurring items. Adjusted EBITDA should not be considered as an alternative
to loss before income taxes, net loss, loss per share, or any other performance
measures derived in accordance with
Components of Results of Operations
Revenues
We generate revenues from the sale of monthly, quarterly, bi-annual and annual membership subscriptions to our therapy platform as well as supplementary a la carte offerings, payments from members and their respective insurance companies and annually contracted platform access fees paid to us by our enterprise clients for the delivery of therapy services to their members or employees. We recognize B2C member subscription revenues ratably over the subscription period, beginning when therapy services commence. B2C members may cancel at any time and will receive a pro-rata refund for the subscription price.
We recognize contracted revenue from our enterprise clients from the commencement of their contracted term through the annual period based primarily on a per-member-per month model. We recognize revenues from services provided to insured members at a point in time, as virtual therapy session is rendered. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service. Contracts with our enterprise clients are for one or more years with the ability to provide 60 days advance notice prior to termination at each year mark during the term. On occasion and depending on the client, we allow a 60 or 90 day intra-year termination notice but only after the client has completed the first year of service.
Revenue growth is generated from increasing our eligible covered lives through contracting with enterprise clients and health plans, and increasing membership subscriptions.
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Cost of Revenues
Cost of revenues is comprised of therapist payments and hosting costs. Cost of revenues is largely driven by the size of our provider network that is required to service the growth of our customer base, in addition to the growth of our health plan and enterprise clients.
We designed our business model and our provider network to be scalable and to leverage a hybrid model of both employee providers and independently contracted providers to support multiple growth scenarios. The compensation paid to our independently contracted providers is variable, and the amount paid to a provider is generally based on the amount of time committed by such provider to our members. In addition, our network supervisors have broad authority to approve the payment of incentive bonuses to providers with certain licenses during periods of higher demand for providers with such licenses. For our employee providers, they receive a fixed-salary and discretionary bonuses, where applicable.
While we expect increased investments to support accelerated growth and the required investment to scale our provider network, we also expect increased efficiencies and economies of scale. Our cost of revenues as a percentage of revenues is expected to fluctuate from period to period depending on the interplay of these aforementioned factors.
Total employee provider headcount was 290 as of
Operating Expenses
Operating expenses consist of research and development, clinical operations, sales and marketing, and general and administrative expenses.
Total corporate employee headcount was 222 as of
Research and Development Expenses
Research and development expenses include personnel and related expenses for software development and engineering, information technology infrastructure, security and privacy compliance and product development (inclusive of stock-based compensation for our research and development employees), third-party services and contractors related to research and development, information technology, software-related costs, and cost savings related to the application of research grant proceeds.
We expect research and development expenses will increase on an absolute dollar basis as we continue to grow our platform and product offerings; however, the anticipated corresponding future revenue growth is expected to result in lower research and development expenses as a percentage of revenue.
Clinical Operations Expenses
Clinical operations expenses are associated with the management of our provider network of therapists. Such costs are comprised of costs related to recruiting, onboarding, credentialing, training and ongoing quality assurance activities (inclusive of stock-based compensation for our clinical operations employees), costs of third-party services and contractors related to recruiting and training and software-related costs.
We expect clinical operations expenses will increase on an absolute dollar basis as we continue to grow our provider network and product offerings; however, the anticipated corresponding future revenue growth is expected to result in lower clinical operations expenses as a percentage of revenue.
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Sales and Marketing Expenses
Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, travel and stock-based compensation costs for our employees engaged in sales and account management. We expect our sales expenses to increase as we continue to invest in the expansion of our health plan and enterprise business. We expect to hire additional sales personnel and related account management personnel to properly service our increasing client base, to develop additional growth opportunities within existing clients and to develop new market opportunities.
Marketing expenses consist primarily of advertising and marketing expenses for consumer acquisition and engagement, as well as personnel costs, including salaries, benefits, bonuses, stock-based compensation expense for marketing employees, third-party services and contractors. Marketing expenses also include third-party software subscription services, third-party independent research, participation in trade shows, brand messaging and costs of communications materials that are produced for our clients to generate greater awareness and utilization of our platform among our health plan and enterprise clients.
Consumer marketing expenses are primarily driven by investments to grow and retain our consumer base and may fluctuate as a percentage of our total revenue from period to period due to the timing and extent of our advertising and marketing expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including salaries, benefits, bonuses and stock-based compensation expense for our executive, finance, accounting, legal and human resources functions, as well as professional fees, occupancy costs, and other general overhead costs. We expect to incur additional general and administrative expenses in compliance, legal, investor relations, director's and officer's insurance, and professional services related to our compliance and reporting obligations as a public company. We also anticipate that as we continue to grow as a company our general and administrative expenses will increase on an absolute dollar basis. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over the next several years.
Financial (income) expense, net
Financial (income) expense, net includes the impact from (i) non-cash changes in the fair value of our warrant liabilities, (ii) issuance costs related to our warrant liabilities, (iii) interest earned on cash equivalents deposited in our bank accounts and (iv) other financial expenses in connection with bank charges.
Taxes on income
Our taxes on income consists primarily of foreign income taxes related to income
generated by our subsidiary organized under the laws of
We have a full valuation allowance for our
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Results of Operations
The following table presents the results of operations for the three months endedMarch 31, 2022 and 2021 and the dollar and percentage change between the respective periods: Three Months Ended March 31, Variance 2022 2021 $ % (in thousands, except percentages, share and per share data) Consumer revenue$ 17,260 $ 18,564 $ (1,304 ) (7.0 ) Commercial revenue 12,890 8,593 4,297 50.0 Total revenue 30,150 27,157 2,993 11.0 Cost of revenues 15,129 9,814 5,315 54.2 Gross profit 15,021 17,343 (2,322 ) (13.4 ) Operating expenses: Research and development, net 5,035 2,964 2,071 69.9 Clinical operations 1,776 2,077 (301 ) (14.5 ) Sales and marketing 21,408 22,251 (843 ) (3.8 ) General and administrative 8,010 2,608 5,402 * Total operating expenses 36,229 29,900 6,329 21.2 Operating loss 21,208 12,557 8,651 68.9 Financial (income) expense, net (869 ) 173 (1,042 ) * Loss before taxes on income 20,339 12,730 7,609 59.8 Taxes on income 21 8 13 * Net loss$ 20,360 $ 12,738 $ 7,622 59.8 Net loss per share (1): Basic and Diluted$ 0.13 $ 0.93 $ (0.79 ) (85.7 ) Weighted average number of common shares (1): Basic and Diluted 154,083,443 13,762,205
* Percentage not meaningful.
(1) Prior period results have been adjusted to reflect the exchange of Old
Talkspace's common stock for
Revenues. Revenues increased by
We believe that the appeal of our technology platform, the quality of our providers and the cost of our services will continue to represent the primary drivers of revenue growth from B2B clients and B2C members.
Costs of revenues. Cost of revenues increased by
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Gross profit. Gross profit decreased by
Research and development expenses. Research and development expenses increased
by approximately
Clinical operations expenses. Clinical operations expenses decreased by
Sales and marketing expenses. Sales and marketing expenses decreased by
General and administrative expenses. General and administrative expenses
increased by
Financial (income) expense, net. Financial income, net was
Liquidity and Capital Resources
As of
Our primary cash needs are to fund operating activities and invest in technology development. Our future capital requirements will depend on many factors including our growth rate, contract renewal activity, the timing and extent of investments to support product development efforts, our expansion of sales and marketing activities, the introduction of new and enhanced service offerings, and the continuing market acceptance of virtual behavioral services. Additionally, we may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies.
We currently anticipate to be able to fund our cash needs for at least the next
twelve months using available cash and cash equivalent balances as of
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Cash Flows from Operating, Investing and Financing Activities
The following table presents the summary condensed consolidated cash flow information for the periods presented:
Cash Flows Three Months EndedMarch 31, 2022 2021
(in thousands)
Net cash used in operating activities
(88 ) (319 )
Net cash provided by financing activities 1,505 722
Net decrease in cash and cash equivalents
Operating Activities
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Contractual Obligations, Commitments and Contingencies
As of
Our commercial contract arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a client's data or if our service infringes a third party's intellectual property rights. To date, we have not incurred any material costs as a result of such indemnifications.
We have also agreed to indemnify our officers and directors for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by us, arising out of that person's services as our director or officer or that person's services provided to any other company or enterprise at our request. We maintain director and officer liability insurance coverage that would generally enable us to recover a portion of any future amounts paid. We may also be subject to indemnification obligations by law with respect to the actions of our employees under certain circumstances and in certain jurisdictions.
Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our condensed consolidated financial statements.
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Critical Accounting Policies and Estimates
The Company's condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
The Company's accounting policies are essential to understanding and
interpreting the financial results reported on the condensed consolidated
financial statements. The significant accounting policies used in the
preparation of the Company's consolidated financial statements are summarized in
Note 2 to those statements and the notes thereto found in the Company's Annual
Report on Form 10-K for the year ended
During the three months ended
Recent Accounting Pronouncements
Information regarding recent accounting developments and their impact on our results can be found in "Part I, Item 1. Financial Statements - Note 2 - Significant Accounting Policies" of this Quarterly Report.
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