Talkspace appoints new CEO, reveals layoffs as part of turnaround effort

The metamorphosis of digital mental health company Talkspace Inc. (Nasdaq: TALK) took another step on Tuesday.

Talkspace has named Dr. Jon Cohen as CEO, capping a year of leadership shake-ups. The company also disclosed that it laid off staff in the third quarter as part of its efficiency efforts. It will also accelerate its focus on its business-to-business (B2B) division.

Cohen joined Talkspace as a board member in September. He succeeds Board Chairman Doug Braunstein, who served as interim CEO.

Braunstein became interim CEO following the departure of founding CEO Oren Frank. Frank, along with co-founder Roni Frank, left the company a year ago after worse than expected financial results.

Shortly after the Franks left, Mark Hirschhorn, then chief operating officer, left after an internal review of his conduct.

New York-based Talkspace offers live, asynchronous virtual mental health services. The company went public in June 2021.

“I took on the role of CEO because I think we have a huge opportunity,” Cohen said on Talkspace’s third-quarter earnings call. “I am personally committed to expanding access to mental health care and have the utmost confidence in the long-term growth opportunities for Talkspace.”

In September, Talkspace investor Firstime Ventures singled out the company for the lack of a permanent CEO. The Tel Aviv-based investment firm is one of Talkspace’s major shareholders. He also expressed frustration that management had passed on multiple buyout offers.

Under Braunstein, Talkspace was widely seen as an acquisition target. Braunstein largely rejected the idea of ​​selling Talkspace. Instead, he said he was focused on improving business value through better performance.

Talkspace was worth around $1.4 billion when it went public in June 2021. The IPO gave Talkspace $250 million in working capital. Its market cap is now $121 million.

It is not yet known what other strategic initiatives Cohen will take at the start of his tenure as CEO. He did not give details on the earnings conference call when asked by an analyst.

During the third quarter, Talkspace made a number of other changes and additions to its management team.

He hired Katelyn Watson as chief marketing officer, replacing Samara Braunstein in the role. Samara Braunstein is the wife of Doug Braunstein.

He also hired Andrea Cooper as senior vice president of human resources; Richie Nguyen as senior vice president of network and provider operations; and Steven Dziedzic as product manager.

Cohen brings 30 years of healthcare experience to the role. He previously worked as Executive Chairman and CEO of BioReference Laboratories, a medical laboratory company. In this role, he led the development of home blood phlebotomy company Scarlet Health.

Scarlet Health serves leading telehealth companies. In July, BioReference Laboratories entered into a partnership with Teladoc Health (NYSE: TDOC).

He has also held leadership positions at Quest Diagnostics (NYSE:DGX) and Northwell Health.

Cohen is a vascular surgeon by education and training.

Driving efficiency

Talkspace’s efforts to stem losses continued into the third quarter and included layoffs.

“I would say that like many companies today, during our third quarter we did a thorough review of our cost base,” said Braunstein, who remains chairman of the company’s board. during the call. “As a result, we implemented headcount reductions and organizational changes early in the fourth quarter.”

He didn’t specify how many or what kind of Talkspace roles cut.

Talkspace united its B2B, business-to-consumer (B2C) and business-to-business-to-consumer (B2B2C) marketing teams and continued to reduce marketing costs, Braunstein said. He added that the company has made progress in managing the revenue cycle and its customer service operations.

Talkspace reduced its marketing spend by 30.5% year-on-year in the third quarter. It totaled $18.4 million. For the nine months of the year to date, marketing costs fell 22% to $58.7 million.

Marketing expenses drove most of Talkspace’s losses in 2021. They totaled $100.6 million, or about 63% of all expenses, according to its annual financial report.

Braunstein also said it has made improvements to Talkspace’s National Supplier Practice (NPP). The NPP is a provider framework of W-2 employees. Most of its suppliers are independent contractors.

“Although this network has been reduced, we have significantly improved the engagement of our [national providers] with members and we are selectively adding again to this network,” Braunstein said. “These actions also helped improve gross margins in the quarter.”

In late July, Talkspace forced dozens of nuclear power plant suppliers to move from full-time employees to contract roles. This came after rolling out higher workload standards, which some have called too high.

Talkspace’s shift to B2B and other numbers

B2B revenue fell to 57% of total revenue thanks to rapid growth and parallel declines in B2C revenue.

Talkspace has long signaled its shift to a greater focus on its B2B revenue.

“The big opportunity is B2B,” Cohen said. “My way of seeing [it] is not B2B versus B2C. I see it as ‘How can you get mental health counseling for as many… people as you can.’

“B2B is a much more efficient way to get the services they need than B2C.”

The B2B division is “the company’s largest and most profitable growth opportunity,” Talkspace CFO Jennifer Fulk said on the call.

Third quarter revenues totaled $29.3 million, an annual increase of 11.3%.

B2B revenue increased 117% to $16.8 million in the quarter. The increase in revenue corresponds to 111,400 B2B sessions completed during the quarter, a year-on-year increase of 56%. Talkspace services covered 56% more lives in the quarter, growing to 86.1 million.

The number of active B2C users fell to 17,900, a year-on-year reduction of 36%. This is linked to reductions in marketing expenses.

Talkspace posted a loss of $19.9 million in the third quarter. The company’s efficiency efforts reduced losses by 21% year-over-year. This translates to a loss of $0.11 per share in the third quarter.

The company slightly beat Yahoo Finance’s consensus earnings estimate of a loss of $0.12 and missed the revenue projection of $29.8 million.

Ongoing losses eat away at the company’s balance sheet. Cash was down 32% to $152.6 million in the third quarter. Talkspace ended the second quarter with $167 million and the year 2021 with $198 million.