Financial Data and Key Metrics Changes - Total revenue for Q2 2023 was $35.6 million, a 7% increase from Q1 and a 19% increase year-over-year [17] - Payer revenue reached $18.5 million, up 25% sequentially and 135% year-over-year, with session volumes increasing by 17% [11][17] - Adjusted EBITDA loss narrowed to $4 million, down 77% year-over-year, reflecting improved operational efficiency [15][20] Business Line Data and Key Metrics Changes - The consumer business continued to decline but at a slower pace, with an 8% sequential decrease to $9.1 million [56] - Direct to Enterprise (DTE) revenue was $8 million, down 7% quarter-over-quarter but up 20% year-over-year [12][18] - The psychiatric business for medication management is identified as a significant growth area, with ongoing marketing campaigns to increase awareness [10] Market Data and Key Metrics Changes - Approximately 12 million net new covered lives were added in Q2, contributing to a 42% increase in covered lives year-to-date [11][26] - Reports indicate a growing demand for mental health services, with 98% of respondents believing treatment should be covered by insurance [9] Company Strategy and Development Direction - The company is focused on four strategic initiatives: driving payer revenue growth, expanding direct to enterprise business, becoming the platform of choice for providers, and achieving profitable growth through operational excellence [11][15] - The company aims to achieve breakeven adjusted EBITDA by the end of Q1 2024, with a cash balance exceeding $100 million [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to meet the growing demand for mental health services and achieve profitability in the near term [4][24] - The company anticipates significant growth in the pipeline of new clients and is committed to enhancing user experience and clinical quality [30][31] Other Important Information - The company generated positive cash flow for the first time since going public, with cash increasing by $1 million since the last quarter [15][58] - Operating expenses decreased by 32% year-over-year, demonstrating effective cost management [19] Q&A Session Summary Question: Can you provide more details on the low utilization of lost clients? - Management noted that many small to medium-sized school districts utilized COVID funding for mental health services, and with that funding running out, these districts are reassessing their needs [41][62] Question: How are you thinking about gross margins in the long term? - Management indicated that gross margins are expected to remain stable at around 50%, driven by a shift towards the payer category and improvements in revenue cycle management [49][73] Question: Can you elaborate on the dynamics of your partnership with a large payer? - The partnership is characterized by a collaborative approach, with the internal sales team of the payer actively promoting Talkspace's services to their members [67][68]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Talkspace, a virtual behavioral healthcare company, offers psychotherapy and psychiatry services via B2B and B2C channels, with 2022 revenues of **$119.6 million** driven by B2B growth Key Operational and Financial Metrics (2021 vs 2022) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | **Revenues** | $119.6 million | $113.7 million | | **Completed B2B Sessions** | ~426,400 | ~273,700 | | **Total Active Members (Year-End)** | >62,000 | ~56,000 | | **B2B Eligible Lives (Year-End)** | >92 million | ~69 million | | **B2C Active Members (Year-End)** | >15,000 | ~24,000 | - The company serves clients through two primary channels: B2B (enterprise clients like Google, health plans like Aetna and Cigna) and B2C (individual consumers)[15](index=15&type=chunk) - In the second quarter of 2022, the company transitioned its provider relationships to a structure utilizing Management Services Agreements (MSAs) with Talkspace Provider Network, PA (TPN) and other affiliated professional entities to comply with corporate practice of medicine laws[37](index=37&type=chunk)[38](index=38&type=chunk) [Our Offerings](index=5&type=section&id=Our%20Offerings) Talkspace offers psychotherapy via text, audio, and video, and psychiatry services for mental healthcare and prescription management, excluding controlled substances - Psychotherapy services include text, audio, and video-based therapy through various individual, couples, and teen plans[23](index=23&type=chunk) - Psychiatry services are provided by board-certified psychiatrists and prescription-eligible nurse practitioners, who can prescribe medications but not controlled substances, in compliance with the Ryan Haight Act[16](index=16&type=chunk)[25](index=25&type=chunk) [Our Customers](index=5&type=section&id=Our%20Customers) The customer base includes B2B, covering **92 million eligible lives** through health plans and enterprises, and B2C, serving over **15,000 active members** across the U.S - As of December 31, 2022, the B2B channel covered approximately **92 million eligible lives** through health plans and enterprise clients[27](index=27&type=chunk) - As of December 31, 2022, the B2C channel had over **15,000 active members** across all 50 U.S. states and select international markets[29](index=29&type=chunk) [Technology Platform](index=6&type=section&id=Technology%20Platform) The technology platform leverages data science and machine learning for therapist matching, utilizes a vast data ecosystem, and provides HIPAA-compliant tools for enhanced behavioral health outcomes - A machine learning matching algorithm is used to predict provider efficacy and match patients with therapists based on characteristics, clinical needs, and preferences[31](index=31&type=chunk) - The platform's data ecosystem contains over **6 billion words** from **110 million anonymized messages** and approximately **4 million completed psychological assessments**, providing a multi-dimensional view of users[32](index=32&type=chunk) - The company maintains compliance with HIPAA and other legal requirements, obtaining regular Type II SOC 2 reports and retaining outside consultants for vulnerability assessments[30](index=30&type=chunk) [Competition](index=7&type=section&id=Competition) Talkspace faces intense competition from established telehealth platforms, large health systems, and potential new entrants from major technology companies in the virtual behavioral health market - Key competitors include American Well, Teladoc, Included Health, MDLive, BetterHelp, Lyra Health, and Headspace[35](index=35&type=chunk) - Potential future competition may arise from large technology companies (Apple, Amazon, Meta) and large retailers (Amazon, Walmart) developing their own virtual behavioral health solutions[36](index=36&type=chunk) [Human Capital Overview](index=8&type=section&id=Human%20Capital%20Overview) As of December 31, 2022, Talkspace employed **339 individuals** and contracted with **3,203 providers**, fostering a culture of respect, diversity, and continuous training Workforce Composition (as of Dec 31, 2022) | Category | Count | | :--- | :--- | | **Total Employees** | 339 | | Employee Providers | 129 | | Support Professionals | 210 | | **Independently Contracted Providers** | 3,203 | [U.S. Government Regulation](index=9&type=section&id=U.S.%20Government%20Regulation) Talkspace is subject to extensive U.S. federal and state regulations, including telehealth licensing, corporate practice of medicine, fraud and abuse laws, and critical data privacy laws like HIPAA and CCPA - The company must ensure its affiliated professionals hold valid licenses in the state where the patient is located, as failure to comply can lead to penalties and non-reimbursement[51](index=51&type=chunk) - The company's MSA structure is designed to comply with state laws prohibiting the corporate practice of medicine and fee-splitting, which are intended to prevent unlicensed entities from influencing a professional's clinical judgment[52](index=52&type=chunk) - The company is subject to numerous privacy laws, including HIPAA, HITECH, and the CCPA, which govern the use, disclosure, and safeguarding of protected health information (PHI) and other personal data; violations can result in significant civil and criminal penalties[63](index=63&type=chunk)[68](index=68&type=chunk) [Intellectual Property](index=13&type=section&id=Intellectual%20Property) Talkspace protects its intellectual property through patents, trademarks, copyrights, and trade secrets, holding one approved patent and one pending as of March 2023 - The company has one approved patent related to tracking therapeutic progress and one patent pending as of March 10, 2023[75](index=75&type=chunk) - Protection strategies include patents, trademarks, trade secrets, and confidentiality agreements with employees and consultants[74](index=74&type=chunk)[77](index=77&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) Talkspace faces significant risks including persistent net losses, intense competition, complex regulatory compliance, material weaknesses in internal controls, and potential Nasdaq delisting - The company has a history of significant losses and expects to continue incurring losses as it invests in growth, with no guarantee of achieving or sustaining profitability[91](index=91&type=chunk) - The company operates in a highly competitive industry, facing threats from specialized providers like Teladoc and BetterHelp, large health systems, and potential new entrants from big tech[96](index=96&type=chunk) - The business is subject to extensive and evolving government regulations, including laws on the corporate practice of medicine, fee-splitting, and data privacy (HIPAA, CCPA), which could increase costs or require changes to operations[163](index=163&type=chunk)[167](index=167&type=chunk)[181](index=181&type=chunk) - The company has identified material weaknesses in its internal control over financial reporting, which could impair its ability to produce accurate financial statements and affect investor confidence[224](index=224&type=chunk) - The company received a notice from Nasdaq in November 2022 for failing to maintain a minimum bid price of **$1.00 per share**, posing a risk of delisting[247](index=247&type=chunk) [Unresolved Staff Comments](index=45&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[255](index=255&type=chunk) [Properties](index=45&type=section&id=Item%202.%20Properties) Talkspace, primarily remote, secured a New York office sublease in Q4 2022, with no leased facilities considered material to its operations - In Q4 2022, the company entered into a long-term sublease for new office space in New York, NY[256](index=256&type=chunk) [Legal Proceedings](index=45&type=section&id=Item%203.%20Legal%20Proceedings) A settlement for class action lawsuits was reached in February 2023, with court approval anticipated in Q2 or Q3 2023 - A settlement was reached in February 2023 for ongoing class action lawsuits, with court approval anticipated in Q2 or Q3 2023[258](index=258&type=chunk) [Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[260](index=260&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=46&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Talkspace common stock and warrants trade on Nasdaq since June 2021; the company has not paid dividends and made no share repurchases in Q4 2022 - Common stock and warrants began trading on Nasdaq on June 23, 2021, under symbols "TALK" and "TALKW"[263](index=263&type=chunk) - The company has never paid cash dividends and does not plan to in the foreseeable future, retaining earnings for business development[266](index=266&type=chunk) - No shares of common stock were repurchased by the company in the fourth quarter of 2022[268](index=268&type=chunk) [Reserved](index=46&type=section&id=Item%206.%20Reserved) This item is reserved - None[255](index=255&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) For 2022, Talkspace reported **$119.6 million** revenue, a **5.2% increase** driven by B2B growth, but a **net loss of $79.7 million** and reduced gross margin due to strategic shifts Financial Highlights (2022 vs 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | **Revenues** | $119.6M | $113.7M | | **Gross Profit** | $60.3M | $66.8M | | **Gross Margin** | 50.5% | 58.7% | | **Operating Loss** | $(83.2M) | $(93.9M) | | **Net Loss** | $(79.7M) | $(62.7M) | | **Adjusted EBITDA** | $(58.7M) | $(60.9M) | - Revenue growth was driven by a **65.5% increase** in B2B revenue, while B2C revenue declined **26.2%** following a strategic decision to reduce related marketing spend[299](index=299&type=chunk)[300](index=300&type=chunk) - The company recorded a **$6.1 million** goodwill impairment charge related to the 2020 acquisition of the relationship counseling app "Lasting"[295](index=295&type=chunk)[307](index=307&type=chunk) - As of December 31, 2022, the company had **$138.5 million** in cash and cash equivalents and no debt[316](index=316&type=chunk) [Key Business Metrics](index=47&type=section&id=Key%20Business%20Metrics) Key business metrics for 2022 show B2B eligible lives grew to **92 million** and completed sessions to **426,400**, while B2C active members decreased to **15,400** Key Business Metrics Comparison | Metric (in thousands, except where noted) | 2022 | 2021 | | :--- | :--- | :--- | | Number of B2B eligible lives at year end (in millions) | 92 | 69 | | Number of completed B2B sessions | 426.4 | 273.7 | | Number of health plan clients at year end | 19 | 11 | | Number of enterprise clients at year end | 226 | 158 | | Number of B2C active members at year end | 15.4 | 23.8 | [Results of Operations](index=50&type=section&id=Results%20of%20Operations) In 2022, revenues grew **5.2% to $119.6 million** due to B2B, but a **$79.7 million net loss** resulted from increased cost of revenues and a goodwill impairment charge - B2B revenue grew by **65.5%**, driven by an increase in covered lives from health plans and 68 new enterprise clients[299](index=299&type=chunk) - Cost of revenues increased by **26.3%** primarily due to higher therapist compensation rates[301](index=301&type=chunk) - Sales and marketing expenses decreased by **27.6%** due to an intentional reduction in marketing spend for the B2C business[305](index=305&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Talkspace held **$138.5 million** in cash with no debt, despite **$61.1 million** net cash used in operations, anticipating sufficient liquidity for the foreseeable future Cash and Cash Equivalents | Date | Amount | | :--- | :--- | | December 31, 2022 | $138.5 million | | December 31, 2021 | $198.3 million | Summary of Cash Flows (Year Ended Dec 31, 2022) | Activity | Net Cash Flow | | :--- | :--- | | Operating Activities | $(61.1) million | | Investing Activities | $(0.3) million | | Financing Activities | $1.7 million | [Critical Accounting Policies and Estimates](index=54&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant judgment, including revenue recognition for B2B contracts, warrant liability valuation, stock-based compensation, and annual goodwill impairment testing - **Revenue Recognition:** The company estimates variable consideration for B2B contracts using the expected value method based on historical collection experience[333](index=333&type=chunk) - **Warrant Liabilities:** Private Placement Warrants are accounted for as liabilities and measured at fair value on a recurring basis using the Black-Scholes-Merton Model[334](index=334&type=chunk) - **Goodwill:** Goodwill is tested for impairment annually or more frequently if indicators exist; a **$6.1 million** impairment charge was recognized in 2022[338](index=338&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company has minimal market risk exposure, with immaterial interest rate and foreign currency risks due to its cash position and U.S. dollar-denominated revenues - The company does not believe a **100 basis point** change in interest rates would materially affect its financial condition[346](index=346&type=chunk) - Exposure to foreign currency risk is not material as the majority of revenue is in U.S. dollars[347](index=347&type=chunk) [Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2020-2022, with an unqualified audit opinion on financials but an adverse opinion on internal controls due to material weaknesses - The independent auditor issued an unqualified opinion on the consolidated financial statements, stating they are presented fairly in all material respects[352](index=352&type=chunk) - The independent auditor issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2022, due to material weaknesses[353](index=353&type=chunk)[364](index=364&type=chunk) - The auditor identified the estimation of transaction price with respect to variable consideration for revenue recognition as a Critical Audit Matter due to the complex and judgmental nature of the estimates involved[357](index=357&type=chunk)[360](index=360&type=chunk) [Consolidated Financial Statements](index=62&type=section&id=Consolidated%20Financial%20Statements) As of December 31, 2022, total assets were **$156.3 million**, total liabilities **$28.7 million**, with **$119.6 million** in revenues and a **$79.7 million** net loss Consolidated Balance Sheet Summary (As of Dec 31, 2022) | Category | Amount (in thousands) | | :--- | :--- | | **Total Current Assets** | $152,557 | | *Cash and cash equivalents* | *$138,545* | | **Total Assets** | **$156,254** | | **Total Current Liabilities** | $27,318 | | **Total Liabilities** | **$28,718** | | **Total Stockholders' Equity** | **$127,536** | Consolidated Statement of Operations Summary (Year Ended Dec 31, 2022) | Category | Amount (in thousands) | | :--- | :--- | | **Revenues** | $119,567 | | **Gross Profit** | $60,338 | | **Total Operating Expenses** | $143,496 | | **Operating Loss** | $(83,158) | | **Net Loss** | **$(79,672)** | | **Net Loss Per Share** | **$(0.51)** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=82&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with its accountants regarding accounting and financial disclosure - None[483](index=483&type=chunk) [Controls and Procedures](index=82&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of December 31, 2022, due to material weaknesses in ITGCs and internal control oversight, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses in internal control over financial reporting[485](index=485&type=chunk) - A material weakness was identified related to ineffective ITGCs, which in turn rendered dependent business process controls ineffective[490](index=490&type=chunk)[491](index=491&type=chunk) - A second material weakness was identified due to an inadequate process to monitor and provide oversight over the completion of internal control testing and assessment in a timely manner[491](index=491&type=chunk) - A remediation plan is underway, involving hiring additional personnel, developing an execution plan for testing controls, and establishing training and monitoring programs[495](index=495&type=chunk) [Other Information](index=84&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - None[500](index=500&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=84&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not Applicable[501](index=501&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=85&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[503](index=503&type=chunk) [Executive Compensation](index=85&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[504](index=504&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=85&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[505](index=505&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=85&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[506](index=506&type=chunk) [Principal Accounting Fees and Services](index=85&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[507](index=507&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=86&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and exhibits filed as part of the Form 10-K - This section contains the list of financial statements and the Exhibit Index[510](index=510&type=chunk)[511](index=511&type=chunk) [Form 10-K Summary](index=86&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company provides no summary under this item - None[509](index=509&type=chunk)

2 This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking, including statements regarding our financial condition, anticipated financial performance, achieving profitability, business strategy and plans, market opportunity and expansion and objectives of our management for future opera ...

Talkspace, Inc. (NASDAQ:TALK) Q4 2022 Earnings Conference Call February 22, 2023 8:30 AM ET Company Participants Jeannine Feyen - Director of Communications Jon Cohen - Chief Executive Officer Jennifer Fulk - Chief Financial Officer Conference Call Participants Lucas Romanski - Cowen Jack Senft - William Blair Stephanie Davis - SVB Securities Daniel Grosslight - Citi Operator Good morning. My name is Adra and I will be your conference operator today. At this time, I would like to welcome everyone to the Tal ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2022 was $29.3 million, down 2% sequentially, driven by strong momentum in the B2B payer business and DTE, offset by further softening in the B2C business [27][28] - B2B revenue was $16.8 million, up 15% sequentially, primarily driven by a higher number of sessions completed by behavioral health and EAP members [28][32] - B2C revenue was $12.5 million, down 18% from the second quarter, driven by a lower number of customer acquisitions and fewer renewals from smaller existing cohorts [28][29] - Gross profit was slightly up at $14.6 million, with a gross margin of 49.8%, an increase of approximately 100 basis points from Q2 [29][30] - The net loss for Q3 was $18 million, with an adjusted EBITDA loss narrowing to $15.5 million, an improvement of $1.5 million compared to the second quarter [31] Business Line Data and Key Metrics Changes - B2B revenue represented most of the company's revenue for the first time in Q3, with a year-on-year increase of over 65% [12][28] - B2C revenues declined quarter-on-quarter by 18%, marking the fourth sequential quarter of reduced advertising spend [14][22] - The enterprise franchise grew 62% year-over-year and 10% sequentially, with the addition of 10 new accounts [13][28] Market Data and Key Metrics Changes - The company added 9 million covered lives in Q3, which had a modest revenue impact due to the timing of these new lives [13][32] - The B2B segment is expected to continue growing, with strong session growth based on new lives and higher engagement [33][35] Company Strategy and Development Direction - The company is focused on moving towards cash flow breakeven, enhancing efficiency, and reducing operating expenses by approximately $4 million per quarter [19][30] - There is a strong emphasis on expanding the B2B business, which is seen as the largest and most profitable growth opportunity [36][61] - The leadership team has been strengthened with new hires in key positions, indicating a commitment to operational and financial discipline [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth opportunities for the company, particularly in expanding access to mental health care [9][25] - The macroeconomic conditions are seen as a headwind for B2C members, but the company believes that building coverage in the payer footprint will provide additional incentives for members to leverage health benefits [28][29] - Management expects continued strong session growth and engagement in the B2B segment, despite potential seasonal slowdowns [33][35] Other Important Information - The company maintains a strong balance sheet with approximately $153 million in cash as of September 30, which is believed to be sufficient to reach profitability [32] - The company is implementing product enhancements to improve margins and drive utilization across its platform [17][21] Q&A Session Summary Question: Customer acquisition costs expectations for Q4 - Management expects some additional modest pressure on customer acquisition costs (CAC) due to seasonal factors and reduced advertising spend [40][41] Question: Elasticity of the end market and inflationary environment impact - Management noted a shift towards insured products, which is anticipated to provide a competitive advantage and reduce out-of-pocket costs for consumers [44][45] Question: Clinical inefficiencies and network progress - Management reported improvements in engagement and efficiency within the W2 network, with plans to selectively add to the network in high-demand areas [46][48] Question: Enterprise and health plan adds for 2023 - Management indicated a strong pipeline for additional covered lives in 2023, with ongoing discussions and a robust backlog [50][52] Question: B2C side performance and ARPU - Management suggested that the decline in ARPU is not overly concerning and may be attributed to product mix optimization rather than a significant consumer pullback [54][55] Question: Jon Cohen's focus on B2B vs B2C - Jon Cohen emphasized that the primary opportunity lies in the B2B segment, while also recognizing the importance of reducing financial barriers for B2C services [63][64]

PART I. FINANCIAL INFORMATION This section provides the unaudited financial statements, management's analysis of operations and liquidity, market risk disclosures, and an assessment of internal controls and procedures [Item 1. Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows, along with explanatory notes [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets decreased to $175.6 million, primarily due to reduced cash, while total liabilities slightly increased and stockholders' equity declined to $142.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $152,639 | $198,256 | | Total current assets | $165,937 | $213,330 | | Total assets | $175,630 | $223,606 | | **Liabilities & Equity** | | | | Total current liabilities | $29,024 | $27,177 | | Total liabilities | $32,961 | $31,333 | | Accumulated deficit | $(232,895) | $(171,530) | | Total stockholders' equity | $142,669 | $192,273 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2022 revenues increased to $29.3 million, but the company reported a net loss of $18.0 million, widening to $61.4 million for the nine months ended September 30, 2022 Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $29,332 | $26,359 | $89,326 | $84,499 | | Gross Profit | $14,595 | $14,172 | $44,163 | $50,801 | | Operating (loss) | $(19,851) | $(25,227) | $(62,127) | $(65,345) | | Net (loss) income | $(17,983) | $1,505 | $(61,365) | $(41,674) | | Diluted EPS | $(0.11) | $0.01 | $(0.39) | $(0.64) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, net cash used in operating activities increased to $46.9 million, resulting in a $45.6 million decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(46,856) | $(41,109) | | Net cash used in investing activities | $(254) | $(622) | | Net cash provided by financing activities | $1,493 | $251,348 | | **Net (decrease) increase in cash** | **$(45,617)** | **$209,617** | | Cash at end of period | $152,639 | $222,865 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, revenue recognition, fair value measurements, and legal proceedings, notably the Q2 2022 transition to a consolidated Variable Interest Entity (VIE) structure for healthcare provider relationships - The company's revenue is disaggregated into B2B and B2C channels. For Q3 2022, B2B revenue grew significantly to **$16,800 thousand** from **$7,700 thousand** YoY, while B2C revenue declined to **$12,500 thousand** from **$18,600 thousand** YoY[39](index=39&type=chunk) - In Q2 2022, the company transitioned its relationships with healthcare providers into a Variable Interest Entity (VIE) structure. The company determined it is the primary beneficiary of these VIEs and has consolidated them in its financial statements[29](index=29&type=chunk)[72](index=72&type=chunk)[74](index=74&type=chunk) - The company is involved in securities class action and stockholder derivative lawsuits related to its merger with HEC. The company believes the lawsuits are without merit and intends to defend against them vigorously[54](index=54&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Q3 2022 financial performance, emphasizing a strategic shift to the B2B channel, which drove revenue growth despite reduced B2C marketing spend, and assesses liquidity and capital resources [Overview and Key Business Metrics](index=18&type=section&id=Overview%20and%20Key%20Business%20Metrics) Talkspace, a virtual behavioral health company, saw B2B eligible lives increase to **86.1 million** by September 30, 2022, while B2C active members decreased, reflecting a strategic channel shift Key Business Metrics (in thousands, except where noted) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | B2B eligible lives at period end (millions) | 86.1 | 56.6 | | Number of completed B2B sessions | 298.0 | 192.1 | | Number of health plan clients at period end | 17 | 11 | | Number of enterprise clients at period end | 215 | 139 | | Number of B2C active members at period end | 17.9 | 28.0 | [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q3 2022 revenues grew **11.3%** to **$29.3 million**, driven by B2B growth, while gross margin declined to **49.8%** and sales and marketing expenses decreased **30.5%** - Q3 2022 revenue growth was driven by a **117.3%** increase in B2B revenue, while B2C revenue fell **32.7%** due to an intentional and strategic decision to reduce marketing spend[108](index=108&type=chunk) - Gross margin for Q3 2022 decreased to **49.8%** from **53.8%** in Q3 2021, primarily due to a revenue shift to the B2B business, which generally has lower margins, and higher therapist compensation[112](index=112&type=chunk) - Sales and marketing expenses for Q3 2022 decreased by **$8.1 million** (**30.5%**) YoY, mainly due to a reduction in direct marketing and promotional costs for the B2C business[118](index=118&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2022, the company held **$152.6 million** in cash with no debt, and management expects current balances to fund operations despite **$46.9 million** net cash used in operations - The company held **$152.6 million** in cash and cash equivalents as of September 30, 2022, down from **$198.3 million** at the end of 2021[124](index=124&type=chunk) - Net cash used in operating activities for the nine months ended September 30, 2022, was **$46.9 million**[129](index=129&type=chunk) - Management expects to be able to fund cash needs for at least the foreseeable future with available cash balances[126](index=126&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There were no material changes to the market risk disclosures previously provided in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - There were no material changes to the information on market risk during the nine months ended September 30, 2022[141](index=141&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of September 30, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting[143](index=143&type=chunk) - Identified material weaknesses relate to: (a) aggregation of open control deficiencies, (b) general IT controls for user access and change-management, and (c) controls over accounting for complex financial instruments such as warrants[144](index=144&type=chunk) - Remediation plans are underway, including implementing a new ERP system, expanding the finance and IT teams, improving processes for complex accounting, and engaging outside resources to assist with internal controls[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) PART II. OTHER INFORMATION This section details legal proceedings, updates on risk factors, and lists exhibits filed with the quarterly report [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings arising from normal business operations, with specific details on securities class action and stockholder derivative lawsuits provided in Note 5 - The company is party to various legal proceedings. For details, the report refers to Note 5, "Commitments and Contingent Liabilities"[154](index=154&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - During the nine months ended September 30, 2022, there were no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[155](index=155&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the quarterly report, including CEO and CFO certifications and Inline XBRL data files - The report includes CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350, as well as Inline XBRL documents[160](index=160&type=chunk)

Talkspace, Inc. (NASDAQ:TALK) Q2 2022 Earnings Conference Call August 8, 2022 5:00 PM ET Company Participants Mike Lovell - Senior Director, Investor Relations Doug Braunstein - Chairman & Interim Chief Executive Officer Jennifer Fulk - Chief Financial Officer Conference Call Participants Jack Senft - William Blair Anna Kruszenski - SVB Securities Operator Ladies and gentlemen, thank you for standing by. And welcome to Talkspace Second Quarter First Half 2022 Earnings Conference Call. All lines have been p ...

Therapy tools na. 4 ml 1 hry Reminders Rooms Sharon Adams H., 11:00 PM I understand hew this would talk spa 2022 Second Quarter and First Half Earnings Presentation August 8, 2022 Disclaimer 2 This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking, including statements regarding our f ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-39314 TALKSPACE, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 84-4636604 (State or oth ...