Talkspace(TALK) - 2023 Q4 - Annual Report

Part I Business Talkspace offers virtual behavioral healthcare via its platform, connecting members with licensed providers across Payor, DTE, and Consumer channels, with 2023 revenue reaching $150.0 million driven by Payor segment expansion | Financial Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $150.0 million | $119.6 million | | Eligible Lives (Payor & DTE) | ~131 million | ~92 million | | Completed Payor Sessions | ~850,600 | ~426,400 | | Consumer Active Members | ~11,700 | ~15,400 | - The company serves clients through three main channels: Payor (health plans), Direct-to-Enterprise (DTE), and Consumer (direct subscriptions)[15] - Talkspace operates through Management Services Agreements (MSAs) with Talkspace Provider Network, PA (TPN) and other professional entities to comply with the corporate practice of medicine laws[34][35] - The technology platform uses machine learning for provider matching and has a vast dataset of over 7.2 billion words from anonymized messages and approximately 5 million completed psychological assessments[27][28] - As of December 31, 2023, the company's workforce included 472 employees and 5,235 independently contracted providers[39] Risk Factors The company faces significant risks including a history of losses, intense competition, reliance on contract renewals, and a complex regulatory environment - The company has a history of losses and may not achieve or sustain profitability due to substantial investments in client acquisition and technology development[80] - The business faces significant competition from other telehealth providers like American Well, Teladoc, and Lyra Health, as well as potential competition from large technology companies and retailers[90][91] - The company's structure, which relies on Management Services Agreements with affiliated professional entities, could be challenged under state laws prohibiting the corporate practice of medicine or fee-splitting[154][156] - Failure to comply with numerous federal and state privacy and security regulations, such as HIPAA, CCPA, and GDPR, could result in significant liability and reputational harm[167][169][176] - Material weaknesses in internal controls over financial reporting were identified for the year ended December 31, 2022, and while remediated, future weaknesses could impair the ability to produce accurate financial statements[204] Unresolved Staff Comments The company reports no unresolved staff comments - None[232] Cybersecurity Talkspace maintains a cybersecurity risk management program, overseen by the Audit Committee and managed by CISO/CTO, with no material incidents reported to date - The company has established policies for assessing, identifying, and managing material risks from cybersecurity threats, which are integrated into the broader enterprise risk management process[234] - Oversight is provided by the Audit Committee, which receives at least quarterly updates from management on security posture, risk mitigation, and material threats[243] - The company has not experienced any material impact from cybersecurity threats or incidents to date[242] Properties The company's headquarters are in New York, NY, with most employees working remotely, and no leased facilities are considered material - The company's headquarters are located in New York, NY, but the majority of its employees work remotely[247] Legal Proceedings The company settled securities class action and stockholder derivative lawsuits in February 2023, receiving final court approval in Q3 and Q4 2023 without admitting liability - The company settled certain class action lawsuits in February 2023, with final court approval granted in Q3 and Q4 2023. The company admitted no liability[248] Mine Safety Disclosures This item is not applicable to the company - Not applicable[250] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Talkspace common stock and warrants trade on Nasdaq, with no cash dividends paid or planned, and a $15 million share repurchase program approved in February 2024 - The company's common stock and warrants began trading on Nasdaq on June 23, 2021, under symbols "TALK" and "TALKW"[253] - The company has never paid cash dividends and does not intend to in the foreseeable future[256] - No shares of common stock were repurchased by the company during the fourth quarter of 2023[259] - On February 22, 2024, the Board of Directors approved a $15 million share repurchase program authorizing up to $15 million of the company's common stock over a 24-month period[261] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Talkspace's revenue grew 25.5% to $150.0 million, driven by Payor segment expansion, while significantly narrowing its net loss to $19.2 million and maintaining strong liquidity | Revenue Source | 2023 Revenue | 2022 Revenue | % Change | | :--- | :--- | :--- | :--- | | Payor | $80.8 million | $36.2 million | +123.5% | | DTE | $33.6 million | $28.2 million | +19.0% | | Consumer | $35.6 million | $55.2 million | -35.4% | | Total Revenue | $150.0 million | $119.6 million | +25.5% | | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Gross Profit | $74.4 million | $60.3 million | | Gross Margin | 49.6% | 50.5% | | Operating Loss | $(23.2) million | $(83.2) million | | Net Loss | $(19.2) million | $(79.7) million | | Adjusted EBITDA | $(13.5) million | $(58.7) million | - The decrease in operating expenses was driven by efficiency initiatives, with significant reductions in sales and marketing (-27.9%) and general and administrative (-41.2%) costs[296][299][300] - As of December 31, 2023, the company had $123.9 million in cash and cash equivalents and no debt[311] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its $123.9 million cash, deemed immaterial, with foreign currency risk also considered insignificant - The company holds $123.9 million in cash and cash equivalents and does not believe interest rate fluctuations would have a material effect on its business[331][332] - Foreign currency exchange risk is considered immaterial due to limited operations outside the U.S. and revenue being primarily in U.S. dollars[333] Financial Statements and Supplementary Data The 2023 consolidated financial statements, audited by Kost Forer Gabbay & Kasierer with an unqualified opinion, show a net loss of $19.2 million, with Payor revenue estimation noted as a critical audit matter - The independent registered public accounting firm issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[337][347] - The auditor identified the estimation of transaction price and variable consideration for Payor revenue recognition as a Critical Audit Matter due to the significant judgment and subjective assumptions involved[341][342] | Balance Sheet Item (As of Dec 31, 2023) | Amount (in thousands) | | :--- | :--- | | Total Assets | $142,221 | | Cash and cash equivalents | $123,908 | | Total Liabilities | $23,575 | | Total Stockholders' Equity | $118,646 | | Income Statement Item (Year Ended Dec 31) | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Revenues | $150,045 | $119,567 | | Gross Profit | $74,380 | $60,338 | | Net Loss | $(19,182) | $(79,672) | | Net Loss Per Share | $(0.12) | $(0.51) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[459] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with prior material weaknesses fully remediated - Management concluded that internal control over financial reporting was effective as of December 31, 2023[464] - The material weaknesses identified as of December 31, 2022, related to IT general controls and oversight, have been remediated as of December 31, 2023[466][469] Other Information No director or officer adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in the fourth quarter of 2023[470] Part III Directors, Executive Officers and Corporate Governance The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[474] Executive Compensation The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[475] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[476] Certain Relationships and Related Transactions, and Director Independence The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[477] Principal Accounting Fees and Services The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - Information is incorporated by reference from the 2024 Proxy Statement[478] Part IV Exhibits and Financial Statement Schedules This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-K, including key agreements and certifications - This section contains the index of all exhibits filed with or incorporated by reference into the Form 10-K[482][483] Form 10-K Summary The company indicates there is no Form 10-K summary - None[481]