Talkspace - Earnings Call - Q2 2025

Transcript

Speaker 5

At this time, I'd like to welcome everyone to the Talkspace second quarter 2025 earnings call. The press release and presentation of earnings results can be accessed on Talkspace's IR website. The presentation will be used to walk you through today's remarks. Leading today's call are CEO, Dr. Jon Cohen, and CFO, Ian Harris. Management will offer their prepared remarks and then take your questions. Chief Technology Officer, Gil Margolin, will join for the Q&A and Q&A answer session of today's call. Certain measures that will be discussed on today's call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of one-off items. Reconciliations of the non-GAAP measures are included in the earnings release and on the website, talkspace.com.

As a reminder, the company will be discussing forward-looking information today, which may include forecasts, targets, and other statements regarding plans, goals, strategic priorities, and anticipated financial results. While these statements are represented by the company's best current judgment about future results and performance as of today, actual results are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Important factors that may affect future results are described on Talkspace's most recent SEC reports and today's earnings press release. For more information, please review the Safe Harbor disclaimer on slide two. Now I will turn the call over to Dr. Jon Cohen.

Speaker 0

Good morning, and thank you for joining the call today to review our second quarter results. We made meaningful progress on several initiatives across the business and added a number of new wins and renewals in the quarter. As I've mentioned before, nearly two-thirds of the American population now have access to Talkspace through their healthcare insurance at no or minimal cost. Recently, we further broadened our reach with the launch of several additional large Blues plans to include Texas, Illinois, and Idaho, adding another 16 million covered lives. With so many people now having access, our 2025 priorities have been oriented around bringing more of them to Talkspace and keeping them on the platform. Our strategy in the first half of the year was to increase our marketing efforts, as well as to make meaningful investments in our product to achieve that goal.

This includes major improvements across the member journey, from increasing eligibility and checkout rates to optimizing therapist matching, streamlining booking and scheduling, strengthening retention between sessions, and enhancing care quality by keeping members actively engaged in their therapeutic journey. As a result of our actions, we saw positive momentum from these investments during the quarter. Unique active payer members grew 10% sequentially, an increase of approximately 10,000 members from Q1, the largest quarterly increase we've seen in two years, and an increase of 25% year over year. Building on the momentum in the last few quarters, payer sessions also benefited, increasing 10% sequentially and 29% year over year. We view the strength in these KPIs as indicators of positive momentum heading into the back half of 2025.

Earlier this year, we announced that we are live in all 50 states for traditional Medicare, and we continue to be added in network across more Medicare Advantage plans. As with any new demographic, we are being prudent in navigating how to best engage this new population early on, but are seeing the results of our efforts as Medicare registrations continue to grow month over month. On our last call, we also discussed that we had rolled out additional military coverage with the launch of TRICARE West. We remain focused on bringing Talkspace to as many active-duty military members and their families as possible and are pleased with how this population is adopting Talkspace. Our targeted approach to expanding these military communities has so far proven successful and cost-effective. Given the importance of community for military families, we have taken a more localized approach to marketing.

We've expanded our digital community grassroots efforts on the ground by working with organizations in areas with high base concentration. Our success in delivering therapy to this population is reaffirmed with our renewal of our separate direct-to-enterprise contract with the US Navy, delivering services to six naval bases around the country. Our pipeline for direct-to-enterprise clients remains strong, with a number of contracts working their way through, as well as several new wins and renewals, including InjuryRx, a large personal injury telemedicine platform. On the traditional employer side, new opportunities have taken longer to close in the first half of the year than anticipated, but we experienced a particularly strong quarter for mid-market renewals, which outperformed our expectations. The mental health crisis for youth remains a national challenge and is still a top priority for schools and state and local governments, which is reflected in our robust pipeline.

We continue to make progress in this segment, most recently adding the University of Alaska Anchorage, Cattahoochee Valley Community College, and the State of North Carolina, each of which will launch in Q3. Our relationship with North Carolina will be to serve as many as 20,000 youth impacted by the legal system, including teens who may have personally been detained or court-involved, teens who have experienced living with victims of crime, or who are otherwise identified as at-risk, such as those with incarcerated family members. With these numerous recent launches and a promising pipeline of opportunities, we expect to see direct-to-enterprise grow in Q3 and Q4. As part of our efforts to actively leverage multiple channels to raise awareness and drive members to our solution, we built on our existing partnerships and launched several new ones in the quarter.

Specifically, we deepened our relationship with Amazon by launching our integration with Amazon Pharmacy. Now, members can seamlessly fulfill prescriptions from their Talkspace provider through Amazon Pharmacy and get fast, free home delivery, making the process more convenient for the patient and streamlining medication management and adherence support for providers. Also, in July, we announced a new partnership with Tia Health, a women's health company focused on providing integrated, personalized care, establishing Talkspace as Tia's primary therapy partner, whereby we provide integrated mental health care that supports women across all stages of life. Talkspace will be working closely with Tia's primary care providers to ensure seamless and comprehensive care that addresses both physical and mental wellness. This new relationship represents Talkspace's continued expansion into the women's health space, along with our OVF Health collaboration and our existing EverNow partnership.

We look forward to continuing to identify like-minded partners focused on the shared mission of enhancing patients' mental health wellness, along with physical wellness. This approach allows us to benefit from the overlapping audience to drive awareness and also cross-referrals for the continuity of care. Turning now to an update on our many innovations centered around AI. This year, we made meaningful investments in AI across the business, rolling out a number of tools and initiatives aimed at making the therapy journey stickier and supporting our providers in our mission to deliver the highest quality of care to our members. Since the March launch of TalkCast, which is the AI-powered program that generates personalized podcasts for patients, allowing them to reflect on topics they discussed in sessions with their therapists, we are seeing a positive impact.

When a member opens a TalkCast episode after their first session, they are 14% more likely to complete a second session and 29% more likely to complete a third. These podcasts keep patients more engaged between sessions, helping them to better understand their therapy learnings. On the provider side, our use of AI continues to drive efficiency gains for our therapists. This quarter, we launched AI-powered Smart Evaluation, a tool that automatically generates high-quality intake documentation for first sessions. This saves providers 10 to 15 minutes of manual documentation and allows them to focus on what is most important: building a relationship with the patient in front of them. In partnership with the AWS Generative AI Innovation Center, we are developing a foundational safety and quality model to analyze therapy sessions for both clinical quality and clinical risk.

We've long maintained high clinical quality standards, and by integrating this AI with our proprietary risk algorithms, we can now scale those standards even further, adding new capabilities and efficiencies that were previously out of reach. This enables us to deliver consistent, high-quality care at greater scale while continuing to prioritize safety, outcomes, and patient experience. This new safety and quality model creates a durable competitive advantage by combining two of our unique and valuable assets: our extensive data bank and our deep clinical expertise. The combination of expert clinical judgment, powered by vertical-specific AI applied to vast amounts of real-world data, will further delineate our behavioral health platform and our network, strengthening our position and establishing a responsible framework for future innovation in behavioral health. We also expect that it will increase retention for our members.

We also continue to make improvements to our suicide detection technology, further refining the risk algorithm and expanding it to other areas of concern, such as substance misuse and abuse and neglect. Further, we retrained it on newer data, which is important, so it can stay up to date on how people actually talk. As a result, the new algorithm is measured to be 92% accurate, up from 83%. Last quarter, I announced that we were building a system of foundational large language models specifically for behavioral health. Unlike existing horizontal general-purpose LLMs, we are working closely with mental health clinicians experienced with evidence-based therapeutic frameworks, and we are training these models utilizing our own unique in-house de-identified clinical dataset. This is one of the largest mental health datasets consisting of millions of therapeutic interactions that occurred on the Talkspace platform over the last 12 years.

Talkspace behavioral health LLMs are being developed specifically to understand the language, complexity, and workflows of mental health delivery. Once up and running, these behavioral health LLMs will be an integral part of how we provide higher quality care to our Talkspace members. The AI platform will not only enhance existing Talkspace services, but also serve as a launchpad for future AI applications and behavioral health services, such as risk assessment tools, integrated tools that embed behavioral health intelligence into primary care workflows, structured intake systems, personalized routing to appropriate care levels, and enhanced client engagement tools. Our foundational models won't just power the next generation of features on our platform, but will unlock an entirely new ecosystem of applications for mental health.

We're making solid progress on this important initiative, and although still in the early stages of development, we expect to have an initial version available later this year. We are very bullish on the prospects of this initiative and are deploying CapEx investments to accelerate our progress. I'm pleased with the work our team has done in the second quarter and feel that we've set ourselves up for success in the second half of the year. Now, I'll turn the call over to Ian to review the financials in more detail.

Speaker 4

Thanks, Jon, and good morning, everyone. In the second quarter, we saw an acceleration in our payer revenue and overall growth, driven by strong momentum in the engagement of unique active payer members and payer sessions, indicating that our technology and marketing investments early in the year are bearing fruit. On today's call, I'll review our quarterly results in detail, touch on our financial outlook, and discuss some of the assumptions supporting growth in the back half of the year. Starting with second quarter results, total revenue of $54.3 million increased 18% compared to the second quarter of last year, an acceleration from Q1 and a trend we expect to continue throughout the rest of the year. Payer revenue, that is, revenue driven by consumers using Talkspace with their insurance benefits, was $40.5 million, representing growth of 35% year on year and continues to be our primary growth driver.

We conducted over 385,000 therapy sessions with our payer members, representing a 29% increase year on year, and had over 111,000 unique payer members active in the quarter, which was up 25% compared to a year ago and up 10% sequentially. As Jon mentioned, the approximately 10,000 additional active users is the largest sequential increase in over two years, reflecting the success we are seeing from our product and technology enhancements, as well as our efficient deployment of marketing investments. Our direct-to-enterprise revenue in the second quarter of $9.4 million was down 2% compared to a year ago. While we experienced better-than-expected renewal rates in the quarter, the timing of new wins took longer to close than expected.

Several large deals we had expected to sign earlier in the year we did close on in the quarter, however, they closed towards the end of June and into July and will launch in Q3, helping to provide visibility in direct-to-enterprise growth for the second half. Overall, the pipeline remains robust, and there's been a notable pickup in the momentum of our discussions. Consumer revenue from people paying out of pocket was $4.4 million in the quarter versus $6.5 million a year ago, as we now cover most Americans via in-network benefits, which naturally shifts checkout mix away from consumer and towards payer. Before I touch on adjusted gross profit, I want to flag one change in our financial presentation this quarter.

Based on SEC guidance, this quarter we consolidated our depreciation and amortization expense into its own operating expense line, solely removing it from costs of revenues where we had previously recognized certain cloud computing costs. As such, we've reclassified historical periods to be apples to apples with the new presentation. This change does not impact our net results. Adjusted gross profit was $23.4 million in the quarter, an increase of 11% year on year. Gross margin was 43.1% compared to 45.7% a year ago, primarily reflecting the continued shift in our overall revenue mix towards the faster-growing payer business. In Q2, we also experienced a slight headwind to gross margin as a result of greater-than-normal hiring in our W2 provider network. New hires carry a cost while we onboard and train the therapists prior to them having an active caseload with clients.

This hiring class was larger than normal, given the increased payer sessions we anticipate for the second half of the year as a result of our successful efforts in growing our user base. Total operating expenses of $25.2 million increased approximately $600,000 versus the prior year and about $700,000 sequentially. The sequential increase was due mostly to non-recurring items, and the year-over-year increase was driven by a $1 million increase in sales and marketing. As a percentage of total revenue, OpEx represented 46.4% in this quarter compared to 53.3% a year ago, demonstrating the scalability inherent in our model. We've been pleased with the performance of our marketing efforts. With the overwhelming majority of our visitors now in network, we saw CAC improve in the quarter, both sequentially and as compared to last year. GAAP net loss of $500,000 was flat year over year.

Adjusted EBITDA of $2.3 million compared to $1.2 million in the second quarter of last year, an increase of 93%. Turning to the balance sheet, we ended the quarter with $103 million in cash and cash equivalents, including available for sale securities. This was down $5.6 million sequentially as a result of working capital timing, as well as our CapEx investments in our AI initiatives. In Q2, we also bought back approximately $1.4 million of stock, bringing total repurchase activity year to date to $8.4 million. Since our initial authorization program was announced last year, we've repurchased approximately $19.4 million in total. Finally, turning to our guidance for the rest of the year, we are reiterating our full-year outlook of revenue between $220 million and $235 million and adjusted EBITDA of between $14 million and $20 million.

Let me provide you with a little more insight into the assumptions supporting our view for growth in the back half. In our payer business, we expect continued annual growth in the 30%+ range. As we've discussed in the past, we've been making significant technology and product investments to improve our member journey, ultimately making it easier to find and stay in care. We've also increased our marketing investments for 2025, where we continue to see efficient spend, as I mentioned. The success of these two workstreams is apparent to us in key KPIs, such as unique active users and payer session growth. The Q2 increase in users gives us strong visibility into the second half, given the predictable retention curves and longer-tailed revenue profile of a payer user relative to our legacy consumer model.

The product and funnel optimizations will continue to pay dividends and drive new user growth through the rest of the year. As Jon mentioned, we also added three Blues plans recently, representing an additional 16 million people. Blue Cross Blue Shield of Texas went live in June, and Blue Cross Blue Shield of Illinois went live just this past week. Both will have a positive contribution as we work to engage those populations through the rest of the year. For DTE, we continue to expect growth on a full-year basis in 2025. As mentioned, we outperformed our assumptions in terms of renewing with existing clients in the first half of the year. However, the timing of new wins and implementation of those deals were somewhat delayed into Q3 and Q4.

Some of the recent announcements we've made of certain large wins, like InjuryRx and North Carolina, are just two examples of such deals, and we expect continued momentum of closings and implementations through the rest of the year, which will contribute both to DTE revenue and adjusted EBITDA. Expanding on EBITDA, as we alluded to on the past two calls, increased marketing investments was expected to weigh on OpEx in the first half. Sales and marketing expense in first half 2025 was approximately $2 million higher than in the first half of 2024. The revenue increases we expect in payer and DTE should come with little to no incremental OpEx. This will help to drive the operating leverage we anticipate in the second half. Further, in June, we implemented a program of further operational efficiencies, which will drive even more G&A savings.

The combination of the visibility we have in accelerating top-line growth and our G&A savings initiatives gives us the confidence to maintain our EBITDA range. To wrap up, we anticipate that the investments in operations and marketing we made in the first half will translate into continued momentum through the second half of the year. We look forward to keeping you updated on our progress. With that, operator, let's open the call for questions.

Speaker 5

To ask a question, simply press star one on your telephone keypad. Our first question comes from the line of Richard Collamer Close with Canaccord Genuity Corp. Please go ahead.

Yeah, thanks for the questions. Congratulations on all this success. Maybe to start off, Ian, just since we just covered the guidance, can you just give us your thoughts in terms of, I guess, especially on the EBITDA, you know, how you're thinking about the lower end of the range, what does that contemplate versus getting to the higher end of the range?

Speaker 0

Hey, Richard, good morning. Yeah, I mean, I think it's like every quarter and every year, it's always a trade-off between balancing near-term profitability and also making sure we're laying the groundwork for medium and longer-term growth, right? There are levers at play for us, which we look at each quarter, right? The marketing piece being the most variable of the two, where should we wish to drive profitability and potentially sacrifice some future growth, we could do that. A lot of it, candidly, is a function of what the market environment is providing us and sort of where the ROI is on those dollars. I think what I'm hoping you take away from today's call is that Q2, I alluded to some of the CAC improvements we saw, Q2, the market environment was really, really favorable.

It increased both sequentially and year on year in terms of the efficiency we're seeing with our marketing spend. Part of that is what we're doing day to day with the marketing team. A lot of that is, and hopefully this was clear in the prepared remarks, all of the product and technology tweaks, investments, new funnels, removing friction, and making it a much easier member journey and therefore increasing conversion. Those are changes that are not one-time in nature, right? We bear the sort of dividends from those optimizations into perpetuity. Also, candidly, it's just a structural issue where the more in-network lives we get, by definition, the more traffic, the greater percentage of traffic coming to our site will be eligible, will be in network, and will flow through to that higher LTV bucket that we have of payer. We're keeping the ranges as they are, Richard.

I suspect in next quarter, maybe I'll be in a position to give a little bit more detail on how we're seeing the year, but that flexibility is something that we want to retain to give ourselves sort of maximum optionality. What I want you to hear is the growth prospect is very strong for us, and that's continued in July. In terms of that trade-off I alluded to, we're keeping our foot on the gas.

Okay, that's helpful. Maybe just diving into the Medicare a little bit in a little bit more detail. Just an update there. Obviously, you have another quarter under your belt and some expanded MA relationships, it sounds like. Just, you know, maybe details on how you think that initial outreach is going. You said registrations were trending well. Maybe a little bit more detail would be helpful.

Yeah, nothing is, Jon. Nothing much different except that it continues to grow month over month, and we continue to explore different states. MAs are first coming in, as I've stated, and the Medicare Advantage plans that are reaching back out for us to be in network. We continue to refine our marketing efforts around how we approach the populations. We've tried a whole bunch of things, as you know, the first two quarters, but it continues to evolve in a positive sense.

Okay. I'll jump back in the queue. Thank you and congratulations.

Thanks, Richard.

Speaker 5

Your next question comes from the line of Robert Brooks with Northland Capital Markets. Please go ahead.

Hey, good morning, guys. Thank you for taking my question. All your KPIs in relation to utilization within the payer segment notably accelerated during the second quarter, which you guys described. I think that dovetails well with your commentary from the first quarter call that March and April saw very strong new user signups. I'm curious to hear on two things. First, did the momentum in new user signups continue through the second quarter and into July? Secondly, were those new user signups the major dynamic driving this uptick in utilization?

Speaker 0

Hey, Bobby. Thanks for the question. The short answer is yes. It wasn't like a lump sum in March that we then milked. If anything, it was actually accelerating throughout the quarter, which is to say we exited June at a higher user base run rate, which we did not benefit yet from in terms of revenue. We've seen that trend sort of continue into July.

Got it. That's a very helpful call. The average revenue per payer session declined a bit sequentially. I was curious if that was mostly just maybe a result of mix with more 30-minute sessions versus 60-minute sessions. Maybe that mix change also ties into the sequential change in gross margins.

On the implied revenue per session, it was up 5% year on year. You're right, it was down a couple bucks per session sequentially. It's primarily driven by payer mix. Within each payer, to your point, it's session duration and exactly what types of codes are most prevalent. It's also, you know, with our nationally contracted rates, if we, for example, embed and roll out a new directory with a certain payer and they become a larger sort of driver percentage of the pie, that can have an impact. Secondarily, but still sort of a material impact, we, along with a lot of the product improvements we did this quarter, have done a lot of predictive analytics in anticipating no-show and late cancellation fees. We did a much better job in anticipating those and through our product, getting out in front of them and rescheduling.

Historically, if we were to incur that no-show session and there's a revenue or a fee associated with that, that'd be very high margin revenue, but no accompanying session in the denominator. The fact that we've been able to mitigate that will hit us on that revenue per session metric you're alluding to, but obviously improve us on retaining that customer, right? You can imagine your DLTV is likely to be cut short if there's cancellation fees involved. Ultimately, it shows up in our higher session number overall.

Got it. Super helpful call. Just the last one for me, you guys, I think, Jon, you spent a bit of time towards the end of your prepared remarks talking about, you know, these LLM models and you're thinking something should be out later this year. I was just trying to get a sense of, and I definitely can understand how much value that could bring to other therapists, but I was just kind of curious, like, is that something that you would look to maybe sell externally or license that software, or is that something that's just going to be used within the Talkspace ecosystem?

I would say any and all of the above, depending on what happens. Our view right now is to build the model with our substantial database. Once the model is built, we have certainly described internally at least eight or ten major possible use cases. Beyond that, whether or not someone would come to us to license it, someone would come to us to partner with it, there are some other use cases that I'm sure will evolve that we haven't thought about yet. All of that is possible and on the table. The plan right now, though, is to build it and then begin to see what happens after that occurs.

Fair enough. Makes a lot of sense. Congrats on the great quarter, guys. I'll return to the queue.

Thank you.

Speaker 5

Your next question comes from the line of Ryan Daniels with William Blair. Please go ahead.

Hey, this is Matthew Mardula on for Ryan Daniels. In your prepared remarks, you mentioned DTE to grow in Q3 and Q4. In the last two quarters, we saw a decrease, roughly 3% year over year. How should we see the back half, and should we see it as positive year-over-year growth? If so, how much of an impact should it have?

Speaker 0

Yeah, hey Matt. I would point you to the comments. On a full-year basis, we still see growth there. Think of it as like low single-digit % growth year on year. I would say Q3, Q4 cadence, it would be ramping from here through the end of the year. We're exiting 2025 at a much higher run rate. On the Q1 and Q2, like we said, renewal rates with existing customers surprise us to the upside versus what we were forecasting. A lot of our larger new clients and ARR wins, like a couple that we called out here, in particular when we're dealing with sort of public entities and schools and municipalities, you can imagine the sales cycle on those is a little bit harder to predict. The takeaway, I think, is better than anticipated renewal rates. Still very strong pipeline.

Things that I thought were going to land in Q2 end up landing in Q3, July, August go lives. You didn't get the benefit of that in Q2, but like any sort of SaaS ARR book of business, it's a backlog and a pipeline that we monitor very closely. We're finally starting to see a lot of those bigger deals convert here in July and August. There is a higher degree of visibility for Q3 and Q4 to be sure.

Great. Thank you for that. With the desire to move more towards payer revenue, and you mentioned you're prepared to market in a kind of 30%+ growth rate in the back half, how has competition been in that space recently? Have you seen it maybe become harder to attract or retain patients? Any color into that would be great to hear as well.

Yeah, as I've stated before, I don't, you know, you always think about the competition, but quite honestly, the TAM, the market on the mental health, is so large that we continue to look at it as continuing to grow the market as opposed to, you know, what competitors are doing, quite honestly, because there is so much need out there that what you're seeing on our side, the growth is being fueled by a huge number of people coming to Talkspace for the need for mental health services. It's not really, we're not seeing much on the competitive side that's having any impact on us, quite honestly.

All right, great. Thank you so much, and good luck for the rest of the year.

Thanks.

Speaker 5

Your next question comes from the line of Ryan Michael MacDonald with Needham & Company. Please go ahead.

Hi, thanks for taking my questions, and congrats on the great progress with the payer member lives added. As we think about those, that record number of adds quarter over quarter, can you talk about what the rough mix of those adds was between commercial versus Medicare? Just trying to understand how much runway there is on the commercial side versus, you know, momentum from the added Medicare lives.

Speaker 0

Hey, Ryan. Yeah, I mean, we had positive contributions both from Medicare, and then I would say even more so from military, which we've alluded to, sort of how positive we feel about that segment. I know we investors focus on these two groups because they're new and sort of easy callouts. To answer your question, the vast preponderance of our growth came from our core commercial. The runway within, sort of, I don't know what you want to call it, core Talkspace, sort of pre-Medicare, pre-military, is still really substantial. Tons of white space, and that's where most of the growth is coming from. Obviously, the growth rates on Medicare and military are quite substantial, but, you know, smaller starting points given they're newer.

Helpful callout. Thanks, Ian. Maybe a question on AI. Great to hear about all the innovations that are occurring, but we've started to see more and more states come out with regulations either severely limiting or banning or creating a lot of requirements and sort of guardrails around the use of AI in mental health care. Illinois, I think, was the most recent one. Just curious, you know, especially given that you just launched in Illinois with the Blues plan, was there any adjustments that you had to make to the product or parts of the product that you weren't able to use in a state like that where there are these regulations? How should we just think about sort of the impact these regulations could have on the offering moving forward?

It's a great question, actually. There's a lot of discussion and noise around what AI therapy could look like, and a lot of significant nervousness on the part of a whole bunch of groups relative to what that might be in the future. You're seeing it in Illinois and a bunch of other states, somewhat of a reaction to some other, what I'll call bad occurrences that have already happened. Our view is, first off, we're not out there. We're not saying we're not supporting what's going on currently. Our view is that any AI therapy assistant, partner, coordinator, or otherwise, whatever you want to describe it, needs to have two significant other added qualities. One, it needs to and must have clinical oversight by licensed and real clinicians that are looking to see what's happening.

The second is we are continuing to evolve to believe that it should and may need to exist in a HIPAA environment to protect patients and protect their privacy. Those two issues have not been addressed yet, but we do believe, as one of the leaders of the space, that those should be probable requirements as people move forward to deliver care in any manner, whatever the AI mental health support is. Those two issues we believe are foremost to deliver a quality product.

Great. Thanks for the call.

Speaker 5

Your next question comes from the line of Charles Rhyee with TD Cowen. Please go ahead.

Yeah, thanks for taking the questions. I'd like to just follow up on maybe the guidance, Ian, and think about sort of the how should we think about revenues in terms of cadence, perhaps between third quarter and fourth quarter, particularly as we're thinking about the range for the full-year guidance. You talked about some direct-to-enterprise signings a little bit later. It sounds like we're going to expect some ramp time. Any kind of sense you can give us between sort of relative weighting between third quarter and fourth quarter would be helpful to start.

Speaker 0

Yeah, hey Charles. I think consistent with what we've been saying throughout the years, 2025, we expected consistently ramping growth throughout the year, right? We put up 15% consolidated top line in Q1. That accelerated in this Q2 to 18%. What I'm hoping folks hear is that DTE, there's conversion happening, and actually some of it got pushed to Q3, right? Q3 is going to be a beneficiary of the delays we experienced in Q2. More importantly, perhaps it depends on materiality to the growth metrics. We're exiting Q2 at a higher clip than the sort of full quarter would imply. 15, 18, I would then, depending on what your full-year number is, look at full, sort of consistently increasing growth in Q3 and Q4. Q4 we'll definitely be exiting at the highest run rate we've been at in 2025 overall. I wouldn't do like a 50/50 straight line.

Maybe it's a 48/52 type of cadence.

The visibility that you have on that, thank you for that. That's helpful.

Yeah.

Is it clearly from what you kind of talked about earlier, that you have these launches, you see what the ramp looks like, or are there things that still have to kind of play out to get visibility on that?

Yeah, so the new launches I just want to call out because they are so large, right? Give or take, they're both respectively Illinois and Texas, both represent about 7 million, right? So throw in Idaho and it's 16 million. That's certainly a positive contributor. It's obviously much more so the user base increase we had in Q2, 10,000 unique active payer members, 10,000 increase versus Q1. That's the highest nominal increase we've had in over two years. We have, this is sort of the beauty of the payer model. It's a much longer retention, much longer revenue associated with each payer member, given the retention we know and the LTV that comes with it. We can know that exiting June 30, what the sort of long-tailed revenue profile looks of that user base.

By the way, to I think Bobby's question earlier, that new user number increased throughout the quarter. A lot of those new ads we just got in June. Combine that with the fact that the product investments and product improvements we've made in terms of the member journey and the funnel to get into care have improved. The session velocity is up, I think it's about 3% year on year. The revenue per session is up 5% year over year. You get those two sort of compounding effects on top of a larger user base. It gives, on the payer side, a lot of visibility into Q3, Q4 revenue ramping. On top of that, just to put down the P, like we said, sales and marketing was always going to be heaviest in the first half as opposed to the second half.

On top of that, we put in place in June another sort of G&A cost optimization program, which gives us, in the bag, several million dollars of savings there. Operating leverage, even if we had done nothing, plus G&A savings with getting back to that 20% plus growth rate on a whole code basis, that's sort of how we put the pieces together.

Got it. Maybe my last question. Obviously, adding a lot of new members, and so, you know, trying to calculate sort of how your conversion rate is messed up is obviously obscured. Maybe on a sort of a same store kind of metrics, you know, you mentioned that your CAC is falling. Any kind of metrics or kind of sense you can give us on sort of your ability to convert members, you know, is that you see that improvement?

Yeah.

Thanks.

I would say, Q, again, I think exiting Q2 everything looks better than when we entered Q2. I want you to hear that theme. In terms of quantifying it, I would think of it in terms of both sequentially and year over year, it's sort of a high single-digit, low double-digit % improvement in our CAC, which, as you know, we don't disclose, but that should give you a sense of relative improvement versus the beginning of the year and also last year.

Got it. Appreciate it. Thanks a lot and congrats, guys.

Thanks.

Thanks.

Speaker 5

Your next question comes from the line of Steven James Valiquette with Mizuho Securities USA LLC. Please go ahead.

Thanks. Good morning. I think this was touched on maybe a little bit earlier in the call, but just to try to maybe get a little more color on it. We saw some of the public managed care companies call out that behavioral health spending was definitely a key factor in some of their higher medical loss ratios in the second quarter, but it seemed like maybe it was happening more in Medicaid instead of commercial, at least from some of the public disclosures. Really, I guess the question is, and they talked about now having task forces to try to more aggressively manage the higher trend. I'm just curious, really, is there anything that managed care can do to try to aggressively manage the higher behavioral health utilization in commercial markets, the way you see it now, whether it's in 2025 or 2026?

Are some of the things that we're alluding to, as far as applied behavior analysis and trying to curtail that, more Medicaid specific? Maybe they're doing things there in Medicaid, but maybe there's not much they can do in commercial. Just want to kind of suss that out a little bit more. Thanks.

Speaker 0

Sure. As you know, relative to Medicaid, we are not in network with Medicaid for a variety of reasons, which we could discuss at another time. The population does skew to have probably a higher acuity than we usually deal with. Having said that, to move back in the earlier part of your question, I think that the management of mental health services through the commercial payers or Medicare is something we certainly can help address because it's not just that people have access, but we are certainly a lower cost option than most people who are in network with on-the-ground psychiatrists and therapists who typically charge more than we do, especially since many of them are out of pocket and are not in network. If you look at an MA plan or other risk plans, it is a significant cost to them.

We have talked to different people about doing risk contracts. We are doing value-based contracts with many of the payers. We have talked about doing risk contracts, but that has not happened yet. We would certainly look at that for large populations, but it doesn't seem like the larger of the managed care groups are ready to address that as a cost control issue for mental health. We would have that discussion if it came up.

Okay. It sounds like you're more a part of the solution as opposed to part of any sort of target to curtail the utilization from what it sounds like. I appreciate you kind of framing it that way. That's helpful. Thanks.

That's correct.

Speaker 5

Your next question comes from the line of Steve Dechert with KeyBank. Please go ahead.

Speaker 0

Hey, guys. Just curious with the higher marketing spend, any changes on where you're spending those dollars versus years past? Anything you can tell us on what you're seeing with reimbursement rates as you negotiate with payers? Thank you. Yeah. Nothing I would call out specifically in terms of material changes. I think we're benefiting a lot from the product changes that we've talked about the last few quarters that we've increasingly put out and put out into the product and went live with. I would also not discount the structural tailwinds at our backs just from as we, you know, every dollar we spend increasingly becomes more relevant to more people in terms of pushing them to an in-network plan. That continues to be paid evidence.

New channels for Medicare and military, we've been testing certain new digital marketing channels and new partnerships, given that these are two different audiences that historically haven't marketed directly to. In that sense, there's definitely some new channels, but in terms of overall dollars, fairly small versus the entire portfolio. Okay. Thanks. Just on the reimbursement rate negotiations with payers, any color you can give there? Yeah. As we talked about, we renegotiate with payers every couple of years. We've been through a cycle recently, so I don't predict anything happening anytime really soon for any of the major payers. It's certainly not within the next year. It comes up every couple of years, but nothing really on the horizon. Okay. Thanks.

Speaker 5

Our final question comes from the line of Richard Collamer Close with Canaccord Genuity Corp.

Yeah, thanks for the follow-up. On the DTE, I think you said something about employers being slower to make decisions or something along those lines. Can you get, and obviously, you guys play more in the mid-market, but can you just give any additional details on that? That would be helpful.

Speaker 0

Yeah, hey Richard. Actually, I was speaking not about employers with that comment. It was more for the public entities and the schools, which, you know, have increasingly become, as you know, both a focus of ours and also sort of a core competitive advantage of ours in that we've been able to show our expertise in engaging these teen populations. The latest one in Jon's comments today about youth in North Carolina impacted by the judicial system, it's a large deal. That one's been 10 or 11 months in the making. It's just the nature of this sort of end market in terms of the sales cycle. On the employer side, it's actually been, we've been pleasantly surprised, again, in our retention. We've been employing some sort of new sales channels, partnership channels, which have a much higher sales velocity and we've been pleased with.

Obviously, on a whole book of business basis, smaller to move the needle with a given mid-market employer as opposed to a large school system or something like that.

Okay. I appreciate the clarification there. Thanks.

Speaker 5

With no further questions in queue, this does conclude today's conference call. You may now disconnect. Goodbye.