At this time, I'd like to welcome everyone to the Talkspace Third Quarter 2025 Earnings Call. [Operator Instructions] 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 question-and-answer section of the call. Certain measures that will be discussed on today's call are expressed on a non-GAAP financial basis and have been adjusted to exclude the impact of one-off items. Reconciliations of these 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 represent 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 harbour disclaimer on Slide 2. Now I will turn the call over to Dr. Jon Cohen.

Good morning, and thank you for joining the call today to review our third quarter results. We delivered record revenue of $59.4 million and adjusted EBITDA of $5 million. I am pleased to report that active payer members grew 8% sequentially and 29% year-over-year and payer sessions increased 12% sequentially and 37% year-over-year. This acceleration in the quarter is a reflection of the focused approach we initiated this year on all aspects of the patient journey. As I look back at the quarter, I'll call out a few specific areas where we've seen this strategy have a significant impact. The number of clients activating and attending their third session in the first 30 days on the platform is up over 50%, driven mostly by improvements to our matching algorithm, ease of scheduling and improved provider capacity. In addition, we continue to see strong results and improve the efficiency on our marketing spend by targeting specific new audiences such as military and their dependents. We are also utilizing AI-driven tactics to further optimize media and test new marketing investments. In the third quarter, we became in network with several new Blues plans, including Illinois and Massachusetts, and we won a competitive takeaway of one of the largest national EAPs, which we launched earlier this month. We have also made meaningful progress embedding Talkspace into our payer partner ecosystems by focusing on the areas that matter most to them. We continuously manage and curate our network of around 6,000 clinicians to make sure that top quality providers are available to our members and to ensure that each clinician is highly engaged and motivated. This is a key differentiator for Talkspace and has helped drive deeper integration with our payer partners, including directory integrations to facilitate patient sign-on as a seamless experience. Our…

Thanks, Jon, and good morning, everyone. In the third quarter, we continued to execute on our growth and profitability objectives while maintaining strong operational discipline. First, I'll review our quarterly financial performance and then provide an update on our outlook for the remainder of the year. Starting with the third quarter results. Total net revenue was $59.4 million, an increase of 25% year-over-year and 9% sequentially. The accelerating momentum in our payer business is a result of our strategic product investments over the last several quarters as well as our efficient marketing approach throughout the year. Payer revenue grew 42% year-on-year and 12% sequentially to $45.5 million. This performance reflects the continued adoption and our collaboration with payer partners, resulting in higher member engagement within our payer populations. During the quarter, we completed more than 432,000 payer sessions, up 12% sequentially and up 37% year-over-year. The strong session growth was driven by a 29% increase in unique active payer members to over 120,000, which represents our highest quarterly figure since the company's inception and reflects one of the benefits of the payer business line where past cohorts compound over time as members exhibit longer retention rates than out-of-pocket members. Direct-to-enterprise revenue was $9.3 million, down 1% year-on-year and 2% sequentially. Similar to last quarter, our renewal rates were strong, but as John mentioned, we experienced slight delays in a couple of material launches that were moved from Q3 to Q4. We have high visibility into sequential growth for Q4, thanks in part to the Q4 launches of those third quarter new client wins. Consumer revenue from people paying out of pocket totaled $4.6 million in the quarter, up from $4.4 million last quarter, but a decline versus $6 million a year ago as we now cover more Americans via in-network…

[Operator Instructions] Your first question comes from the line of Steven Dechert with KeyBanc.

Just want to ask around the large language models. How will those be integrated into the Talkspace app? And how do you plan to monetize that? Will that be like a subscription? Or is this something that will be included if you're an existing patient for free?

So thanks for the question. It will be integrated into our network. We also have -- we're also building this clinical oversight piece of it. So we'll be able to watch for anybody that needs off-ramping. So that's part of the new patient journey that will be part of this, depending on which population uses it. We have multiple areas you may have seen that we can monetize this, whether it's large populations, consumers, employers. So the model and the patient journey for each of those will be different. So my answer to your question is really stay tuned until we're ready to really bring it to market, which will be early 2026. But each one of those will have actually a different impact on us relative to the -- how we commercialize that particular entity.

Okay. And then maybe as a follow-up, could you talk about some of the changes you've made to the matching algorithms driving the strong retention that you're seeing?

I think the most important part there is that we get people in and we actually tell them that we're going to make an appointment for them. Subsequently, we then, in some circumstances, find an appropriate match for them as opposed to matching them right off the bat. So that's one initiative. The second is our ability to schedule people for multiple sessions or into time slots of what they're looking for has significantly improved to help drive that part of the registration process.

Yes, Steve, it's Ian. I wouldn't say there's really one or even a handful of things we can point to directly that impact it. It's really a multitude of small tweaks that all have a really positive compounding effect when stacked together. So it's dramatically simplifying our registration flow. It's network management, where we're dynamically looking at supply/demand and sort of having that supply management outlook, where we're looking both in the near term, 1, 2 weeks ahead, but also from a broader network planning quarters ahead. Even we're getting at specific like days of the week, times of the day, which states and making sure that we're engaging our network to open up schedules and availability such that when people come in, we know in addition to costs, which we've talked about in the past, we know that scheduling is a huge criteria in terms of that consumer choice to go through with their decision to proceed or not.

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

This is Ethan on for Charles. So it looks like payer KPIs are doing pretty well. And are you guys comfortable, do you think, with the number of credential therapists you have right now in your network? Or do you think you might have to potentially grow that number in the near or medium term?

Yes, we're definitely comfortable with where we stand today. I mean every -- again, we're meeting even at the senior executive level weekly on this exact issue for capacity planning because obviously, it's core to what we do. I'd say, in general, we feel good about where we are. We're constantly pruning, adding. It's hard to talk about it sort of in the aggregate because we're getting down very specific to what are they credential for realms of expertise, are they at $10.99 versus a W-2? What's their ultimate capacity and what geographies are they in? Just to name a few of the variables we have to plan around. But I touched on that actually in my prepared remarks around our gross margin, the sequential change from Q2 to Q3. Some of that was actually -- we did some hiring in our network sort of to get out in front of anticipated demand, which we saw in Q3. And candidly, what we're seeing in Q4, more of the same of that very strong payer demand. So that was a little bit of a drag on gross margins in Q3 as we hired sort of ahead of that demand. But where we stand today, we feel very good about the health of the network overall.

Okay. That's super helpful. If you don't mind me taking a quick follow-up. So it looks like S&M ramped down in the quarter, and this is pretty consistent with what you guys have been messaging. But just how should we think about the run rate of marketing spend going forward?

Yes. So it was down a little bit sequentially, obviously, up, I think, about $1 million year-on-year. And what I would reiterate is we're very -- I say this like it's a very high bar for marketing. We don't spend it lightly. And so we were comfortable adding versus a year ago because of the efficiency and the very strong ROI we're seeing. And I think that came through in the KPIs for payer last quarter and again, this quarter, just looking at the new user growth, which is a very good forward indicator of sessions that are going to come and obviously, in a fee-for-service model, therefore, payer revenue that's to come. So going forward, I think kind of where we are in Q3 is an okay proxy for Q4. We'll obviously come back to you all on sort of '26 guidance next quarter. What I would say is the sort of -- in our narrow guidance for '25, that 20% to 23% growth range, I would expect for next year another 20% plus top line growth, which obviously requires some marketing to support it, but it wouldn't be too dramatically different from this year.

Your next question comes from the line of Ryan MacDonald with Needham.

On the continued success in the payer channel. If we kind of break down sort of the growth in active members utilization, can you just talk about sort of how much you attribute to sort of the core commercial population versus obviously, the continued growth in lives in the Medicare population thus far?

Yes. I think as you can imagine, the significant growth continues to be on the commercial side of the business. We are seeing continued growth in Medicare. We are seeing, I would say, significant uptake on the military initiatives that we're doing right now. So all of it is moving at the same almost the same pace. But there's no question that the commercial payer orbit is significantly contributing to the increase in both registration and sessions.

That's helpful. And then as you think about the Wisdo Health acquisition and starting to integrate that, how can you -- what can that do to help sort of open up more of the Medicare opportunity for you or drive more sort of active engagement there? And then is there anything from a marketing perspective you're doing during open enrollment here to really try to ramp up those efforts this year?

Yes, it's a great question. So -- so there's no question that the Wisdo integration into our Medicare strategy, we think will provide some significant uptick because of the group coaching that they offer. We are finding that a significant number of seniors like the idea of group coaching and peer-to-peer and people who have experienced what they have, particularly around the loneliness issue. So we do think that as a significant uptick relative to the Medicare population. I'm not -- I understand your question relative to open enrollment. I'm not sure what the impact of that would be. It's certainly unknown relative to the Medicare Advantage population. So I don't -- I can't answer that. It's to be seen about what happens in open enrollment. But remember, our core issue is pitching directly to patients once they've signed up. I would also -- I just want to reiterate a little bit on the Wisdo. The Novo Nordisk announcement that we made as part of it is really a significant positive issue relative to the Wisdo go-to-market strategy. It was very clear that the people who are taking GLPs relative to weight management are really looking for a group coaching solution to help them get through it by seeing and interacting with other people who are going through the journey.

Ryan, a quick modeling on that point. So the Wizz revenue will show up for something like the GLP-1 program with Novo and their Wego app, that will show up in DTE revenue. And then to your earlier question, signing up our existing payers, which I would say to date, the receptivity and interest from Talkspace's existing payer partners has really pleasantly surprised us. Their interest in potentially adding on Wisdo as another benefit. That will obviously show up in payer revenue. So it won't be broken out separately per se.

The next question comes from the line of Richard Close with Canaccord Genuity.

Congratulations on the results and all the update here. Just maybe to pull a thread on Wisdo and the pharma opportunity. Can you just talk a little bit about how you see that playing out? Is this just a one-off with Novo? Or how are you thinking about really penetrating that market?

Yes. I won't discuss the specifics of the relationship with Novo. I would tell you that, as you can imagine, the number of people that are getting Wegovy and what percentage of them are going to -- are really looking for this kind of application to help them get through their journey. What it does is it really helps people develop the habits to continue to stay on the drug. We are -- we will look at other similar opportunities in the pharma space in a general sense, but we need to get this one, honestly, right the first time around. So I would say more to come on that.

Okay. And then just maybe on the AI front, I appreciate the comments there and calling out, I guess, some of the downfall of other LLM models and dealing with mental health. Are there -- do you see opportunities for Talkspace as maybe partnering with some of those other companies in terms of providing the clinical oversight that's associated with your offering? Just any thoughts there in terms of partnership opportunities?

Yes. So the answer is absolutely yes. We do have significant -- you've heard me talk about it. I think we have a significant differential advantage relative to the other LLMs, specifically that we have the provider network. we actually know how to deal with mental health journeys. And I think what's nuanced a little bit is if you're in another LLM and you need therapy and you need to see a therapist, we're a network. So what that means is if we have a continued seamless journey relative to the others, patients who need therapy essentially are going to be probably covered. So they don't have to pay more. If you're on one of the other LLMs and you need therapy or need to go outside the network, the question is who's going to pay for that. So it's a long-winded answer to -- I do think there are licensing and other potential opportunities with other players out there.

Your next question comes from the line of Bobby Brooks with Northland Capital Markets.

It was great to see a second straight quarter where all the year-over-year growth KPIs on utilization for payer accelerated. And I was just curious if we could dive a little bit deeper of the factors that were driving that. I know over the last 2 quarters, you had mentioned new monthly record sign-ups for new users, and that was sort of the key. Is that still occurring? Just hoping to get a little more color on that.

Bobby, thanks for the question. The short answer is yes. So I think what you're referring to last quarter, sequentially, in terms of quarterly unique active payer members, we saw about a 10,000 user step-up from Q1 to Q2 and saw pretty much the same step-up Q2 to Q3. And as I mentioned earlier, that's a really good leading indicator for payer revenue. We have very high visibility into sort of the retention of a new group adding on to the platform in a month and sort of what those cohort curves look like. So from a supply capacity planning standpoint, that's very helpful. And yes, I mean, you saw it again this quarter, which obviously putting 2 and 2 together there, bodes very well for our visibility into payer revenue for Q4, where, again, we grew 29% the users this quarter versus a year ago. The sessions also grew 37%. And then you can do the math. You saw a little bit of a benefit year-on-year sort of mid-single digits in terms of sessions per member. And again, some of that is around the product changes we're doing to engage folks. Some of that is actually, in Jon's remarks, he talked about a relaunch of psych. And as part of that, we're doing a much better job, much more concerted effort in sort of that cross referral between therapy and psych that a year ago, we were candidly not very focused on. So sessions per member also going up, price going up, users going up, and that's why you're getting that really -- that 42% growth in payer is sort of a function of all that. Just to double-click on the new user piece, marketing for us gets -- we've touched on and again, the efficiency metrics and ROIs…

Got it. That's super helpful. And then just maybe double responding to the directory integration. I know in the past, you had talked -- I think it was like you were integrated with one payer system. It seems like maybe that's now expanded to some others. Just any thoughts on that?

Yes. We -- so the answer is yes. We will be in several other national players, most likely probably in Q4 and rolling into 2026. But those are really close, I'll tell you to the finish line, which will, as I said, probably happen in Q4, which will continually have a significantly positive impact on the ability of people to book sessions without having to leave the payer platform.

I think what you're asking is that those new additions are only come. Those are not reflected in the Q3 results.

That's helpful color. And then I'm sorry if I missed this if you discussed it earlier, but could you maybe just discuss the factors underpinning the guidance range tightening, specifically on EBITDA? Is it -- are you just spending a little bit more in anticipation of more -- I know your gross margins are lower on some selective hiring, anticipating more demand. Is that Okay. So that's kind of the driver for the EBITDA change.

Yes, exactly. So on the revenue tightening, we just -- as you can see, tighten around the midpoint. I guess the new midpoint is a little bit higher than prior. And then a couple of million down on the EBITDA range, which is a couple of factors. One is actually a function of the sort of DT commentary Jon laid out where some of our Q3 launches got delayed to October. So they're live now, and we'll see it in Q4, but you lose up to a quarter of revenue and EBITDA from that. And then it's also in assessing sort of our classic sort of growth versus profitability, given the returns we're seeing and the acceleration in our KPIs, right, payer going from low 30s at beginning of the year annualized growth to low 40s and wanting to continue that given the opportunity set is there, we decided a couple of million bucks on EBITDA to ensure that we're growing at least 20% in 2026 is a trade-off that makes a ton of sense.

I would agree with that logic.

Your next question comes from the line of Stephen Valiquette with Mizuho.

Let me offer my congrats on the results as well. I guess my question is just kind of thinking ahead of next year, 2026 is the third year of your 3-year guidance you gave at the beginning of 2024. Just wondering if there's any plans right now to provide any sort of new long-term guidance sometime next year or if that's still kind of TBD? Or are you going to just revert back to annual guidance? Just curious as you think about visibility on the business, how you're going to tackle the kind of the forward look. Just any preliminary thoughts around that might be helpful.

Yes. Thanks, Steve. I think TBD for now. But yes, to your point, the 3-year outlook we put out early '24 was for '24, '25, '26 we've largely delivered across that 3-year plan, right? So just to remind folks, it was a 20% to 25% top line CAGR, which we grew 25% in '24 year 1. The narrow guidance is for low 20s in this year '25. And so even to hit that outlook, we could have much lower growth in '26, but I want to make sure you hear, we think '26 will look a lot like '25 or potentially better, so at least 20% growth again in 2026 and then getting to that sort of low double-digit 12.5% to 15% EBITDA margin. So that's also very much the plan for '26. Obviously, we will give more detailed annual guidance next quarter or potentially at JPMorgan in January. But in terms of the longer-term outlook, I will not make any promises, but I know that's always helpful for you guys, so duly noted.

Your last question comes from the line of Ryan Daniels with William Blair.

This is Matthew Mardula on for Ryan Daniels. So regarding Medicare, there have been many different subsectors and just the overall larger market of Medicare. But since you've had a couple of quarters under your belt, when do you believe Medicare will start to meaningfully impact results? Do you think it could be 2026 or later on? I'm just trying to understand the ramp that could come from adding patients in Medicare.

Yes. So as I talked before, it continues to be a work in progress. We see increasing sessions, registrations each quarter. We are continuing to refine the strategy around reaching seniors. I think the unknown right now will be the impact of Wisdo, which we think will have an impact in addressing that population. So the short answer is it's still a work in progress as we work through state by state and subpopulation by subpopulation. I think you've heard me talk about before the over 75 engagement is very different than the 65- to 75-year-old, which is very different than the actual 55- to 65-year-old that may or may not be on, let's say, dialysis, et cetera. So we continue to work through it. So I would just say it's stay tuned for the Q4 and 2026 as we refine the strategy each quarter.

Got it. And I understand that over the past couple of quarters, you've been using AI applications on the administrative side. And in your prepared remarks, you mentioned some. Now regarding the benefits of AI, have you seen any financial impact on an administrative level? And if so, if you can kind of give us some color into that. And I'm just trying to understand if there will be a certain time where you believe you will see a meaningful lift financially in terms of either productivity or savings regarding usage of AI applications on the administrative side.

So as we reported in the remarks, we've already seen significant impact of AI. We've integrated it to almost every part of the patient journey from the top of the funnel through first session, second session, third session. So the impact has actually been significant. We've talked about 30% more people looking now to book a third session within 30 days, 31% more likely to complete the third session. The talkcast have had a positive impact of 20%, 21% of people more likely to book a third session. All of those are just examples of how AI actually is integrated into the patient journey with whether it's the risk algorithms, smart notes, summary notes that I talked about on the comments, all of that already has had a very, very remarkable impact on the number of sessions that we're seeing and people rebooking.

And on the corporate side for G&A, I'd say we are already using AI a ton to ensure that operating leverage comes through. So we grew 25% this quarter. I think this is probably in the adjusted EBITDA bridge when you look at the OpEx that impacts -- excluding SBC that impacts EBITDA, it's effectively flat year-on-year. So the benefits of a lot of what we're doing on a corporate level are definitely embedded in that minimizing OpEx.