SEC Filing - Talkspace, Inc

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10-Q

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 September 30, 2021


☐	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 other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Not applicable	Not applicable
(Address of principal executive offices)	(Zip Code)

(212) 284-7206

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	TALK	Nasdaq Stock Market
Warrants to purchase common stock	TALKW	Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 8, 2021, the registrant had 152,307,497 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	8
	Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	8
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2021 and 2020	9
	Condensed Consolidated Statements of Stockholder’s Equity (Deficit) (unaudited) for the three and nine months ended September 30, 2021 and 2020	10
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020	11
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	74
Signatures		75

basis of presentation

As used in this Quarterly Report, unless the context otherwise requires, references to:



“2021 Plan” are to the Talkspace, Inc. 2021 Incentive Award Plan;



“Business Combination” are to, together, (i) the First Merger and (ii) the Second Merger;



“Bylaws” are to our bylaws dated June 22, 2021;



“Certificate of Incorporation” are to the second amended and restated certificate of incorporation of Talkspace, Inc. dated June 22, 2021;



“Closing” are to the consummation of the Business Combination;



“DGCL” are to the Delaware General Corporation Law, as amended;



“2021 ESPP” are to the Talkspace, Inc. 2021 Employee Stock Purchase Plan;



“Exchange Act” are to the Securities Exchange Act of 1934, as amended;



“First Merger” are to the merger of First Merger Sub with and into Old Talkspace;



“First Merger Sub” are to Tailwind Merger Sub I, Inc.;



“HEC” are to Hudson Executive Investment Corp., a Delaware corporation;



“HEC Forward Purchase” are to the purchase by HEC Fund from HEC pursuant to the HEC Forward Purchase Agreement of 5,000,000 forward purchase units (the “Forward Purchase Units”), consisting of one share of Talkspace common stock and one-half of one warrant to purchase one share of Talkspace common stock, for $10.00 per unit, or an aggregate amount of $50,000,000, in a private placement closed concurrently with the Closing;



“HEC Forward Purchase Agreement” are to the forward purchase agreement, entered into as of June 8, 2020, by and between HEC and HEC Fund, as amended by that certain First Amendment to Forward Purchase Agreement, dated January 12, 2021;



“HEC Fund” are to HEC Master Fund LP, a Delaware limited partnership;



“HEC IPO” are to the initial public offering by HEC which closed on June 11, 2020;



“Merger Agreement” are to that certain Agreement and Plan of Merger, dated as of January 12, 2021, by and among HEC, Old Talkspace, First Merger Sub and Second Merger Sub;



“Old Talkspace” are to Groop Internet Platform, Inc. (d/b/a “Talkspace”), a Delaware corporation;



“PIPE Investment” are to the purchase of shares of Talkspace common stock pursuant to the Subscription Agreements;



“private placement warrants” are to the warrants issued by HEC to the Sponsor in a private placement simultaneously with the closing of the HEC IPO and the warrants originally sold as part of the units in the HEC Forward Purchase;



“public warrants” are to the warrants originally sold as part of the units in the HEC IPO (whether they were purchased in the HEC IPO or thereafter in the open market);



“SEC” are to the United States Securities and Exchange Commission;



“Second Merger Sub” are to Tailwind Merger Sub II, LLC;



“Sponsor” are to HEC Sponsor LLC, a Delaware limited liability company;



“Sponsor Support Agreement” are to that certain Support Agreement, dated as of January 12, 2021, by and among HEC, the HEC Insiders and Old Talkspace;



“Subscription Agreements” are to the subscription agreements entered into by and between HEC and the PIPE Investors, in each case, dated as of January 12, 2021 and entered into in connection with the PIPE Investment;



“Transactions” are to, collectively, the Business Combination and the other transactions contemplated by the Merger Agreement;



“Warrant Agreement” are to that certain Warrant Agreement, dated as of June 8, 2020, by and between HEC and Continental Stock Transfer & Trust Company; and



“warrants” are to the public warrants and the private placement warrants.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, business strategy, expectations regarding the impact of COVID-19, our efforts to remediate our material weakness in internal control over financial reporting, and our objectives for future operations.

These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, which involve a number of judgments, risks and uncertainties, including without limitation, risks related to:



our history of losses and our ability to achieve or sustain profitability;



the evolution of the markets in which we operate;



our ability to continue to grow our business;



our limited operating history;



our ability to raise additional capital;



factors relating to our business, operations and financial performance, including:

the impact of the COVID-19 pandemic;

our ability to maintain an effective system of internal controls over financial reporting;

our ability to grow market share in our existing markets or any new markets we may enter;

our ability to respond to general economic conditions;

the growth and evolution of the virtual behavioral health market;

risks associated with increased competition in the virtual behavioral health market;

our ability to maintain and enhance our products and brand, and to attract customers;

our ability to manage, develop and refine our technology platform;

our ability to grow our member base; and



other factors detailed under the section entitled “Risk Factors” in this Quarterly Report.

Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

RISK FACTORS SUMMARY

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report, that represent challenges that we face in connection with the successful implementation of our strategy and the growth of our business. In particular, the following considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of shares of our common stock or warrants and result in a loss of all or a portion of your investment:



We have a history of losses, which we expect to continue, and we may never achieve or sustain profitability.



Our business and the markets we operate in are new and rapidly evolving which makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.



We may not grow at the rates we historically have achieved or at all, even if our key metrics may indicate growth, which could have a material adverse effect on the market price of our common stock.



The virtual behavioral health market is immature and volatile, and if it does not develop, if it develops more slowly than we expect, if it encounters negative publicity or if our services are not competitive, the growth of our business will be harmed.



The outbreak of the novel coronavirus (COVID-19) and its impact on business and economic conditions could adversely affect our business, results of operations and financial condition, and the extent and duration of those effects will be uncertain.



We operate in a competitive industry, and if we are not able to compete effectively, our business, financial condition and results of operations will be harmed.



If growth in the number of clients and members or providers on our platform decreases, or the number of products or services that we are able to sell to our clients and members decreases, due to legal, economic or business developments, our business, financial condition and results of operations will be harmed.



We may be unsuccessful in achieving broad market education and changing consumer purchasing habits.



Our growth depends in part on the success of our strategic relationships with third parties that we provide services to.



Our virtual behavioral healthcare strategies depend on our ability to maintain and expand our network of therapists, psychiatrists and other providers. If we are unable to do so, our future growth would be limited and our business, financial condition and results of operations would be harmed.



Developments affecting spending by the healthcare industry could adversely affect our business.



Our business could be adversely affected by legal challenges to our business model or by actions restricting our ability to provide the full range of our services in certain jurisdictions.



We are dependent on our relationships with affiliated professional entities, which we do not own, to provide physician and other professional services, and our business, financial condition and our ability to operate in certain jurisdictions would be adversely affected if those relationships were disrupted or if our arrangements with our providers or clients are found to violate state laws prohibiting the corporate practice of medicine or fee splitting.



The impact on us of recent healthcare legislation and other changes in the healthcare industry and in healthcare spending is currently unknown, but may adversely affect our business, financial condition and results of operations.



Changes in consumer sentiment or laws, rules or regulations regarding the use of cookies and other tracking technologies and other privacy matters could have a material adverse effect on our ability to generate net revenues and could adversely affect our ability to collect proprietary data on consumer behavior.



Our use and disclosure of personally identifiable information, including PHI, personal data, and other health information, is subject to state, federal or other privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our client base and member bases and revenue.



Any failure to protect, enforce or defend our intellectual property rights could impair our ability to protect our technology and our brand.



We may be subject to securities litigation, which is expensive and could divert management attention.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TALKSPACE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)


	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	222,865		$	13,248
Accounts receivable, net		5,318			5,914
Other current assets		10,023			1,515
Total current assets		238,206			20,677
Property and equipment, net		658			175
Deferred issuance costs		-			692
Intangible assets, net		3,876			5,195
Goodwill		6,134			6,134
Other long-term assets		82			-
Total assets	$	248,956		$	32,873

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	14,039		$	7,901
Deferred revenues		8,302			5,172
Accrued expenses and other current liabilities		7,634			7,416
Total current liabilities		29,975			20,489

Warrant liabilities		12,012			-
Other long-term liabilities		86			-
Total liabilities		42,073			20,489

CONVERTIBLE PREFERRED STOCK:

Convertible preferred stock (Series Seed, Seed-1, Seed-2, A, B, C and D) of $0.0001 par value — Authorized: 100,000,000 and 95,709,146 shares at September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 0 and 94,582,550 shares at September 30, 2021 and December 31, 2020, respectively (1)		-			111,282

STOCKHOLDERS’ EQUITY (DEFICIT):

Common stock of $0.0001 par value — Authorized: 1,000,000,000 and 129,397,278 shares at September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 152,293,298 and 13,413,431 shares at September 30, 2021 and December 31, 2020, respectively (1)		15			1
Additional paid-in capital (1)		357,330			9,889
Accumulated deficit		(150,462	)		(108,788	)
Total stockholders’ equity (deficit)		206,883			(98,898	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	248,956		$	32,873

(1) Prior period results have been adjusted to reflect the exchange of Old Talkspace’s common stock for Talkspace’s common stock at an exchange ratio of approximately 1.134140 in June 2021 as a result of the Business Combination. See Note 3, “Business Combination,” for further details.

The accompanying notes are an integral part of the condensed consolidated financial statements.

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

U.S. dollars in thousands (except share and per share data)


	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues	$	26,359		$	21,505		$	84,499		$	50,502
Cost of revenues		12,187			6,414			33,698			17,394
Gross profit		14,172			15,091			50,801			33,108
Operating expenses:
Research and development, net		4,278			2,199			12,023			7,327
Clinical operations		1,896			899			5,886			2,535
Sales and marketing		26,431			12,660			75,125			30,020
General and administrative		6,794			1,737			23,112			4,198
Total operating expenses		39,399			17,495			116,146			44,080
Operating loss		(25,227	)		(2,404	)		(65,345	)		(10,972	)
Financial income (expense), net		26,743			(285	)		23,700			(254	)
Income (loss) before taxes on income		1,516			(2,689	)		(41,645	)		(11,226	)
Taxes on income		11			3			29			12
Net income (loss)		1,505			(2,692	)		(41,674	)		(11,238	)
Other comprehensive income (loss)		—			—			—			—
Comprehensive income (loss)		1,505			(2,692	)		(41,674	)		(11,238	)
Net income (loss) per share (1):
Basic	$	0.01		$	(0.20	)	$	(0.64	)	$	(0.84	)
Diluted	$	0.01		$	(0.20	)	$	(0.64	)	$	(0.84	)
Weighted average number of common shares (1):
Basic		152,267,870			13,375,193			64,638,182			13,348,522
Diluted		165,179,012			13,375,193			64,638,182			13,348,522

The accompanying notes are an integral part of the condensed consolidated financial statements.

TALKSPACE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited)

U.S. dollars in thousands (except share data)


Nine months ended September 30, 2020:
	Convertible Preferred Stock (1)						Common Stock (1)
	Number of Shares Outstanding			Amount			Number of Shares Outstanding		Amount		Additional paid-in capital (1)			Accumulated deficit			Total
Balance as of December 31, 2019		94,582,550		$	111,282			13,223,673	$	1	$	6,818		$	(86,418	)	$	(79,599	)
Exercise of stock options		—			—			122,004	*)			54			—			54
Stock-based compensation		—			—			—		—		401			—			401
Net loss		—			—			—		—		—			(7,900	)		(7,900	)
Balance as of March 31, 2020		94,582,550			111,282			13,345,677		1		7,273			(94,318	)		(87,044	)
Exercise of stock options		—			—			29,516	*)			8			—			8
Stock-based compensation		—			—			—		—		332			—			332
Net loss		—			—			—		—		—			(646	)		(646	)
Balance as of June 30, 2020		94,582,550			111,282			13,375,193		1		7,613			(94,964	)		(87,350	)
Stock-based compensation		—			—			—		—		336			—			336
Net loss		—			—			—		—		—			(2,692	)		(2,692	)
Balance as of September 30, 2020		94,582,550		$	111,282			13,375,193	$	1	$	7,949		$	(97,656	)	$	(89,706	)

Nine months ended September 30, 2021:
	Convertible Preferred Stock (1)						Common Stock (1)
	Number of Shares Outstanding			Amount			Number of Shares Outstanding		Amount		Additional paid-in capital			Accumulated deficit			Total
Balance as of December 31, 2020		94,582,550		$	111,282			13,413,431	$	1	$	9,889		$	(108,788	)		(98,898	)
Exercise of stock options		—			—			684,923	*)			797			—			797
Stock-based compensation		—			—			—		—		1,513			—			1,513
Issuance of warrants		—			—			—		—		125			—			125
Net loss		—			—			—		—		—			(12,738	)		(12,738	)
Balance as of March 31, 2021		94,582,550			111,282			14,098,354		1		12,324			(121,526	)		(109,201	)
Exercise of stock options		—			—			2,617,908	*)			1,128			—			1,128
Stock-based compensation		—			—			—		—		15,196			—			15,196
Common stock issued related to exercise of warrants		—			—			98,871	*)			609			—			609
Acquisition of warrants		—			—			—		—		27,945			—			27,945
Preferred stock conversion		(94,582,550	)		(111,282	)		94,582,550		10		111,272			—			111,282
Issuance of common stock in connection with Business Combination and PIPE offering, net of issuance costs		—			—			40,858,053		4		185,739			—			185,743
Net loss		—			—			—		—		—			(30,441	)		(30,441	)
Balance as of June 30, 2021		—			—			152,255,736		15		354,213			(151,967	)		202,261
Exercise of stock options		—			—			37,562	*)			45			—			45
Stock-based compensation		—			—			—		—		3,875			—			3,875
Net income		—			—			—		—		—			1,505			1,505
Issuance costs in connection with Business Combination and PIPE offering		—			—			—		—		(803	)		—			(803	)
Balance as of September 30, 2021		—