first quarter
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(I.R.S. Employer |
(Address of principal executive offices) |
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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:
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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.
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).
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.
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Emerging growth company |
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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
As of November 3, 2023, the registrant had
Table of Contents
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TALKSPACE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2023 |
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December 31, 2022 |
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(U.S. dollars in thousands, except share and per share data) |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Deferred revenues |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Warrant liabilities |
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Other long-term liabilities |
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Total liabilities |
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STOCKHOLDERS’ EQUITY: |
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Common stock of $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
3
TALKSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(U.S. dollars in thousands, except share and per share data) |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development, net |
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Clinical operations, net |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Operating loss |
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Financial (income), net |
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( |
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Loss before taxes on income |
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Taxes on income |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Net loss per share: |
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Basic and Diluted |
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$ |
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$ |
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$ |
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Weighted average number of common shares used in computing basic and diluted net loss per share: |
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Basic and Diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
TALKSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
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(U.S. dollars in thousands, except share data) |
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Common Stock |
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Three and Nine Months Ended September 30, 2023 |
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Number of Shares |
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Amount |
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Additional paid-in |
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Accumulated |
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Total |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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— |
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Restricted stock units vested, net of tax |
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*) |
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( |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2023 (unaudited) |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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— |
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Restricted stock units vested, net of tax |
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*) |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2023 (unaudited) |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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— |
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Restricted stock units vested, net of tax |
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*) |
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( |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Balance as of September 30, 2023 (unaudited) |
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$ |
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$ |
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$ |
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$ |
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Common Stock |
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Three and Nine Months Ended September 30, 2022 |
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Number of Shares |
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Amount |
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Additional paid-in |
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Accumulated |
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Total |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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— |
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Restricted stock units vested, net of tax |
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*) |
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( |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2022 (unaudited) |
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$ |
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$ |
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$ |
( |
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$ |
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Exercise of stock options |
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*) |
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— |
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Restricted stock units vested, net of tax |
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*) |
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( |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2022 (unaudited) |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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*) |
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— |
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Restricted stock units vested, net of tax |
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*) |
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( |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Balance as of September 30, 2022 (unaudited) |
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$ |
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$ |
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$ |
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$ |
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*) Represents an amount lower than $1
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
TALKSPACE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended |
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(U.S. dollars in thousands) |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Remeasurement of warrant liabilities |
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Decrease (increase) in accounts receivable |
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(Increase) decrease in other current assets |
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Increase in accounts payable |
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Decrease in deferred revenues |
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(Decrease) increase in accrued expenses and other current liabilities |
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Other |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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Proceeds from sale of property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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Payments for employee taxes withheld related to vested stock-based awards |
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Payments for reverse capitalization, net of transaction costs |
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Net cash provided by financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period |
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$ |
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$ |
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Supplemental cash flow data: |
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Cash paid during the period for income taxes |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
6
TALKSPACE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Talkspace, Inc. (together with its consolidated subsidiaries, the “Company” or “Talkspace”) is a leading behavioral healthcare company enabled by a purpose-built technology platform. Talkspace provides individuals and licensed therapists, psychologists and psychiatrists with an online platform for one-on-one therapy delivered via messaging, audio and video. The Company offers convenient and affordable access to a fully credentialed network of highly qualified providers. Since its inception, the Company has connected millions of patients with licensed behavioral health providers across a wide and growing spectrum of care through virtual counseling, psychotherapy, and psychiatry.
The Company's principal executive office is located in New York, NY. The Company has three wholly owned subsidiaries, Talkspace LLC, Talkspace Network LLC and Groop Internet Platform LTD. In addition, the Company holds a variable interest in one professional association and eight professional corporations, which have been established pursuant to the requirements of their respective domestic jurisdiction governing the corporate practice of medicine. See Note 10, “Variable Interest Entities,” in the notes to the condensed consolidated financial statements for further details.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The Company’s interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2022, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2022, have been applied consistently in these unaudited condensed consolidated financial statements, unless otherwise stated.
Intercompany transactions and balances have been eliminated in the preparation of the condensed consolidated financial statements.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the condensed consolidated financial statements. The Company’s significant estimates and assumptions used in these condensed consolidated financial statements include, but are not limited to, the recognition and disclosure of contingent liabilities, revenue recognition, stock-based compensation awards and the fair value of warrant liabilities. The Company bases its estimates on historical factors, current circumstances and the experience and judgment of management. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based on information available at the time they are made. Estimates, by their nature, are based on judgment and available information, therefore, actual results could be materially different from these estimates.
Reclassification
Recently Issued and Adopted Accounting Pronouncements
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to its business or that no material effect is expected on the condensed consolidated financial statements as a result of their future adoption.
7
NOTE 3. REVENUE RECOGNITION
The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, when the Company satisfies its performance obligation to perform its defined contractual obligations to provide virtual behavioral healthcare services. Revenue is recognized in an amount that reflects the consideration that the Company will be entitled in exchange for the service rendered. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that is included in the transaction price. Variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Through its platform, Talkspace serves its business-to-business (“B2B”) channel, comprised of large health insurance plans and employee assistance programs (“Payors”), and large enterprise clients (“DTE”) who offer their insured members and employees access to the Company's platform at in-network reimbursement rates, or while their employer is under an active contract with Talkspace, where applicable, and its business-to-consumer (“Consumer”) channel, comprised of individual consumers who subscribe directly to the Company's platform.
The Company contracts with Payors to provide its therapy and psychiatry services to their eligible covered members. Revenue is recognized at a point in time, as virtual therapy or psychiatry session is rendered. The transaction price is determined based on contracted rates and includes variable consideration in the form of implicit price concessions. The Company determines the total transaction price, including an estimate of variable consideration, at contract inception and reassesses this estimate at each reporting date. The Company estimates the amount of variable consideration that is included in the transaction price primarily based on historical collection experience for each insurance payor. Revenue from Payors is presented net of implicit price concessions. Contracts with Payors include annual evergreen clauses and generally may be terminated by either party typically upon a minimum 60-day advance notice.
The Company contracts with enterprises to provide access to its therapist platform for their employees, primarily based on a per-member-per-month access fee model. Revenues from access fees are recognized ratably over the contractual term. The majority of contracts with enterprise clients typically range in length from one to three years and are generally non-cancelable during the initial contractual term.
The Company also generates revenues from the sale of monthly, quarterly, bi-annual and annual membership subscriptions to the Company's therapy platform as well as supplementary a la carte offerings directly to individual consumers through a subscription plan. The Company recognizes consumer revenues ratably over the subscription period, beginning when therapy services commence. The Company recognizes revenues from supplementary a la carte offerings at a point in time, as virtual therapy session is rendered. Members may cancel their subscription at any time and will receive a pro-rata refund for the subscription price. The transaction price from member subscription revenue and supplementary a la carte offerings includes variable consideration in the form of refunds. The Company estimates the refund liability for the variable consideration portion of the transaction price primarily based on historical experience. The refund liability is recorded within the “Accrued expenses and other current liabilities” line item in the condensed consolidated balance sheets. Revenue from individual consumers is presented net of refunds.
The following table presents the Company’s revenues from sales to unaffiliated customers disaggregated by revenue source:
Unaudited |
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(in thousands) |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues from sales to unaffiliated customers: |
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Payor revenue |
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$ |
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$ |
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$ |
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$ |
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DTE revenue |
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Total B2B revenue |
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Consumer revenue |
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Total revenue |
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$ |
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$ |
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$ |
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$ |
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8
Accounts Receivable and Allowance for Credit Losses
Accounts receivables are stated net of credit losses allowance. The Company is exposed to credit losses primarily through its contracts with health insurance plans, employee assistance programs and enterprise clients. The Company’s methodology for estimating credit loss is based on historical collection experience, customer creditworthiness, current and future economic condition and market condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Accounts receivables are written off after all reasonable means to collect the full amount have been exhausted. The allowance for credit losses was immaterial as of September 30, 2023 and December 31, 2022.
Deferred Revenue
The Company records deferred revenues when cash payments from customers are received in advance of the Company's performance obligation to provide services. As of September 30, 2023, deferred revenue related mainly to the Company’s consumer channel. The Company expects to satisfy the majority of its performance obligations associated with deferred revenue within one year or less. Revenue recognized for the three and nine months ended September 30, 2023, that was included in the deferred revenue balance at the beginning of each reporting period, was approximately $
NOTE 4. FAIR VALUE MEASUREMENT
The carrying value of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the relatively short-term nature of the underlying assets. The Company’s Private Placement Warrants are carried at fair value with changes in fair value recognized in earnings each period.
The Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying condensed consolidated balance sheets. The warrant liabilities were measured at fair value at inception and thereafter on a recurring, quarterly basis, with changes in fair value presented within financial income, net, in the condensed consolidated statement of operations.
The Private Placement Warrants were valued using the Black-Scholes-Merton Model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the implied volatility from the trading prices of the Public Warrants, significant increases (decreases) in this input in isolation would have resulted in a significantly higher (lower) fair value measurement.
The following were the inputs utilized in determining the fair value of the Private Placement Warrants as of September 30, 2023 and 2022:
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September 30, |
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Unaudited |
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2023 |
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2022 |
Dividend yield (1) |
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Expected volatility (2) |
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Risk-free interest rate (3) |
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Time to maturity (years) |
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(1)
(2)
(3)
9
The following table presents the changes in the fair value of warrant liabilities during the three and nine months ended September 30, 2023 and 2022:
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Level 3 Liabilities (unaudited) |
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For the Three Months Ended September 30, 2023 |
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(in thousands) |
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Beginning Balance |
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Change in Fair Value |
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Ending Balance |
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Private Placement Warrants |
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$ |
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$ |
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$ |
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For the Nine Months Ended September 30, 2023 |
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(in thousands) |
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Beginning Balance |
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Change in Fair Value |
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Ending Balance |
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Private Placement Warrants |
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$ |
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$ |
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$ |
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Level 3 Liabilities (unaudited) |
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For the Three Months Ended September 30, 2022 |
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(in thousands) |
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Beginning Balance |
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Change in Fair Value |
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Ending Balance |
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Private Placement Warrants |
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$ |
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$ |
( |
) |
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$ |
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For the Nine Months Ended September 30, 2022 |
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(in thousands) |
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Beginning Balance |
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Change in Fair Value |
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Ending Balance |
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Private Placement Warrants |
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$ |
|
|
$ |
( |
) |
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$ |
|
||
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
In January 2022, the Company and certain of its current and former officers and directors were named as defendants in securities class action complaints filed in the United States District Court for the Southern District of New York under the case headings: (1) Baron v. Talkspace et al., No. 22-cv-00163 (S.D.N.Y.) and (2) Valdez v. Talkspace et al., No. 22-cv-00840 (S.D.N.Y.), which were subsequently consolidated under the caption In re Talkspace, Inc. Securities Litigation, No. 22-cv-00163 (S.D.N.Y) (the “Securities Action”). The Securities Action asserts violations of sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rules 10b-5 and 14a-9 promulgated thereunder. These actions generally relate to public disclosures and statements by the Company in connection with its merger with Hudson Executive Investment Corp. (“HEIC”).
In December 2022, the Company’s subsidiary Tailwind Merger Sub II, LLC, certain of the Company’s current and former directors and officers, and others were named as defendants in a putative class action complaint filed in the Delaware Court of Chancery under the case caption Valdez v. Braunstein, et al., C.A. No. 2022-1148 (Del. Ch.) (the “Delaware Action”). The Delaware Action asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty relating to the merger with HEIC, among other things, based on many of the same facts at issue in the Securities Action. The complaint seeks, among other things, damages on behalf of putative class members who did not redeem their shares in connection with the Company’s merger with HEIC.
In February 2023, the Company resolved the Securities Action and the Delaware Action through mediation. The settlement resolves these litigations with respect to all named defendants (the "Securities Settlement"). On June 30, 2023, the court entered an order preliminarily approving the Securities Settlement. On October 30, 2023, the court granted final approval to the Securities Settlement in all respects. The defendants have not admitted any liability or wrongdoing in connection with the Securities Settlement and have entered into the Securities Settlement solely to avoid the costs, risks, distraction, and uncertainties of continued litigation of the Securities Action and Delaware Action.
In June and July 2022, two individuals filed stockholder derivative lawsuits on behalf of Talkspace in the United States District Court for the Southern District of New York under the case captions: (1) Odsvall v. Oren Frank et al., No. 22-cv-05016 (S.D.N.Y.) and (2) Nayman v. Berg, et al., No. 22-cv-06258 (S.D.N.Y.), which were subsequently consolidated under the caption In re Talkspace Stockholder Derivative Litigation, No. 22-cv-05016 (S.D.N.Y.) in September 2022 (the “Derivative Action”). The Derivative Action named certain of the Company’s current and former officers and directors as defendants and the Company as a nominal defendant. The Derivative Action asserted claims for violations of federal securities laws, breach of fiduciary duty, and aiding and abetting breaches of fiduciary duty relating to the merger with HEIC, among other things, based on many of the same facts at issue in the Securities Action.
10
In February 2023 the parties reached an agreement in principle to resolve the Derivative Action with respect to all named defendants in exchange for certain changes to the Company’s Corporate Governance environment, including the declassification of the Company’s board of directors, creation of a management-level disclosure committee, enhancements to the responsibilities and duties of the Company’s Audit Committee, the addition of independent directors, enhancements to employee compliance training and retention of an internal controls consultant. In addition, the Company agreed to pay or cause to be paid $
In addition to the foregoing, the Company may in the future be involved in various legal proceedings, claims and litigation that arise in the normal course of business. The Company accrues for estimated loss contingencies related to legal matters when available information indicates that it is probable a liability has been incurred and the Company can reasonably estimate the amount of that loss. In many proceedings, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is often not possible to reasonably estimate the size of the possible loss or range of loss or possible additional losses or range of additional losses.
Warranties and Indemnification
The Company’s arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a client’s data or if the Company’s service infringes a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as a director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
NOTE 6. CAPITAL STOCK
As of September 30, 2023 and December 31, 2022 there were outstanding
NOTE 7. SHARE-BASED COMPENSATION
In June 2021, the Company adopted the 2021 Incentive Award Plan (the “2021 Plan”) under which the Company may grant cash and equity incentive awards to officers, employees, directors, consultants and service providers in order to attract, motivate and retain the talent. The 2021 Plan replaced the Company's previous stock compensation plan.
In June 2021, the Company also adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”) under which employees of the Company and its participating subsidiaries are provided with the opportunity to purchase Talkspace common stock at a discount through accumulated payroll deductions during successive offering periods. As of September 30, 2023, no employee stock purchases have been made under the 2021 ESPP.
All stock-based awards are measured based on the grant date fair value and are generally recognized on a straight-line basis in the Company’s condensed consolidated statement of operations over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period).
11
The following table sets forth the total stock-based compensation expense related to stock options and restricted stock units included in the respective components of operating expenses in the condensed consolidated statements of operations:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Unaudited |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
(in thousands) |
|
|
|
|
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