Talkspace leaders depart as company’s growth falls short of expectations
Talkspace’s co-founders and top executives are leaving less than five months into its tenure as a publicly traded company. Talkspace suddenly announced the departure of CEO Oren Frank and head of clinical services Roni Frank on Monday, with Chairman Doug Braunstein taking the reins in the interim. That, combined with a quarterly earnings report that came in below expectations, sent the company’s stock plummeting by 36%, closing at $2.16 on Tuesday.
Although the company did not comment on the reason for the sudden change, Braunstein said in an earnings call, “We did not get started as a public company in the manner that we had hoped for, and obviously we’re disappointed by that.”
He added that the board had been talking to Talkspace’s leadership about management and succession, deciding collectively to make a change.
“And obviously, as you can see from the press releases that came out, Oren agreed that this was the right decision at the right time,” he said.
Talkspace co-founders Oren and Roni Frank were notably absent from the Monday earnings call. The husband-and-wife team started the company nearly a decade ago, with the idea of letting people text a therapist.
In a news release, Frank said, “I am incredibly proud of the company Roni and I have built. Roni and I are entrepreneurs, and we’re looking forward to our next adventure.”
While Talkspace has touted making therapy more accessible, it has also faced its share of challenges. Back in 2016, former therapists raised concerns about patient safety, telling the Verge that Talkspace didn’t have good practices for reporting dangerous situations. Allegations about its privacy practices surfaced more recently in the New York Times, after a former employee sued the company for wrongful termination, claiming that Talkspace’s leadership “reenacted” his private conversations with a therapist in front of other employees. Talkspace pushed back on the reports, saying its platform is HIPAA compliant.
Talkspace went public in June by merging with a special purpose acquisition company (SPAC) formed by Braunstein, a former JP Morgan executive.
Currently, the company has just over 60,000 active members, a little over half of whom access its service through their company or insurance. While the company has seen significant growth in its B2B business, the number of people accessing its app directly has slowed.
In total, the company’s net revenue of $26.4 million for the third quarter came in below analyst expectations, at just a 23% increase over the previous year.
It was also dinged by a one-time charge of $2.8 million, related to uncollected claims for visits through insurers and EAP programs. Talkspace’s new CFO, Jennifer Fulk, said that “claims processing has so far been a highly manual and complex process,” adding that improving this would be critical as the company scales its business.
The company reported a net income of $1.5 million for the quarter, up from a $2.7 million net loss last year.
As the company searches for a new CEO, Braunstein said he plans to tackle some of these challenges in the interim. For instance, he plans to focus on hiring more therapists as employees, rather than as independent contractors, which was Talkspace’s original model.
He also plans to improve synergies between the company’s B2B and B2C channels, focusing the company’s product roadmap and investing in its brand. Boiling it down, he said it’s about better execution.
“Fortunately, the board and I believe several of the operational challenges that negatively impacted the business during the quarter are addressable and should positively influence performance as they’re remedied over time,” he said. “I do expect our management team to work with me with an increased emphasis on execution, prioritization and a more disciplined approach to capital allocation going forward.”
With $223 million on the company’s balance sheet, it has plenty of cash to work with. But it’s also losing time as other companies selling mental health services to employers, such as Lyra and Ginger/Headspace, are also carving out their slice of the market.
“While we think execution on these initiatives should lead to more efficient customer acquisition, higher satisfaction, and better retention, that we have reached this point is disappointing, particularly given the opportunity cost of having to fix issues instead of capitalizing on the unique tailwind of raised awareness for behavioral health,” Cowen Managing Director Charles Rhyee wrote in a research note.
William Blair Partner Ryan Daniels took a slightly more optimistic tone, noting that while it was a disappointing quarter, the search for a new CEO could be a positive as the company shifts from a founder-CEO to one that has more public company experience.
Photo: Alisa Zahoruiko, Getty Images