A top Talkspace investor wrote a scathing letter calling for the company to find a new CEO and figure out a plan to boost the sagging shares as prices move into delisting territory
- Talkspace investors are growing concerned over the mental-health company’s declining stock price.
- One top investor, Firstime Ventures, is worried Talkspace could be delisted from the NASDAQ.
- It’s also asking for a permanent CEO after a year of Doug Braunstein serving as the interim chief.
Investors of the mental-health company Talkspace are growing antsy as the stock price has entered the $1 territory.
Shares were trading at about $9 in June 2021, after Talkspace went public the February prior through a merger with blank-check company Hudson Executive Investment Corp.
Now Firstime Ventures, Talkspace’s seventh-largest investor at about 4.9% ownership, is worried about the prospect of delisting, according to a letter sent to Talkspace’s interim CEO Douglas Braunstein, a copy of which was reviewed by Insider. Delisting is a process by which the NASDAQ can remove securities from the stock exchange. It starts with a deficiency notice once the shares have traded below $1 for 30 consecutive days.
“Obviously, such an event would depress the Company’s share price even more and cause liquidity issues for shareholders,” Anthony Bosco, special counsel at Zeichner Ellman & Krause, a law firm representing Firstime, said in the letter, dated September 26. “Needless to say, this prospect is deeply concerning.”
Talkspace and Zeichner Ellman & Krause, on behalf of Firstime, declined to comment.
The letter highlights a lot of Talkspace’s main issues over the last year, from notable leadership departures to poor financial performance. The cataclysmic scenario of delisting seems like a real possibility in health-tech, a space marked largely by unprofitable companies that are growing slower than they were during the height of the coronavirus pandemic, when telehealth and similar tools became more popular.
Babylon Health, a public telehealth company, got a deficiency notice on September 15 and soon announced a reverse share split, planned for the fourth quarter of this year, to avoid delisting. The stock is trading at $0.51 on Thursday morning. UpHealth, another virtual care company, is similarly trading at $0.54.
Talkspace’s revenue is declining
Talkspace, which provides online therapy and text-based counseling, has struggled over the last year through management turnover and earnings misses.
While Talkspace’s revenue through health plans and employers is growing, the “consumer” revenue, so revenue from patients the company finds through social media and the like, is shrinking enough to offset those gains.
In the second quarter of 2022, overall revenue declined by 4% compared to the second quarter of 2021, mainly driven by a 28% decline in the consumer business.
“Firstime has become troubled by the precipitous price drop in Talkspace’s Common Stock, the Company’s increasingly poor financial performance, and management’s failure to follow through on commitments to shareholders and to communicate plans for a turnaround,” Bosco said in the letter.
Other companies in the mental health space have similarly been hit in their consumer divisions. As more competitors entered the market during and after the pandemic, it became more expensive to translate people on the internet into customers.
Teladoc’s BetterHelp, one of the largest online therapy providers, saw a lower return on media spend in the first quarter of 2022. Teladoc CEO Jason Gorevic attributed to these smaller competitors essentially eating the high cost of customer acquisition, with lower returns, to grow.
Talkspace cofounder & CEO Oren Frank.
Talkspace may be warming to buyouts
In the letter, Firstime complained that reports were brought to its attention that Talkspace’s management may have declined to consider multiple approaches by various potential buyers.
“Furthermore, it would be alarming to learn that management has appointed investment bankers to evaluate proposals to sell the Company while keeping shareholders in the dark,” Bosco wrote.
Talkspace was approached by Mindpath Health about a takeover valued at $500 million, but talks fell through, Axios reported in May.
In a report at the time, SVB Securities analysts Stephanie Davis and Joy Zhang said valuation is probably a sticking point in these talks.
At $500 million, the Mindpath bid was a 200% premium to Talkspace’s market cap at the time, but represented a “meaningful discount” from its $1.4 billion SPAC valuation over the summer, the analysts wrote.
Firstime wants Talkspace to appoint a permanent CEO
In November 2021, Braunstein, the founder and managing partner of the SPAC that took Talkspace public, became interim CEO at Talkspace after the sudden departures of both cofounders, Oren and Roni Frank, and Mark Hirschhorn, the chief operating officer.
Firstime called on Braunstein and the board of directors to share its plans for appointing a permanent CEO; share short-term steps to rectify the share price; share a long-term plan that specifies their strategic vision; and address whether management has evaluated plans to sell the company.
“While they still believe the current management team is capable of turning things around, lately concerns have arisen that may not be the case,” Bosco said, referencing Firstime.
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