Revenue Recognition

9 Months Ended

Sep. 30, 2024

Revenue from Contract with Customer [Abstract]

Revenue Recognition

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:

•Health insurance plans and employee assistance programs (“Payor”) who offer their insured members access to the Company's platform at in-network reimbursement rates,

•Direct-to-Enterprise customers (“DTE”) who offer their enterprise members access to the Company's platform while their enterprise is under an active contract with Talkspace, and

•Individual subscribers (“Consumer”) who subscribe directly to the Company's platform.

Payor

The Company contracts with health insurance plans and employee assistance programs to provide therapy and psychiatry services to their eligible covered members. Revenue is recognized at a point in time, as virtual therapy or psychiatry sessions are 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 actual historical collection experience for each Payor. Revenue is presented net of implicit price concessions. Payor contracts include annual evergreen clauses and generally may be terminated by either party typically upon a minimum 60-day advance notice.

DTE

The Company contracts with enterprises to provide access to the Company's therapist platform for their enterprise members, either based on a per-member-per-month access fee model or at a fixed monthly rate. To the extent the transaction price includes variable consideration, revenue is recognized using the variable consideration allocation exception, or, if the allocation exception is not met, the Company recognizes revenue ratably based on estimates of the variable consideration 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 subsequent resolved. The majority of DTE contracts typically range in length from one to three years and are generally non-cancelable during the initial contractual term.

Consumer

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 sessions are 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. Revenue is presented net 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 consolidated balance sheets. The refund liability was immaterial as of September 30, 2024 and December 31, 2023.

The following table presents the Company’s revenues from sales to unaffiliated customers disaggregated by revenue source:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Revenues from sales to unaffiliated customers:	Unaudited		Unaudited		Unaudited		Unaudited
Payor	$	32,039	$	22,112	$	90,492	$	55,462
DTE		9,370		8,002		28,911		24,717
Consumer		5,990		8,532		19,470		27,448
Total revenue	$	47,399	$	38,646	$	138,873	$	107,627

Accounts Receivable and Allowance for Credit Losses

The Company had receivables related to revenue from DTE customers of $6.3 million and $7.8 million at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, the balance of receivables related to revenue from Payor customers was $3.3 million and $2.4 million, respectively.

Accounts receivables are stated net of credit losses allowance. 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. Credit losses were immaterial for the three and nine months ended September 30, 2024 and 2023.

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, 2024 and December 31, 2023, deferred revenue related mainly to Consumer subscriptions. The Company expects to satisfy the majority of its performance obligations associated with deferred revenue within one year or less. Revenue recognized in the nine months ended September 30, 2024 and 2023 that was included in the deferred revenue balance at the beginning of each reporting period was $2.0 million and $2.6 million, respectively, and immaterial for the three months ended September 30, 2024 and 2023.