LifeStance Health Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. LifeStance provides outpatient mental health services through its employed clinicians and affiliated practices.
Key financial results
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $252.6 | $203.1 | +24% |
| Center Margin (non-GAAP) | $69.6; 27.6% of revenue | $54.2; 26.7% of revenue | +28% in dollars |
| Operating loss | $(34.1); (13.5)% margin | $(64.9); (31.9)% margin | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $10.1; 4.0% margin | $12.5; 6.1% margin | Down 19% |
| Net loss | $(34.2) | $(62.3) | Loss narrowed |
| Diluted net loss per share | $(0.09) | $(0.18) | Improved |
| Cash used in operating activities | $(7.9) | $3.3 provided | Declined |
Revenue growth reflected $48.8 million more patient-service revenue, primarily from increased visits, and $0.7 million more nonpatient revenue. Commercial payors generated 91% of revenue in both periods; two individual payors accounted for 19% and 13% of Q1 2023 revenue.
Financial position and cash flow
- Cash and cash equivalents were $68.3 million at March 31, 2023, down $40.3 million from year-end 2022. Investing activities used $27.5 million, including $19.8 million for acquisitions and $7.7 million for property and equipment; financing activities used $4.9 million.
- Debt principal was $233.4 million, compared with $234.0 million at year-end; net carrying value was $224.8 million. No revolver balance was outstanding at March 31. The company disclosed a $25 million revolver draw in April 2023, converted to a delayed-draw term loan in May.
- The credit agreement includes a $50 million revolving facility and a $100 million delayed-draw term facility. The company reported compliance with its financial covenants. An interest-rate swap fixed the rate on 94.5% of the term loan previously exposed to SOFR, at a 3.24% fixed swap rate; the loans also carry contractual margins.
- Current assets were $212.5 million and current liabilities $181.1 million. Operating lease liabilities totaled $249.6 million; undiscounted future minimum lease payments were $296.9 million.
- Management said existing cash was expected to fund operating and capital needs for at least 12 months from the financial statement issuance date, while noting that growth spending, acquisitions, and other assumptions could change cash needs and that additional financing might be required.
Material changes and operating developments
- Center costs increased 23% to $183.0 million, mainly due to higher clinician compensation associated with increased clinician numbers and visits, plus occupancy and other operating costs.
- General and administrative expenses declined 18% to $84.6 million. Lower stock-based compensation—principally because IPO-related awards had no comparable expense in 2023—more than offset higher payroll, occupancy, and other operating expenses.
- Interest expense rose to $5.1 million from $3.4 million, primarily due to higher borrowings outstanding during the period.
- LifeStance had 5,961 licensed clinicians at quarter-end and opened three de novo centers in Q1. It acquired three outpatient practices for total consideration of $22.0 million, including contingent consideration.
Outlook, risks, and unusual items
- The filing gives no specific revenue, earnings, or other financial guidance. Management describes continued growth through clinician recruiting and retention, visits, new centers, payor relationships, and acquisitions, and expects continued investment in centers, technology, and public-company infrastructure.
- Management cited risks including clinician recruitment and retention, reimbursement rates and payor restrictions, competition, healthcare regulation, dependence on affiliated practices, cybersecurity and IT reliability, and the ability to manage growth and expenses.
- Disclosure controls and procedures were deemed ineffective at March 31, 2023 because previously reported material weaknesses in financial reporting controls remained unremediated. The weaknesses involve accounting and IT staffing, formal policies and procedures, account-level controls, and IT general controls. Remediation efforts were ongoing and had not yet been demonstrated effective.
- A shareholder class action alleges IPO registration statement misstatements or omissions relating to patient visits and clinician retention. The company recorded no material accrual and said a material loss range could not be estimated.
- Stock-based compensation expense was $23.9 million, down from $59.9 million. Adjusted EBITDA excludes stock compensation and other items; the company cautions that this non-GAAP measure is not a substitute for GAAP results.
- The company adopted the current expected credit loss standard on January 1, 2023; it reported no material impact. Q1 2023 lease accounting follows ASC 842, while the Q1 2022 comparison follows ASC 840, limiting direct comparability for lease-related amounts.
Important facts for investors to verify
- Whether visit growth, clinician recruitment and retention, and center expansion can sustain revenue growth while controlling center costs.
- Whether operating cash flow improves and the company can maintain adequate liquidity as cash declines and planned growth and acquisition spending continue.
- Debt terms, covenant headroom, interest-rate exposure, and the effect of the April revolver draw and May conversion.
- Progress in remediating the material weaknesses and whether management later concludes controls are operating effectively.
- Developments in the shareholder lawsuit and any changes to the company’s estimate or disclosure of potential exposure.
- Revenue and reimbursement dependence on commercial payors, including the concentration represented by the two largest individual payors.