LifeStance Health Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Unless stated otherwise, dollar amounts are in millions. LifeStance provides outpatient mental health services through in-person and virtual care. It reported 4,989 clinicians at quarter-end.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $203.1 | $143.1; up 42% |
| Operating loss | $(64.9) | $(0.9) |
| Net loss | $(62.3) | $(8.7) |
| Basic and diluted loss per share | $(0.18) | $(0.15) |
| Adjusted EBITDA (non-GAAP) | $12.5 | $12.6 |
| Center Margin (non-GAAP) | $54.2; 26.7% of revenue | $44.0; 30.7% of revenue |
| Cash from operating activities | $3.3 | $9.9 |
| Cash and cash equivalents | $114.0 at March 31 | $148.0 at December 31, 2021 |
| Debt principal outstanding | $180.9 | $161.2 at December 31, 2021 |
Revenue growth was attributed primarily to $59.1 million more patient service revenue, reflecting increased visits, and $0.9 million more nonpatient revenue. Commercial payors accounted for 91% of revenue; the five largest commercial payors represented 54%.
Center costs rose 50% to $148.9 million, mainly due to higher clinician compensation and occupancy and operating costs. General and administrative expense increased to $103.4 million from $32.7 million, including $59.9 million of stock and unit-based compensation, versus $0.6 million a year earlier. Management cited IPO-related restricted stock awards and RSUs as the primary reason for the compensation increase. Adjusted EBITDA was nearly flat year over year despite revenue growth.
Operating cash flow was $3.3 million. Investing used $50.9 million, including $27.9 million for property and equipment and $22.9 million for acquisitions. Financing provided $13.5 million, including a $20.0 million revolving-credit draw. Cash decreased $34.0 million during the quarter. Current assets were $263.3 million and current liabilities $125.6 million, implying working capital of $137.7 million and a current ratio of about 2.1.
At March 31, 2022, total assets were $1,958.4 million and total liabilities $415.9 million. The balance sheet reported $177.4 million of long-term debt net of current portion and debt issuance costs; the debt’s fair value was $197.0 million. Non-cancellable third-party operating lease payments totaled $270.5 million, with an additional $4.8 million for related-party leases.
Material changes and operating developments
- LifeStance completed two practice acquisitions in Q1 2022, for total consideration of $25.8 million, compared with one acquisition and $1.5 million of consideration in Q1 2021. Acquisitions added $24.7 million of goodwill.
- The company reported opening 41 de novo centers in 2022 through March 31. Center costs and capital spending increased alongside its expanding footprint.
- Interest expense declined to $3.4 million from $8.6 million, which management attributed primarily to lower borrowings outstanding during the period. Debt principal nevertheless increased during Q1 after a $20.0 million revolver draw.
- Operating results include substantial noncash equity compensation. The company reported $244.4 million of unrecognized compensation expense at March 31, expected to be recognized over a weighted-average remaining service period of 1.6 years.
Outlook, risks, contingencies and unusual items
- Liquidity outlook: Management said existing cash was expected to fund operating and capital needs for at least the next 12 months, while noting that growth, acquisitions and spending could require additional financing. No specific revenue, earnings or cash-flow guidance was provided.
- Subsequent financing: On May 4, 2022, the company entered into an agreement for a $200 million term loan, up to $100 million of delayed-draw loans and a $50 million revolver, at floating SOFR-based rates. Subject to conditions, it expected to close by May 23 and repay the existing credit facilities. A post-quarter acquisition had $2.6 million cash consideration and up to $1.05 million contingent consideration.
- Debt and rates: Existing debt bears variable rates and is secured, with leverage and other covenants. LifeStance reported covenant compliance at quarter-end. It estimated a 100-basis-point rate change would affect annual interest expense by $1.8 million.
- Controls: Management concluded disclosure controls were not effective at March 31, 2022 because previously reported material weaknesses in financial reporting and IT controls remained unremediated. Remediation was ongoing; management said the weaknesses would not be considered remediated until controls had operated and been tested effectively for a sufficient period.
- Regulatory and legal matters: The company disclosed a March 2020 Civil Investigative Demand from the U.S. Attorney’s Office for the Northern District of Georgia concerning a laboratory arrangement. It said it did not believe it was a target or had material exposure, but the outcome and scope remained uncertain. Management also described healthcare regulatory, reimbursement and audit risks; it reported no regulatory inquiries at the time of filing.
- Other risks: The filing highlights clinician recruiting and retention, payor reimbursement and concentration, growth execution, competition, healthcare regulation, cybersecurity and dependence on affiliated practices. Management said inflation had not materially affected results to date.
- Accounting change: The company expected adoption of the lease accounting standard to materially affect its balance sheet. Its reported operating lease commitments were not recognized as balance-sheet lease liabilities in this filing.
Important facts for investors to verify
- Whether visit growth, clinician hiring and retention, and new-center utilization support revenue growth without further deterioration in Center Margin.
- How much of the GAAP loss and future expense reflects equity compensation, including the timing and potential dilution from outstanding awards.
- Whether the new credit facilities closed as expected, the final borrowing and repayment terms, and the company’s ongoing covenant headroom and interest-rate exposure.
- Whether operating cash generation can fund capital expenditures, acquisitions and lease commitments while maintaining the stated liquidity runway.
- Progress in remediating material weaknesses, and any developments in the laboratory-arrangement investigation or other regulatory matters.
- Whether payor concentration, reimbursement rates and the company’s dependence on affiliated practices create material operating or compliance exposure.