Business context and reporting period
LifeStance Health Group, Inc. filed its first annual report as a public company for the fiscal year ended December 31, 2021. It operates an outpatient mental health platform offering in-person and virtual services through wholly owned subsidiaries and affiliated practices. At year-end, it employed 4,790 clinicians across 32 states and operated 534 centers.
Comparability is limited: the 2020 results are split between predecessor and successor periods following the May 2020 TPG acquisition, which changed the accounting basis. The filing does not present a directly comparable full-year 2020 income statement alongside 2021.
Key financial metrics
| Metric | FY 2021 |
|---|---|
| Revenue | $667.5 million, including $660.2 million patient-service revenue |
| Operating loss | $286.4 million |
| Net loss | $307.2 million; basic and diluted loss per share of $1.05 |
| Center Margin | $201.5 million, approximately 30% of revenue; non-GAAP and excludes G&A and depreciation and amortization |
| Adjusted EBITDA | $49.2 million, approximately 7% of revenue; non-GAAP |
| Operating cash flow | $9.4 million provided |
| Investing cash flow | $194.1 million used, including $99.6 million for acquisitions and $94.5 million for property and equipment |
| Cash and cash equivalents | $148.0 million at December 31, 2021, versus $18.8 million a year earlier |
| Debt | $161.2 million principal outstanding; $157.4 million long-term debt net of current portion and issuance costs |
| Liquidity and obligations | $251.1 million of non-cancellable third-party operating lease payments and $12.2 million of related-party lease payments |
Revenue mix was 90% commercial payors, 5% government payors, 4% self-pay and 1% non-patient services. UnitedHealthcare and Anthem represented 19% and 14% of revenue, respectively.
Material changes versus prior periods
- Revenue was $265.6 million for the successor period April 13–December 31, 2020; this partial-year amount is not directly comparable with FY 2021. The filing provides unaudited pro forma revenue of $377.2 million for 2020 as if the TPG acquisition occurred on January 1, 2019.
- Net loss widened substantially in 2021, with $259.4 million of stock and unit-based compensation expense, primarily related to IPO-era award conversions, modifications and grants. General and administrative expense totaled $433.7 million.
- Adjusted EBITDA increased to $49.2 million from $37.5 million in the 2020 successor period, also a partial-year comparison. Center Margin was $201.5 million versus $86.3 million for that period.
- The company completed its June 2021 IPO, receiving approximately $548.9 million net proceeds, and prepaid $294.0 million of debt. Principal debt fell from $373.8 million at December 31, 2020 to $161.2 million at year-end 2021.
- Expansion continued: centers increased from 370 at December 31, 2020 to 534 at December 31, 2021; the company opened 106 de novo centers and acquired 24 practices during 2021.
Outlook, risks and unusual items
Management expects growth from clinician recruitment and retention, center openings and acquisitions, increased visits, and expansion of payor and physician partnerships. It gave no quantified forward guidance. Management stated year-end cash was expected to fund operating and capital needs for at least 12 months, while cautioning that growth investment, acquisitions and other factors could require additional financing. A $20 million revolving-credit draw and two acquisitions funded through credit-facility financing occurred after year-end, in March 2022.
- Clinician capacity: The company reported accelerated clinician attrition and cited labor-market pressures, burnout and higher compensation needs as risks to hiring, retention, center openings and profitability. It also noted increased cancellations in late December 2021 and into early 2022, primarily due to illness.
- Financial controls: Material weaknesses in internal control over financial reporting remained unremediated at December 31, 2021; management concluded disclosure controls were ineffective. Earlier weaknesses contributed to restatements of 2018 and 2019 financial statements. Remediation was underway.
- Regulatory and operating risks: Risks include corporate-practice-of-medicine and fee-splitting rules, clinician licensing and telehealth regulation, payor reimbursement and contract concentration, privacy and cybersecurity, and dependence on affiliated practices. The company disclosed a March 2020 Civil Investigative Demand concerning a laboratory arrangement; it said it did not believe it was a target or had material exposure, but the outcome was uncertain.
- Debt and interest rates: Credit facilities include restrictive covenants and variable-rate debt; the company reported compliance at year-end. A 100-basis-point rate movement would change annual interest expense by approximately $1.6 million based on year-end debt. The filing also identifies the LIBOR transition as a potential financing risk.
- IPO-related items: Interest expense included a $14.4 million debt-extinguishment charge from the 2021 prepayment. The company also recorded a $10 million foundation endowment, including $9 million in shares, and a $1.2 million management-agreement termination fee.
Important facts for investors to verify
- Review the audited financial statements and non-GAAP reconciliations, especially the unusually large stock-compensation expense and the definition and limitations of Center Margin and Adjusted EBITDA.
- Assess underlying growth and margins using comparable periods, while accounting for the acquisition-related accounting change and the partial-year 2020 periods.
- Track clinician hiring, attrition, compensation, visit volumes and cancellations, and determine whether new centers and acquisitions generate expected returns.
- Confirm liquidity after the March 2022 revolver draw and subsequent acquisitions, and monitor debt balances, interest costs, covenants and lease commitments.
- Monitor remediation and independent testing of the material weaknesses, and follow developments in the laboratory-arrangement investigation and healthcare regulatory environment.