Q2 2021 Lifestance Health Group Inc Earnings Call
[music].
Good afternoon, everyone and welcome to the lifespan Health's second quarter 2021 conference call.
Earnings press release and accompanying presentation can be accessed on the investors section on the company's website.
It will be the recording of today's call, which will be available for replay.
Fortunately the call over to management for their prepared remarks, please think about your attention to the disclosure on slide two.
The presentation at.
Real estate disclaimers about forward looking statements.
Including the earnings press release and S E SEC filings.
Today's remarks contain forward looking statements, including statements about our 2021 financial performance outlook.
And exclude the possible future impact of COVID-19 pandemic on our business.
Those statements involve risks uncertainties and other factors that could cause actual results to differ materially.
In addition, please note that we report that's all it is a non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of prior and present performance.
A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix.
At this time I'll turn the call over to Michael Lester Lifespans Health CEO.
Thank you Christian and good afternoon, everyone. Please turn to slide three.
Welcome to our inaugural earnings call to discuss our second quarter 2021 results.
Before we begin I want to thank all our 5000 employees for helping last fence helped deliver our first quarter as a public company.
Everyone is very proud of what we've built over the past four years and what we have achieved in being able to help people lead healthier more fulfilling lives by improving access to trusted affordable and personalized mental healthcare.
We're excited to have so many shareholders and analysts joining us today after our successful initial public offering.
As you can see on slide four we completed our IPO on June the temp offering 46 million shares on the NASDAQ stock exchange under the ticker LFS T.
With an upsized offering price of $18 per share, which resulted in net proceeds of approximately $550 million.
Please turn to slide five.
I'm joined today by Donnish correctly, our chief growth Officer, and Mike Bruff, Our Chief Financial Officer, who together with other key leaders, making up make up our highly experienced leadership team a team that has deep knowledge in the healthcare and technology sectors as well as growth execution.
Mike Breath, we'll be providing a detailed review of Q2 results in a few minutes, but I wanted to provide some quick highlights on slide six.
We delivered on strong growth in the quarter with revenue increasing over 90% year over year.
And adjusted EBITDA growing almost 40%.
Our clinician base grew 94% year over year and was a key driver of our revenue performance.
We ended the second quarter with a cash position of $276 million.
Additionally, we also established the life Health Foundation with an additional a download of $10 million I'll touch more on the foundation's activities shortly.
Please turn to slide seven.
For those investors, who may be less familiar with life stands I'd like to provide some background on the company and the market we serve.
Since our founding in 2017.
Revenue and adjusted EBITDA have grown rapidly driven by our strong hybrid business model and unique clinical clinician value proposition increase in demand for mental healthcare services and the great care that our clinicians and team members provide to patients.
Between 2018, and 2020, we grew revenue and adjusted EBITDA at CAGR is up 94% and 179%, respectively, doubling adjusted EBITDA margin rates to over 13% during that time.
We also generated revenue of $524 million on a trailing 12 month basis ending June 32021.
The market, we serve is large fragmented and growing.
And the demand for our services is robust.
Today, we estimate that our addressable market is $116 billion.
Growing to $215 billion by 2025, representing a 14% CAGR.
We built a platform of nearly 4000 clinicians across 31 states rep.
Representing a formidable first mover advantage.
A few other highlights about the company's differentiated approach.
First our platform is a hybrid model.
Pending on the patient's needs and preferences, we can provide in person care and over 450 of our centers nationally.
Virtually via our telehealth platform.
As well as a combination of both.
We support a consistent experience across channels with a unique and comprehensive suite of digital capabilities that allow clinicians to track outcomes and adjust treatment plans, while freeing up administrative time to focus on patients.
Second we are improving patient access by delivering services through an in network commercially insured model, where we're partnered with over 200 commercial payers nationwide.
Third our clinicians are directly employed not a network of independent contractors.
This enables us to build a culture that centers around our clinicians.
We have a six point clinician value proposition, which include a mission driven culture.
<unk> work environment with cross collaboration.
Our strong work life balance.
Our heavy investment in digital tools.
Robust support services and a competitive compensation package.
And lastly, we recognize that primary care physician is the first line of help for patients seeking mental healthcare.
It's difficult for patients to final mental health clinician, let alone one that accepts their insurance and is within their local geography.
This has led us to partner with over 2000 primary care physicians, including co locating some of our clinicians inside large primary care group practices.
<unk> health provides the right mental health clinician in the right location with the right insurance platform, enabling greater accessibility to patients in need.
In summary, our differentiated hybrid care model offers convenient affordable and high quality care for patients and we will continue to support our strong growth.
I'm now on slide eight.
<unk> is a mission driven company. Our mission is to help people lead healthier more fulfilling lives by improving access to trusted affordable and personalized mental health.
Turning to slide nine.
Beyond being mission driven less dense is also committed to acting responsibly as a corporation.
While the ESG framework is somewhat new to us having been a private company up until recently.
The concept of responsible environmental social and governance practices is not.
As a healthcare company to social component is highly relevant and a driver of our purpose.
By expanding access to quality mental healthcare, we will deliver results to our investors.
Looking at diversity and inclusion nearly one third of our board of directors and 50% of our executive leadership team is diverse by gender race ethnicity.
Additionally, the majority of our clinicians are female and nearly a quarter of our employees identify as diverse by race or ethnicity.
Our national diversity equity inclusion committee is chaired by our Chief Medical Officer and.
And as organized with team members across the country in pursuit of our four pillars of dei representation cultural intelligence equity inclusion.
Our commitment to diversity equity inclusion supports our clinicians to build a strong therapeutic alliance with patients. In addition to contributing to our workplace culture.
As it relates to corporate stewardship, and social responsibility. We recently established the life stance Health Foundation with a $10 million endowment funded by our shares and proceeds from our recent IPO.
The foundation focuses on mental health, and especially vulnerable populations youth in adolescence, underrepresented minority communities and the underemployed and uninsured.
As you can see on slide 10 in July <unk> Health Foundation announced a partnership with a mental health coalition to end the stigma around mental health conditions and support our shared vision of a truly healthy society.
This partnership complements life Sciences recently announced no face campaign, which was developed to encourage candid conversations about mental health and reduce the stigma around seeking treatment.
Come join the movement to Destigmatize mental health by uploading a selfie on Instagram with the hash tag not one face.
Additionally, after being inspired by multiple athletes bravely sharing their own personal struggles with mental health publicly the foundation donated $30000 to the U S Olympic and Paralympic Foundation in support of athletes demonstrated that mental health is physical health.
I will now turn the call over to Don to provide more on our growth strategy.
Thanks, Mike and good afternoon, everyone I also want to.
To reiterate how proud we are of our over 5000 mission driven team members that helped build lifetime health over the last four years and who continue to re imagine house improve access to quality medical healthcare and deliver on our unique value proposition.
Please turn to slide 12, which highlights our growth strategy.
Mike laid out our mission and the benefits of our hybrid business model all.
I'll spend some time in this session discussing our strategy to drive short and long term sustainable growth.
Take a disciplined approach our strategy underpinned by three core pillars, each with its own ability to drive differentiated growth.
The first pillar of our growth strategy continues to be geographic expansion into new markets, both organically and through acquisition.
We take a focused approach to identifying attractive new market based on patient demographics payer.
Our concentration clinician coverage and the prevalence of high quality acquisition opportunities.
In the second quarter, we expanded into five new states, bringing our total to 31 states within person clinic I'll provide some.
Additional detail on our footprint in a moment on the next slide.
The second pillar of our growth strategy is to build out density in existing markets through first hiring new clinicians second opening de Novo centers and third additional tuck in acquisition.
As Mike discussed commissions are a critical part of our growth.
Through our in house recruiting team and acquisition efforts, which focused on attracting and retaining high quality Commission. We added 674 clinicians in the second quarter, bringing our total clinician base to nearly 4000, an increase of 94% year over year.
Additionally, during the second quarter, we opened 35 de novo's, a single quarter record, bringing our de Nova total to 883 centers.
Finally, we completed 10 acquisitions, bringing our total to 64 completed since company inception.
The third pillar in our growth strategy is to deploy our digital services to reach the entire population of the states. We operate in with a focus on speed efficiency and scale to profitably serve our clinicians and patients.
Our unique hybrid model allows us to utilize digital tools for maximum engagement and efficiency for patient clinician and light stance as an organization.
The continued high utilization of our digital tools and our flexibility to deliver patient volume seamlessly between in person and virtual care is a testament to not only the resilience of our business in the face of external environmental challenges, but also remains a key differentiator for <unk> in the marketplace.
We're proud of the rapid growth of our company using a very scalable process that is consistent repeatable and profitable.
And we remain confident in our long term growth prospects.
Not only is our total addressable market expected to grow 14% through 2025, but were also less than 1% penetrated as measured by both clinicians and patients providing a long runway of opportunity.
On slide 13, we have provided a map, which details our geographic presence by state.
We currently operate in 31 states cementing our position as a leading national provider of mental health services.
Over the near term, we have a goal of expanding into 37 states and longer term, we have a goal to be in all 50, providing either in person or virtual care.
In closing, let me provide an overview of the current market environment.
We continue to experience strong patient demand and like stance remains the employer of choice for clinicians and our industry as evidenced by the higher than expected growth of our commission based year to date.
In fact, our ongoing recruiting and acquisition momentum is projected to deliver higher than expected clinician growth for the full year.
This is a testament to the value proposition <unk> delivered to our clinician.
However, as the COVID-19 pandemic continues to play out there's been a recent increase in turnover across industries and especially within healthcare.
<unk> is not immune to these industry dynamics and we've experienced an increase in commissions retiring or leaving for personal reasons for.
Regardless of these recent broader industry developments, we expect the benefit of our higher commission growth to offset the lower retention rates this year.
We remain focused on consistently executing against our core growth strategy to drive disciplined and differentiated growth.
We're excited about the immense market opportunity in front of us and look forward to delivering both short and long term value creation for all of our investors.
With that let me now turn it over to Mike Brock.
Thanks, Don.
As the newest member of the executive team.
Incredibly proud to serve life stands health.
Purpose, driven company committed to expanding access to affordable high quality and personalized mental healthcare.
I'm focused on strengthening our financial operations and building a scalable infrastructure to support the company's growth and ensuring we invest capital strategically to deliver strong returns.
Please turn to slide 16.
We have included quarterly trends, reflecting our key operating metrics highlighting our consistent growth over time.
Over the past four quarters clinician count revenue and center margin have all approximately doubled.
For the second quarter total revenue was $165 million up 91% year over year, primarily driven by the 94% increase in clinicians achieved through both hiring and acquisitions.
Center margin of $51.2 million doubled over the same period last year with margins expanding by 140 basis points to 31, 9% primarily.
Driven by overall clinician growth and continued clinician ramp in the 2020 de Novo vintage.
Adjusted EBITDA was $14.5 million up 39% year over year.
Center margin performance powered the year over year dollar increase.
However investments in growth initiatives within our digital marketing and business development teams and in public company infrastructure.
<unk> and adjusted EBITDA margin at nine 1% of revenue down 330 basis points year over year.
These ongoing investments will support and sustain our growth priorities and generate operating leverage over time.
Moving to slide 17, and our balance sheet.
As Mike mentioned the company received net proceeds of approximately $550 million.
Our recent IPO.
We used $303 million of the proceeds for debt repayment with the remaining proceeds of approximately $247 million retained for general corporate purposes.
We used $7 million in operating cash in the six months ended June 30 <unk>.
Including an $8.8 million charge related to the voluntary prepayment of a portion of the outstanding debt.
Capital expenditures, including de Novo Center openings was 31.8 million in the six months ended June 30.
Additionally, we deployed $39.1 million for capital acquisitions over the same period.
We ended the quarter with cash and cash equivalents of $276.2 million.
And long term debt of $158.7 million with no material payments coming due until 2026.
From a capital allocation perspective.
We continue to prioritize investing in organic and inorganic growth opportunities to grow share in our fragmented addressable market.
Additionally, we will remain disciplined to ensure that we have the flexibility and capacity to be strategic and successively successfully navigate different business environments.
And now turning to our outlook for the remainder of 2021 I'm on slide 18.
Given we IPO mid year and in an effort to help you understand and model our business and performance.
We will be providing quarterly and full year guidance for the remainder of 2021.
When we announce our fourth quarter and full year results in early 2022.
We will outline our formal guidance policy going forward.
For the full year 2021, we expect total revenues of 668 million to $678 million.
Center margin of $198 million to $208 million.
Adjusted EBITDA of 47 million to $53 million.
For the third quarter, we expect total revenues of $168 million to $173 million.
<unk> margin of $47 million to $52 million and adjusted EBITDA of 8 million to $11 million.
And for the fourth quarter, we expect total revenues of 196 million to $201 million.
Center margin of $56 million to $61 million and adjusted EBITDA of 12 million to $15 million.
Our outlook takes into consideration the following factors first our clinician value proposition remains strong as evidenced by the net addition of nearly 700 clinicians in the quarter, which is above company expectations.
And while we are assuming a continuation of lower retention rates for the remainder of the year, our ongoing recruiting and acquisition momentum is expected to deliver a higher than expected clinician base for the full year.
However, new clinician additions have lower productivity for the first four to six months and therefore will not immediately offset the impact from higher turnover a dynamic we expect to negatively impact centre margin and adjusted EBITDA by approximately <unk> <unk>.
$7 million to $9 million.
Yes.
Sure.
Second we are increasing our investments in the back half of the year to support and sustain the higher than expected clinician growth.
These investments will primarily focus on continuing to build the regional infrastructure as well as drive business process optimization and.
And are expected to have an estimated impact on adjusted EBITDA of.
Of $8 million to $10 million.
Given the growth momentum of our clinician base. We believe these investments are the right approach.
We have growth drivers in place to take advantage of the immense market opportunity and we are confident in our ability to achieve our long term adjusted EBITDA margin target of 25%.
It is important to note that our outlook does not assume any material changes in the current environment as it pertains to the COVID-19 pandemic and its impact on the current labor market conditions.
With that I'll turn it back to Mike for a few words before going to Q&A.
Thanks, Mike.
On slide 19.
Thank you for joining us for our inaugural earnings call and for your interest in <unk>.
It's an exciting time at the company as we emerge from our IPO.
<unk> and focused on delivering growth while living our mission to help people lead healthier more fulfilling lives by improving access to trusted affordable and personalized mental healthcare.
We have an energized leadership team and a clear path to capture the large and expanding market opportunity supported by solid cash generation and a strong acquisition pipeline.
At the same time, we're focused on operational execution to drive efficiencies and profitability.
I want to close by once again thanking all last stance clinicians team members and partners for their support and dedication to our mission and growing our company.
Were so fortunate to be on this journey together.
Towards a truly healthier society.
Thank you for your commitment to deliver trusted affordable and personalized mental healthcare.
With that let's move to Q&A Christian.
Thank you, Sir ladies and gentlemen, if you would like to ask a question. This time.
MS Star then the number one key on your touch down telephone.
If you wish to withdraw your question.
Thank you.
Well first question is from Craig <unk> from Morgan Stanley. Your line is open.
Yes, Thanks, it's Craig on for Ricky I appreciate the color on the impact to EBITDA in terms of.
The clinicians and investments can you just take a step further on the clinician understanding the low productivity if theres any other things you can do over time to kind of perhaps offset that or improve it and then on the investments maybe just talk through how you've been thinking about this as the years progressed is it incremental growth.
Unity is coming in and Youre, adjusting accordingly, or just how the investment planning has.
Through the year.
Yes. Thanks for the question sorry, Ricky can be on the call. We are looking forward to talking to her as well.
Yes, maybe if you'll indulge me for a couple of minutes here, let me give some expanded commentary around this hopefully this will be helpful.
And our first quarter, we were in line with our growth expectations from a clinician and revenue perspective.
In the second quarter is when we saw an uptick in the clinician growth momentum and it's also where we saw the increase in turnover.
And it turned out was relatively consistent with with what was happening in the market for that quarter. I think it's just worth pointing out that we didn't really have any material impact from a financial perspective.
So when we get into looking forward into the back half of this year from a clinician to clinician perspective, we got to remember that.
When a clinician leaves the company it has.
That clinician has an immediate impact.
Downward impact on the financial performance as leaving clinicians are typically at full capacity.
That gives us downward pressure on both revenue and center margin dollars and both of the quarters in the back half of this year.
Now we are much higher than the.
Than originally expected in terms of clinician growth, but that growth will more gradually offset the turnover as you know.
First with respect to hire clinicians it typically takes those clinicians four to six months to ramp so that full capacity and acquired clinician. It takes about the same period for those clinicians to benefit from rate synergies.
That life Science provides.
That's why you're seeing a greater margin pressure in the third quarter with sequential improvement in the fourth quarter. So that's on the on kind of the top side of the P&L and answer your question around.
The investments.
It's because of this higher than expected clinician base for 2021 that we need to invest now to support and sustain that growth.
So think about in a couple of ways. One is we need to be able to process. This growth we need to invest in our intake platform for more patients we need to invest in clinician credentialing, because they're now more clinicians and we need to invest in billing to accommodate the expected increase.
<unk> in visits so these investments are directly related to this growth and we feel very confident that we'll be able to scale. This over time, especially as our clinicians ramp.
Now that accounts for about half of the total investments the other half if you think about these investments as.
Enabling growth and further growth and driving leverage. So these are investments in digital tools business process efficiencies and this ensures that when we grow we will grow on a solid foundation.
And finally, what I'd call out is.
Our referral channels and the patient need for our services remains robust. So therefore, we are not planning any incremental spend in marketing I think thats an important distinction.
So to sum it up some of these costs here they are variable, but we believe that the clinician growth will drive considerable leverage as they move to full capacity and the net here is this clinician growth momentum we.
We're very confident that it's the right time to invest.
Okay I appreciate all the color on that.
Just a follow up I wanted to touch on telehealth.
Clearly the traction continues quite strong, particularly in mental health can you just talk about kind of your technology platform.
And where do you think you'd differentiate and what type of traction you are seeing on the telehealth side of things.
Go ahead.
So from a telehealth perspective, we continue to have the majority of our visits during this period delivered via telehealth.
You see the shift in mix between in person and telemedicine go up and down in line with the movements in the pandemic all.
All that being said.
We are very committed to this hybrid model both during the current period and over the long term because we believe it what delivers.
Better healthcare, and particularly better mental healthcare, so, allowing that flexibility for patients to choose either in person visits or visits online or a combination of both week to week is really key and a major differentiator for us against anyone else in the marketplace as delivering exclusively one channel or the other and I.
This is Mike I would add to that that because of this flexible hybrid model that we have we expect no impact on our business even showed the delta variant.
<unk>, increasing and we go back to a little bit more of a shutdown and then where we bid against remember we have negotiated rate parity and the vast majority of our contracts pre COVID-19. So we're really agnostic as to the point of care.
Understood. Thanks.
Next question is from Ryan Daniels from William Blair. Your line is open.
Hey, Rod.
Hey, good evening, thanks for taking the questions.
Stick with the higher physician turnover can you go into a bit more detail, that's obviously going to be the clear investor question on what level of turnover you're seeing.
Versus historically, maybe the percentage increase and then how certain are you that.
The industry versus not being company specific in what you're seeing at all regions are anywhere specific.
Country.
Yes so.
First off we really believe that.
This increased level of turnover is very clearly tied to COVID-19 and come to market dynamics that are going on currently.
It's both impacting multiple industries, and particularly healthcare and again life science is not immune to those sort of changes were.
Where we're seeing the uptick in turnover is really clinician, leaving for personal reasons like early retirement family priorities lifestyle changes et cetera, and that again is very consistent with what the overall market is seeing.
We make sure that we always take clinicians, leaving very seriously. So we do exit interviews with every single condition.
Before they believe to be able to understand really what's going on and are there things that are controllable that we can effect to change those decisions, but ultimately when we look at this we believe that this is temporary in nature and again.
Point in time with this specific market.
We don't want to predict when things will return to normal.
Right now we're just planning in terms of how we look at the rest of the year at it's staying steady at its current pace.
That being said.
<unk>.
Despite any of that we expect that our end of year clinician base to be significantly above original expectations, which shows that our recruiting and our acquisition efforts continue to allow us to power through and.
Kind of beat any of those numbers.
Is there anything you guys have considered doing in the near term maybe this wouldn't be prudent for the long term to introduce this to the model, but more retention bonuses.
Any investments in early warning systems internally to try to figure out if a clinician might be going through burn out if they suddenly started lowering their <unk>.
Office hours things like that that could be an early trigger point to help you intervene any thoughts on that yes.
Yes, so we actually have a lot of those early warning signs or kind of triggers in place already to be able to monitor what's going on in our clinician base, including monthly touch points with our clinicians.
So that we're having both a data driven approach to seeing what's going on with turnover, but more importantly, the personal approach to understand what's going on in every single clinicians life.
See what's impacting them ultimately what we continue to hear that our six clinician value proposition remains really strong and is resonating both with the clinicians and our group that are staying as well as continuing to attract additional commissions from the outside through hiring and.
Through the acquisition efforts so.
Those sort of systems, we have in place, but we'll continue to look at other ways to improve and ultimately.
We don't have any concern.
Around the ability to grow through this.
And continue to overachieve on some of these.
Kind of the growth of our clinician base as demonstrated by the numbers, we put up this quarter.
Yeah.
Okay, and then last one and I'll hop off.
I guess the other question would be frankly don't you guys have the volumes to kind of more easily ramped new clinicians I would assume that.
Yes, there is clearly a relationship between the clinician and the patient with patients still need help.
Regardless of if its the same clinician or not so can you kind of backfill that.
Other than the four to six months, but just taking that patient base.
Plugging it into health telehealth and plugging it into another.
Therapist in the clinic, and just say Hey, Youre clinician retire we've got another clinician here or are your clinicians.
The run rate base kind of a max capacity in the newer guys not ready to step up to that level. So quickly.
Yes.
Thank you.
There's natural ramp no matter what so.
The company since inception has always had patient demand that exceeds clinician supply so that dynamic hasnt changed but what you see with new clinicians is that when they are coming on board and they are establishing relationships with their patient base.
Even if those were patients that were previously being seen but another lifestyle health clinician. The visit times are longer right. So follow up visits are shorter quicker initial visits are longer and take more time and so there is a natural.
Ramp that has to happen as new collections get on boarded in addition, theres a national ramp as.
As Credentialing plays out for new clinicians when we get them.
On panel with different payers in their region. So I would I would argue that the 4% to six month ramp is really best in class.
And better than what I would assume kind of the market averages.
Okay.
Makes a lot of sense and that's helpful color, though that clarifies it alright. Thank you guys.
Your next question is from Lisa Gill from Jpmorgan. Your line is open.
Hi, great. Thanks very much.
Just one last question around the clinicians and then I do have a second follow up but when we think about the clinician impactful blurry retention you talked about that higher clinician growth.
You didn't really talk about compensation in the marketplace. So we know that theres a lot of competition in the marketplace right now theres been a number of articles that have been written around that as mental health continue to grow in B cell important can you maybe just discuss.
If there is anything in your EBITDA assumptions around.
Paying clinicians higher rates than what you've seen historically what would be my first question.
Yes. So we don't we don't expect any unusual wage inflation going on in our clinician base. I mean regular course of business is for us to be able to monitor compensation by region.
And actually down to the MSA to make sure that we are always competitive.
And so again, we haven't witnessed any material change across the board that we would need to revise our planning expectations.
And anytime we do see.
Wage increases were also simultaneously seeing pay rate increases.
So again Thats why we don't have any changes in our <unk>.
Guidance around.
Wage inflation that is different than our previous planning expectations.
Okay. That's helpful and then secondly, what.
Thanks, you called out was with COVID-19, right in that generic potentially be an incremental impact as we think about the back half of the year the Delta Varian.
So you are in a good position with the parity.
<unk> ability to move the first of all healthcare, but.
Is there anything on the either positive or negative side.
As we continue to see growth in Covid and the Delta variants.
We think that.
Okay.
When Covid first started this is Mike when Covid first started.
I think we did a really good job of somewhat of a seamless transition between the delivery mediums of in person care versus.
Virtual and I would also say that we continue to see an increase in demand from patients patient volume continues to tick up I think some of that might be related to COVID-19. It's also a lot more related to the dis stigmatization of mental healthcare in general I think in the peak.
Of the pandemic, we were seeing 90 plus percent.
Virtual care, we've seen that tick down over the first six months of this year were about 83% now.
See it depending on what happens with Delta I could see it slightly ticking back up a little bit but again, we're agnostic. So we really don't care.
One other thing I'd add there is appointed.
Because of our hybrid model and our ability to be seamless and flexing from in person to telemedicine.
That allows us to avoid the whiplash that other single channel groups may be experiencing as you have the ups and downs of the pandemic. We just we just.
Power through it with no effect on the business.
Beauty of the model.
Okay, great. Thank you.
Your next question is from Steph Wissink from Jefferies. Your line is open.
Thank you good afternoon, everyone I wanted to come back to the same line of questioning on the clinicians and just make sure. We're hearing you correctly on the 7% to $9 million is that value that you expect to recover as those new clinicians come on and ramp to capacity. So is it maybe stated another way more of a second half phenomenon, which is why we're seeing it in the guidance.
Our multiyear reduction in the overall productivity assumptions.
Well.
Thanks for thanks for the question and welcome to our first call.
Yes look we are.
Struggling to really take this out beyond 2021 right now.
Because the.
The increase in turnover that we saw midway through the second quarter.
I can only project out through this year the data that I have in front of me and the data that we have in front of us.
I don't know if its going to continue or.
Beyond this year or if it's going to be shorter than the projection that we have right now which is through the end of this year because.
As <unk> mentioned this is this is market driven or exit interviews are right in line with the market, where we've seen an uptick we haven't seen an uptick in anything related to life science.
So.
I don't know.
How long this level of <unk>.
Retention rate will continue so we're only projecting out through the end of the year and yes.
It does have a different impact in the third quarter than it does in the fourth quarter because the.
The downward pressure is relatively the same in both but the upward momentum is driven by the significant increase in clinicians and as they ramp there's going to be more contribution from those clinicians in the fourth quarter.
I think it's I think it's safe to say that we would continue to see that momentum carry beyond this year.
All other things being equal, but I, just don't want to get out over my skis into into 2022 yet.
Okay. That's fair that's very helpful. And then I had the same question on the investment spend step up I'm. Just curious if some of that investment spend would've been spending we would've seen in 'twenty two 'twenty three that based on the growth and the momentum in the business. You are pulling ahead or is this incremental to the multi year investment structure that you had in place.
That's a great question.
Here's the way that I would frame this.
<unk>.
As we expect the clinician growth momentum to carry forward into next year.
So too will the infrastructure needed to support that higher base.
So that said we fully expect.
This expense level at this higher rate.
We didn't expect to be at this level of clinician growth till sometime next year, which yes that expenses being pulled forward to some extent, but that also means that we're going to be at a higher clinician base next year, and we're going to have to invest to support that base. So.
Yes.
It's it's kind of hard to say whats baked in next year and not going to materialize I think we're just on a different ramp of clinician growth and therefore, we need to catch up with our investments to support that growth. So I would expect these investments to carry forward into next year, but.
But what I'd also say is that we're not just investing in variable.
Expenses, yes, we are investing in intake and clinician credentialing in billing, but we're also investing in business operations operational excellence activities.
And digital tools, which will help us be much more efficient and drive leverage out of these investments over time. So that's also a purposeful investment in our in our base to ensure that we've got a very strong foundation as we enter into this new vector of growth.
Thank you very much very helpful.
Yeah.
Your last question is from Jamie PUC from Goldman Sachs. Your line is open.
Hey, good afternoon, guys and welcome to the public markets.
I wanted to ask.
Another question on the clinician piece.
Roughly 675, all this talk about churn and clearly implies that the gross adds will be even better and I wanted to tease apart that this first can you talk about how much came from acquisitions.
Acquired.
E practices that you acquired during the quarter versus organic hiring and then second I'd love, if you could tease out where youre seeing strength across psychiatry psychology in APM.
Yes, so from a.
Kind of a mix of where the clinician growth has come from on both the organic hiring and on the acquisition side, we have over achieved on the original targets.
When you look at it on balance.
Right now majority weighted towards organically hired versus acquired but again on both we have not only hit our original targets but exceeded.
So feel good about them both being a continued driver of AD SAR clinician base, both in the near term and over over the long term.
In terms of the breakdown provider type it remains consistent with what.
The overall practice group has always been and there hasnt really been any material material shift towards a therapist or psychiatrist thats been about about the same ratio of.
About a third on the psychiatric side about two thirds on the therapy side.
And then.
The other part that Jamie.
Sorry, I was just going to react to.
The increase in clinicians.
Relative to the.
Net.
The impact on our guidance.
With the.
Lower retention rate.
The short answer is yes, this inflection in clinician growth.
Is giving us some.
Significant.
Opportunity on the top line.
It's unfortunate that we live in in these Covid times, it's unfortunate that we have.
The variability out there and and.
The good news for US is our model hasn't changed.
Model is exactly the same today as it was last year and the year before our value proposition for clinicians it's exactly the same today.
<unk>.
In spite of.
This increase in turnover in the market, which is impacting us.
Still able to grow our net clinician base significantly over what our expectation was this quarter.
And.
And we believe that will continue through the end of this year, even at and again I don't have any data in front of me that says otherwise so we've modeled in that lower retention rate.
As well as this this higher clinician growth.
So.
I'll, let you determine whether or not you want to.
Forecast, whether or not the retention levels are going to change, but for US right now, we're just going to be.
Pretty pragmatic about the data that we see in front of us.
Okay, great great color.
One on just the center level margin nice step up from <unk> I think you just rough math youre at about eight clinicians per center I think capacity. There is closer to 12 can you just talk about the margin impact as you sell these centers.
Get closer to that 12 capacity number and the impact that would have on margin center level margins.
Well I mean, it's clinician ramp is a key component.
Of.
The center margin rate for sure right.
Clinicians ramp too.
Maturity over a 12 month period.
Our de Novo centers.
Build them to have on average.
12 offices for for clinicians.
And that model the unit level economics, there havent changed from from what we have communicated before which is when we get to that 18 month timeframe, we're earning about two times the invested capital at that at that point.
And every quarter going going forward, we're at that level. So.
Taking that model, which is as Don said, it's very predictable and it's very repeatable.
The 700 clinicians are going right into that model, if theyre being hired now if they're being acquired.
They're going through a different four to six months initial period, which is really there.
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We will I think the last call that was being addressed or the last question that was being addressed was in fact the last question.
So with that that will include conclude lifespan health second quarter 2021 earnings call. Thank you for joining.
Ladies and gentlemen, this does conclude the Q&A and earnings call. Thank you for participating and have a great day you may now disconnect.
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