Q1 2022 Lifestance Health Group Inc Earnings Call
Good day and welcome to the life <unk> Health first quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question answer session.
Ask a question during this session you'll need to press Star then one on your touch some telephone we ask that you. Please limit yourself to one question and a follow up.
If anyone should require assistance during the call. Please press Star then zero switching operator as a reminder, this call may be recorded.
I would now like to turn the call over to Monica Pro Koski, Vice President Investor Relations you may begin.
Thank you.
Good afternoon, everyone and welcome to lifestyle.
102020 earnings conference call.
Monica Borkowski, Vice President of Investor Relations joining.
Joining me today are Mike Lasser, Chief Executive Officer, Mike <unk>, Chief Financial Officer, and Josh Karachi, Chief Credit Officer, we issued the earnings release and presentation. After the market closed today.
They're available on the Investor Relations section of our website Investor <unk> Com.
In addition, a replay of this conference call will be available following the call.
Turning the call over to management for their prepared remarks. Please direct your attention to the disclaimer about forward looking statements included in the earnings press release and SEC.
Today's remarks contain forward looking statements, including statements about our financial performance.
Those statements involve risks uncertainties and other factors, including the possible future impact of the COVID-19 pandemic on our business that could cause actual results to differ materially.
MS. Shen. Please note that we report results using non-GAAP financial measures.
We believe provide additional information for investors to help facilitate comparison of prior and past performance.
A reconciliation to the most directly comparable GAAP measure.
In the earnings press release table and presentation appendix.
Otherwise noted all results are compared to the prior year comparative period.
At this time I'll turn the call over to Mike Lister CEO lifespan.
Thank you Monica and thanks to all of you for joining us today.
Again, I would like to emphasize the importance of our mission of improving access to trusted affordable and personalized mental health care.
As you May know may is mental health awareness month.
We as a country raising awareness about the importance of our societies mental health.
Not always last answer is committed to helping people lead healthier more fulfilling lives is the country's largest outpatient provider of in person and virtual mental health care.
Turning to our results we are pleased with the team's disciplined execution of our strategy.
Drove solid performance in the first quarter, even through the recent pandemic surge and ongoing labor market dynamics.
We continue to see strong demand for our services and consistent execution by the team which was reflected in our results.
Revenues for the first quarter was $203 million.
Representing growth of 42% and.
And adjusted EBITDA was positive $12 million as.
As we've noted previously revenue growth is primarily driven by our total submission counts.
In the first quarter, we grew our explanation base to 4989, representing growth of 51% compared with the prior year.
In line with our expectations.
We believe that our first quarter performance positions us well for the balance of the year.
As a result, we are reaffirming full year guidance for revenue in the range of 865 $885 million.
Center margin of $240 million to $255 million.
And positive adjusted EBITDA in the range of 63 million to $67 million.
<unk> will provide additional detail about our financial performance in his section of our prepared remarks.
Before turning to execution I would like to remind everyone about what differentiates last sensors business model from pure play a telehealth companies in the market.
Compared with virtual health care companies are nearly 5000 W. Two employees clinicians are able to deliver mental health care services in person or virtually.
Source of sustainable competitive advantage for a lot of sense and one of the key drivers of our momentum in the market.
Independent third party surveys continue to support a lot of expenses approach to care. For example, according to a recent Blue Cross Blue Shield survey nearly 70% of patients want to see the same information both in person and via telehealth.
It is clear that patients and clinicians want convenience choice and control over when and how to access or provide mental health services.
We are uniquely positioned to deliver on both patient and clinician preferences due to our flexible hybrid model.
Furthermore, patient demand for our services has never been stronger not only are patients are attracted to the hybrid model, but we also provide affordable access to care through coverage that is in network with commercial insurers as opposed to cash pay.
Subscription based online models.
Additionally, because of our diverse mix of prescribers therapies.
<unk> can access personalized comprehensive care to meet each individual's unique mental health care needs.
And as we have noted previously our patient acquisition costs remained very low as the vast majority of our patients come directly from sticky primary care referrals in network payer relationships and organic online sulfur firms, we are not and never have been dependent on direct to consumer.
Marketing.
Turning to execution.
In the first quarter I'm pleased that we've been able to demonstrate consistent performance and are executing effectively on our profitable growth strategy.
We are re imagining our patients receive access to affordable.
<unk> mental health care.
To deliver on that goal, we continue to focus our growth strategy on three core pillars of expanding into new markets building market density and deploying our tech enabled services.
In terms of expanding into new markets, we entered into six new states in 2021 and are now deepening our president presence in our existing 32 states contributing to our mission of improving access.
As for building market density clinicians remain our primary growth driver and in the first quarter, we grew our clinician base nationwide.
199, net conditions in the first quarter, bringing our total to 4989.
An increase of over 50% year over year.
This strong growth, especially in the current labor market environment demonstrates that our value proposition is resonating as we continued steady explanation growth each quarter.
Our growth in our clinician population is also an indication of our operational capability to onboard and ramp new clinicians within our organization one of the largest W. Two employee groups of clinicians in the mental health care space.
Our clinician growth was driven by our organic recruiting engine as well as our practice acquisition engine.
In the first quarter, we opened 41 de novo centers to bolster our physical presence. In addition to our virtual service offerings, adding to adding to our over 500 centers nationwide.
Additionally, we completed two new acquisitions in the first quarter, bringing the total since inception to 79.
Both acquisitions were tuck ins to platforms in existing states in which we operate Michigan, Massachusetts.
Growing our clinician base supports our mission of improving access to affordable high quality mental health care.
In terms of deploying our tech enabled services, we believe that our opportunities to implement digital tools to support patients' ability to navigate their mental health care experience is a significant competitive advantage for lifestyles.
As we previously announced we are rolling out a new improved online booking and check experience are ob for short to better match, our new patients with clinicians and just set them set them up for success in that first visit.
We have continued to deploy <unk> across the country and are now live in seven states.
In these states we have seen a significant reduction in the number of online cancellations because of improvements in the intake and booking process and an increase in levels of patient satisfaction.
This enhancement will continue to be rolled out state by state throughout 2022 and into early 2023 as well as receive additional product improvements over time as we continue to invest in innovation around the booking experience for our patients.
I have great confidence in our ability to continue to execute our strategy and take advantage of the considerable market opportunities in front of us.
Finally in the first quarter, we released a state abuse mental health report, including the results of <unk>.
Survey of 2000 American parents, we learned at 68% of parents, who have seen their children, a significant mental and emotional challenges during the pandemic and are looking for solutions.
To further improve access for you and support the de stigmatization of mental health, we awarded grants through the last 10 self Foundation.
Several nonprofits that directly serve juice and adolescent populations, including the American Foundation for suicide prevention.
We are committed to expanding access to mental health care among at risk populations and directly addressing the alarming increase in young people struggling with their mental health.
We're honored to partner with organizations that share our vision of a truly healthy society for mental and physical health care, a unified to make lives better.
In closing, we're starting 2022 with strong momentum for the first quarter of continued profitable growth as a public company.
Confident in our future and our ability to help people on their path to better mental health.
Now I'll turn it over to Mike Bruff, Chief Financial Officer.
To provide more detail on our financial performance and outlook.
Thanks, Mike today, and going forward I will frame my comments in the context of our long term strategy, which includes balancing growth profitability and liquidity considerations.
So let me start with <unk>.
<unk> continued to deliver solid growth in the first quarter with revenue of $203 million up 42% year over year.
We believe that first quarter revenue over achieved our expectations, primarily due to having less of an impact in February and March relative to our initial estimates.
Turning to profitability in.
In the first quarter sooner margin to $54 million increased 23% over the same period last year driven by strong revenue growth.
Adjusted EBITDA remained relatively flat year over year at 12 million or six 2% of revenue.
Adjusted EBITDA as a percentage of revenue declined due to the decrease in center margin as a percentage of revenue.
Partially offset by improved leverage and G&A expenses.
First quarter adjusted EBITDA exceeded our initial expectations, primarily due to the slight revenue favorability and delayed G&A expenses, which we expect will be utilized across the remainder of the year on planned investments.
Turning to liquidity.
<unk> continues to be supported by a solid balance sheet.
Exited the quarter with cash of $114 million and net debt of $177 million.
In the first quarter, we generated positive $3 million of cash from operations.
As we announced this afternoon with our earnings release, we entered into a new credit facility in early June .
This facility will be used to repay our existing net long term debt and a more favorable cost of debt and the existing credit facility.
And that conclude will provide access to incremental capital to fund growth through up to 100 million in delayed draw downs and $50 million in revolving loans, both undrawn at close.
Turning to guidance as Mike mentioned, we are reaffirming our guidance for the full year.
For the second quarter.
We expect revenue of $209 million to $214 million.
Better margin of 57 million to $61 million.
And adjusted EBITDA of 12 million to $15 million.
As we noted last quarter, we expect improvement in profitability in the second half of 2022 based on continued growth in our condition based.
Leverage in the second half of the year driven by our strategic decision to moderate our de Novo center openings and scale our G&A.
To summarize we remain focused on delivering on our long term strategy.
Through balancing growth profitability and liquidity considerations.
With that I'll turn it back to Mike Lister for a few words before going to Q&A.
Thank you, Mike our financial performance execution, and differentiated strategy create strong momentum going into the balance of 2022.
Our path to achieve our goals.
We have solidified our leadership role in the behavioral health delivery as a trusted partner to patients.
As we build upon this trust, we will continue to drive meaningful improvements in the cost of care access and engagement across our flexible hybrid model.
I would also like to take a moment to recognize the continued contribute contribution of all of our colleagues at <unk>, who has played a vital role during the pandemic.
Now looking forward to continuing to build our best in class platform.
We're proud of what they do everyday in the lives of our patients.
<unk> Shanghai will now take your questions operator.
As a reminder to ask a question. Please press Star then one.
If your question has been answered and they like to remove yourself from the queue press. The pound key we also ask that you limit yourself to one question and a follow up.
Our first question comes from Ricky Goldwasser with Morgan Stanley . Your line is open.
Yeah, Hi.
Good evening.
Just wanted to get a sense how is retention.
Retention clinician retentions in the quarter and sort of what are you seeing in terms of wage inflation hiring.
Yes, I would say that our clinician retention has remained stable over the last couple of quarters. So we feel good about.
The value proposition that we have for clinicians and we haven't seen that change.
And then in terms of wage inflation and kind of fly com hiring.
I'm, sorry could you say that again Ricky.
Shifting yeah wage inflation, and just kind of like the overall kind of like cost inflation.
Sure go ahead to our short answer that sure yes happy to so.
We continue to see wages increase year over year as we always have our condition type has always been the high demand and we have always recognized that in the way that we set our compensation structure and build and plan for wage increases over time for all of our conditions.
Those sorts of increases have always been well received by our clinicians.
And they all remained within our planning assumptions.
We feel good about where we're at in the year and how things look.
Thank you.
Our next question comes from Lisa Gill with JP Morgan Your line is open.
Thanks, very much and thanks for taking the question.
I just want to understand how we should think about the progression of the year and I think Mike I heard you say that the clinicians coming in at 199.
In line with your expectation, but if I look back it's been averaging like 400, a quarter. So as we think about the back half of the year do you expect an acceleration in the number of clinicians that you bring in or.
Are there more things on the productivity side, I know you've talked to us about technology and some of the opportunities. There and then also as we think about the clinicians you talked about the acquisitions that you made can you talk about those 10 acquisitions did you bring clinicians in with that and I you know what.
What level of productivity have you seen there.
Thank you Lisa.
So I guess I would start off by reminding everybody that there are 650000 clinicians in the country today, and we're still less than 1% of that.
So.
We don't guide to specific submission and expect to see a continued strong growth of our clinician base.
And again I think that reflects the value proposition continues to resonate in the market.
Furnishings charter earnings.
Sure Yes.
Q1.
Sure.
Our completion count is right on point with our internal expectations.
We're going to experience quarter to quarter fluctuations as you pointed out last year. In Q1. We also had approximately 200 net adds but from where we stand right now we have a solid cadence on organic hiring you continue to have a strong M&A pipeline that we feel good about and retention remained stable.
And so if we just think about Donlin state do.
Do you expect that the productivity gains to come.
I'm just looking at kind of first half or you just gave us the guidance for the second quarter and you. Obviously you reported the first quarter and as I think about that.
Toleration into the back half of the year I'm, just trying to understand what the key drivers are going to be there since so much of that model is driven.
John Clinician, so is it really that they become.
That that much more productive or do you think we're going to see an acceleration of incremental clinician.
Clinicians in the second quarter that will be productive in the back half of the year. Just if you can help us to think that through in anyway.
And so we haven't guided on productivity there are many variables productivity timing of our M&A.
There is a geo mix as we expand into newer states is generally at a lower rate until we build out density in go renegotiate rates with payers.
There is a variation in the number of business days in any given period.
We've reached the scale that we're at today, we see that our performance is becoming more subject to seasonality based on business day is a good example would that be second half of the year has less business days just due to the number of holidays in Q4 alone. So we're just we still feel good about the way we were.
The way, we hire and recruit.
Mike would you like to add to that.
Yes.
Lisa.
Activity perspective, when you think about our individual clinician.
We haven't made any changes to the material changes to our ramp assumptions onboarding et cetera.
General productivity of the clinicians is still within the range of expectations.
We've had.
But as Mike said, if you look at the overall base you on a quarter to.
Quarter perspective.
Youll see some fluctuation just dependent on the timing.
I mean, I'm certain things are where the timing of an M&A.
In the country, we made higher depending on the rate there.
So you can see this in some of our history as well at the individual clinician base there.
Need within the range of our expectations.
Our next question question comes from Chris Pneumonitis with Jefferies. Your line is open.
Great Thanks, everyone and congrats on nice quarter.
So we recognize that in person is always going to be a core to the offering I don't think there's any disputes the merits of the hybrid offering but the way you build the model out at least for the Kpis you provide publicly it all comes down to Cushing count right. So at what point should we think about clinician growth.
Maybe necessitating more real estate, how should we think about.
The leverage you can get out of your current physical footprint would you need to modify existing centers and if you don't need to modify your footprint how does that change the long term outlook for center margins.
So.
Ah.
Our guidance assumes a very intentional moderation of de Novo openings. So we've talked about this in the past pre COVID-19, we were less than 5% of our visits were virtual that's backed up into the high nineties and has tended to take down.
About a point of Mt.
They had stalled out a little bit in November December January because omicron and has continued to tick down were about 79% in April Ashley.
And we spend quite a bit of time talking with payers and we.
We believe as well as the payers believe that in the mental health space. This is going to shake out around $50 50 does that took a year to get to 50 50 does it take two years, we really don't know, but again, we're really agnostic to that because we have negotiated rate parity and the vast majority of our contracts. So we're just trying to.
Very very prudent with our capital even.
Let's call it 79% today, we are a long way to go to 50 50. If you believe 50 50 is the right answer we can mathematically doubled the number of conditions that we have today and not expand our physical footprint at all so we feel really good about that we feel good about the leverage that gives us in the market.
Got it and then I appreciate the commentary on the differentiation versus pure play telehealth, but can you talk a bit about how your model is different versus those offerings in terms of patient acquisition and prescribing practices and when you think about the visits that are driven off of referrals. What are you hearing from your referral.
Based in terms of their preferences in terms of where they redirect patients too. Thanks.
Okay.
So I can I can handle that so.
In terms of patient acquisition, our patient demand for our services never been stronger.
Our hybrid model and diverse mix of prescribers and therapists is very comprehensive and we continue to believe differentiates us in the marketplace. Our patient acquisition costs remained very low because the majority of our patients come directly from three organic levers one being sticky primary care referrals.
So these are established relationships with with TTP networks.
Across the country that remains very healthy our in network relationship with payers that direct membership our way as well as organic online self referrals. So if you look at it in terms of the totality of spend.
Last year, we spent less than 2% of revenue on marketing this year, we're trending to less than 1%.
So again, we are not this is not an acquisition model that is heavily based on bidding on keywords or non sustainable kind.
Kind of.
Referral patterns.
Our next question comes from Kevin Caliendo with UBS. Your line is open.
Thanks.
I just wanted to.
Kind of alluded to this maybe I can ask it this way.
Frame the 200 sort of net adds is this a good organic number right now in certain terms of how we should think about the business going forward sort of business as steady state.
I'm asking in the context of the long term planning.
The business interest rates are higher inflation higher it feels like the job market is a little bit steadier now than it was before people.
People net income or net worth is probably not as high as it was a year ago broadly speaking at least relative is it is it a fair way to frame your opportunity or is this just sort of.
One one data point.
Well I think I'll, let Darren jump in here.
Kind of one data point I mean.
Kind of a perverted sense inflation could be viewed as our friend and that from a.
Labor market dynamics, and I think people are going to have to go to work go back to work there chose to sit out for a while when they are pan $8, a gallon per mil and gasoline.
But in our historically.
We haven't got it.
Finish accounts for the year.
Do you still feel good about our ability to earn.
Hire and retain clinicians.
Sure.
No I would just add that our overall mix.
That clinician adds continue to skew heavier and heavier towards organic over time. However, M&A is also.
The pipeline that we have remained robust and we will between those.
Going to continue to see quarter to quarter fluctuations in the number of net adds so I wouldn't again I wouldn't read too much into a single data point of 199.
And what that indicates.
Again, we feel very confident in the ability on our organic recruiting engine to continue to increase the number of ads and for M&A to be a meaningful contributor as well.
If I can ask one follow up.
For your center margin.
<unk> you.
Take me through sort of what are the pushes and pulls that get you to either side of the range.
What would matter the most in terms of our margin at the high end or low end of your range.
Hi, Kevin.
You guys can add on that on the full year.
The main driver on that is going to be.
Revenue growth.
So we have already planned.
Our fixed costs in terms of the number of de Novo ads.
And they're in.
We have a fixed cost.
On site.
In.
Very important administrative staff there.
And so this really gets down to driving top line growth.
And with the with the unit economics.
<unk> is driving that those economics.
Growth in those economics over those fixed costs and that will drive.
The high and the low end there.
Really about topline growth.
Our next question comes from Jamie Paris with Goldman Sachs. Your line is open.
Hey, good afternoon guys.
Wanted to follow up on the clinician productivity question from earlier are there any stats you can provide just in terms of what percent of your clinicians are fully ramped and fully productive obviously, new clinicians are dilutive to that so just trying to get a sense of where you are in and clinicians ramping productivity.
And how that might impact how we think about gross margins for the rest of the year.
Sure. This is Tom if I can I can cover that in terms of how this plays out at the individual commission level.
So.
And there is a ramp period as we've talked about in previous calls through the ramp period for commission, regardless of whether they are coming in through organic recruiting or through M&A.
On the organic side there is typically a four to six month ramp from start to maturity, which is essentially at the point that in full caseload.
And then for M&A, it's more of a step function, but it is also a four to six month time period from when we get once our platform and you start to enjoy the full benefits of them being on our contracts.
And the revenue.
Lift from that.
Do you see the same kind of time period on boat.
And then obviously you can play through the fact that Retentions remains stabilized at the same levels that we witnessed in previous quarters.
Net effect there.
Okay. Thanks.
And then just maybe a follow up on the <unk>.
Contribution to growth from from M&A, you guys previously guided at $50 million to $70 million for the year.
It looks like you did about $23 7 million in the first quarter. So a good chunk of that already done.
Any change in sort of the cadence of M&A you expect this year or if that $50 million to $70 million is still the right number should we expect contribution from from M&A to come down.
You got the rest of the year.
So we still feel very comfortable with the 50 to 70 guidance that we've given out there.
It just ebbs and flows throughout the year.
It's a little bit harder to control, it's just not linear but we have a very robust pipeline and that will be we think that'll be really in our control on how we how are we just trying to modulate that but we feel comfortable with the 50 to 70.
Our next question comes from Ryan Daniels with William Blair. Your line is open.
Hey, guys Nice we got on for Brian . Thanks for taking my question, I guess kind of going on that inflationary front.
I was wondering how how able are you guys to pass off things like that.
<unk> inflation onto the payers and is there that you can kind of like what's the amount of time that would typically take to work that through contracts.
I'll, let Don talk about wage inflation from a clinician standpoint to begin with but I'll start off by saying.
Inflation has given us permission to pick up the phone and call every single one of the payers.
So you can rest assured that we are doing that there's a lot of pressure on everybody from an inflation standpoint, we will be.
Using the market there that we have to have those discussions.
Shoot.
Eric.
No that's exactly right and we continue to engage in consistent conversation with all of the payers that were in network with about this exact topic you know they are very receptive and acknowledging the fact that this is.
That's something that everyone in healthcare needs to be focused on but again, we've always plan for this and we feel very comfortable that our.
Our planning assumptions take into account this year any expected wage inflation and that we can.
As appropriate increases once of our clinicians and that we have an appropriate pie.
Pipeline of increases coming from payers to keep us in a good spot.
Okay, Great and then regarding your already being kind of that those pressures are going to push a couple of people to back in the workforce, which I can.
Definitely appreciate I'm just wondering if you guys seen any providers that might've WAC lifespan, so a year or so ago, now reassessing, where they're at and actually coming back to life says basically trying to think it will be now or are we just getting clinicians back in the workforce or were you getting specifically former wife says clinicians back up.
Yeah, we really haven't seen that there are lots of little anecdotes out there, but we haven't seen that in any significant way yet.
Our last question comes from Gary Taylor with Cowen Your line is open.
Hi, good morning.
Good morning, good afternoon, and good evening.
Wanted to ask about DSO, which has been creeping up for about four quarters in a row and just see.
What was driving that.
What would help bring that back down and then just secondly to put a finer point on.
On Lisa's question.
$26 million EBITDA in the first half for your guidance, you've got to do with 39 million in the second half to.
To get to the midpoint of guidance, which which means quarterly EBITDA has to move up towards almost $20 million a quarter and just wanted to understand better what you thought the.
Drivers of that were going to be a little bit of that as revenue, but it really does look like the margin.
<unk>.
The estimates or expectations has to be a fair amount higher in the second half.
Hey, Gary This is Mike for Us for the first question around DSO.
Accurate observation there our DSO has crept up.
Alright.
Meaning if we set a milestone in the first quarter.
<unk>.
Has to do mostly with the increased peak.
M&A that we saw towards the end of last year and when we bring in that M&A and we worked through integration.
We will at times intentionally whole cleans until we've worked through the integration process.
<unk> moved that clinic.
Clinician onto our rates if we don't do that then we might be.
The reprocessing of a lot of claims. So this is a little bit to do actually quite a bit to do with the timing.
Some of our acquisitions.
It is a large driver of the increase in accounts receivable here in the first quarter. So this is more to do about the timing of acquisition and we would expect would be relative to last year just to be a little bit more tempered this year.
Our expectations is too.
Required between 50 and 70.
Our deployed 50 to 70 measures capital for acquisitions this year.
Second question with respect to.
Adjusted EBITDA significantly increasing half over half.
It is.
Really two things one as I said.
The growth expectation in half over half in terms of revenue.
And we're decreasing our slowly the ramp or pardon me slowing the pace of de Novo center openings. So.
So we will get.
Profitability boost.
By doing that in the back half of the year.
And as I mentioned already in the prepared statements.
The first quarter.
We had leverage in our G&A expenses.
Which were about 150 basis points.
Lower.
In the first quarter last year in terms of.
A percentage of revenue.
So those two things driving increasing revenue over fixed center costs and slowing fixed vendor costs, and then continuing to be maniacally focused on driving leverage.
Our operating expenses.
That's what we believe will get us to our.
Full year guidance range.
That's helpful. Thank you.
Yeah.
Thank you. This concludes today's conference call. Thank you for all for participating you may now disconnect everyone have a great day.
[music].
Yes.
[music].