LifeStance Health Group Inc. Q1 2023 Earnings Call
Good day and welcome to buy power first quarter 2023 earnings call. All lines have been placed on mute to prevent any crowd noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question journey time simply press star followed by the number one.
<unk> on your telephone keypad, if you would like to withdraw your question Press Star One again for operator assistance dropped call. Please press star zero and finally I would like to advise all participants that this call is being recorded I would now like to walk on Monica Calfskin to begin with friends moniker of cheap.
Good morning, everyone and welcome to Lifespans Health first quarter 2023 earnings Conference call.
I'm Monica Perkowski, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer, Dave Barden, Chief Financial Officer, and Donnish, Karachi, Chief operating officer.
We issued the earnings release and presentation before the market opened this morning.
Both are available on the Investor Relations section of our website Investor got life stands dot com.
In addition, a replay of this conference call will be available following the call.
Before turning the call over to management for their prepared remarks. Please direct your attention to the disclaimers about forward looking statements included in the earnings press release and SEC filings.
Today's remarks contain forward looking statements.
Statements about our financial performance outlook business model and strategy.
Those statements involve risks uncertainties and other factors as noted in our periodic filings with the SEC that could cause actual results to differ materially.
In addition, please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of prior and past performance.
A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix.
Unless otherwise noted all results are compared to the prior year comparative period.
At this time I'll turn the call over to Ken Burdick CEO of life stance Ken.
Thanks Monica.
Thank you all for joining us today.
We are in the early innings of executing on our strategy and we are making progress on improving operational performance.
While we focus on operational improvement. We also continue to grow our clinician base now approaching 6000 W. Two employee clinicians who deliver on life stances mission to provide access to trusted affordable and personalized mental health care.
Our hybrid model provides tremendous flexibility to our patients and clinicians.
And uniquely positions us to respond to changes in the industry for example.
With the public health emergency or Phe, ending Tomorrow may 11th we are pleased to share that we've been preparing for this for months now.
As we knew the phe would eventually sunset.
Our psychiatric clinicians have been working with our practice operations staff to ensure that all appropriate patients being prescribed a controlled substance are scheduled for an in person visit.
Les is also mental health awareness month.
To promote the importance of mental health.
Life stance launched our newest iteration of our not one face marketing campaign.
With a focus on real people sharing their experiences with anxiety.
As leaders in the mental health care space, we have learned that mental health is non discriminating.
Mental health conditions may be associated with stereotypical images.
But the truth is.
These conditions have no one phase.
There are literally tens of millions of phases.
<unk> metal health to help people lead healthier more fulfilling lives is at the heart of everything we do here at lifespan.
As we've previously stated.
We are committed to partnerships that support our vision.
Of a truly healthy society, where mental and physical health care our unified.
In alignment with this vision.
We are excited to announce that life stance has partnered with <unk>.
A unified women's healthcare subsidiary that utilizes a team of doctors and Dieticians in all 50 states.
To offer a personalized care plans for women in menopause.
Jennifer providers will work closely with life stance clinicians as a collaborative care team to.
To provide comprehensive treatment that takes a whole person approach to menopause.
Yeah.
Regarding operational execution we.
We're making progress on improving our performance.
For example.
We are following through on the real estate optimization strategy that we announced on our last earnings call.
We remain on track to consolidate 30 to 40 centers.
And have detailed operational plans in place to do so with little or no disruption to our patients and clinicians.
To date, we have streamlined our physical footprint with the consolidation of over 20 centers.
We are also making progress on reducing administrative complexity by terminating our lower volume payor contracts.
Consistent with the plan we discussed previously.
We are in the process of sending termination notifications for approximately 140 payor contracts.
With nearly half of the notifications set earlier this month.
This represents approximately 30% of our total payer contracts slightly greater than the initial 25% target.
Terminating these contracts will have an immaterial impact.
On visit volume.
But we will have a material impact.
On efficiency for our Credentialing intake and revenue cycle management teams.
Finally.
We launched three strategic initiatives to build enterprise level scalable infrastructure over the next few years.
On this front.
We have signed agreements with two vendors.
One we will implement a human resource information system.
Long overdue for a company with 8000 employees.
And the other we will implement a technology platform that improves our credentialing and clinical onboarding processes.
We have also begun an EHR discovery initiative with the goal of evaluating a range of options by the end of this year.
Turning to our financial results in the first quarter.
We produced revenue of $253 million.
Center margin of $70 million adjusted.
Adjusted EBITDA of $10 million.
All of which exceeded our expectations.
Although it is still early.
We are encouraged by the first quarter results.
Dave will provide more color on the outlook shortly.
But we believe that our first quarter performance.
Sets us up well for achieving our full year commitments.
In closing I remain confident about the tremendous opportunity in front of us.
In the near term I am proud of the team for remaining laser focused on our key objectives for 2023.
I believe that we are taking the right actions to streamline and improve the operations of our business to.
To position <unk> for long term profitable and sustainable growth.
While pleased with the progress we have made thus far.
My team and I fully recognize that we still have a great deal of work to do.
With that I will turn it over to Dave to provide additional commentary on our financial performance and outlook Dave.
Ken.
I would like to Echo Ken's comments regarding our team's solid performance. So far this year, both operationally and in our financial results.
In the first quarter, we produced strong top line results with revenue of $253 million.
<unk> growth of 24% year over year.
This outperformance was primarily driven by higher than expected clinician productivity.
Visit volumes of $1 million 665000.
<unk> increased 20% year over year, primarily driven by higher net clinician count.
Total revenue per visit increased 4% year over year to $152, primarily driven by payer rate improvement.
The outperformance on revenue flowed through to center margin center margin of $70 million in the quarter increased by 28% year over year.
Adjusted EBITDA of $10 million was slightly above our expectations.
Turning to liquidity.
In the first quarter free cash flow was negative $16 million, a $9 million improvement year over year and cash from operating activities was negative $8 million.
Both were in line with our expectations.
As we stated previously cash flow in the first quarter was impacted by one compensation costs, such as higher payroll taxes and bonus payments.
And to <unk>.
Temporarily higher DSO, driven by an increase in patient responsibility as deductibles reset every year in January .
In the first quarter DSO increased by two days sequentially to 42 days in line with our expectations.
We exited the quarter with cash of $68 million and net long term debt of $225 million.
As of the end of Q1, we had additional debt capacity from a delayed draw term loan of $66 million as well as a $50 million revolving debt facility.
Providing us with sufficient financial flexibility to run the business until we get to positive free cash flow in 2025.
In terms of our outlook for 2023, we are raising the lower end and narrowing our full year revenue range to $990 million to $1 billion $20 million and raising the lower end and narrowing our full year center margin range.
To $274 million to $290 million, we are reiterating our adjusted EBITDA guidance range of $50 million to $62 million.
While we are encouraged by early signs for the operational improvements we have been making to strengthen our performance are bearing fruit. We believe it's still too early to revise our assumptions for the remainder of the year.
As a result, we are reflecting the higher Q1 revenue and our full year guidance, but we believe that it is prudent to maintain our original assumptions for Q2 through Q4 until we have more evidence to support that higher productivity will persist, especially during the summer vacation season.
For the second quarter, we expect revenue of $250 million to $260 million center margin of $69 million to $76 million and adjusted EBITDA of $10 million to $16 million with that I'll turn it over to <unk> for additional color.
With respect to operations.
Thank you Dave.
In addition to executing on the operational improvements and administrative simplification described by Tim Dave.
We continue to align our teams around to growth priorities net clinician adds and clinician productivity.
In terms of commission growth, we delivered 330 net clinician adds in the first quarter, bringing our total to 5961 clinicians an increase of 19% year over year.
We completed three small acquisitions at the beginning of the year and consistent with our shift towards organic growth. We are not planning for additional M&A. This year.
Regarding clinician productivity, we saw positive trends in both clinician capacity and utilization.
Clinician capacity or the time, our clinicians make available to see patients trended slightly higher compared to the last two quarters.
As a reminder, last year, we saw capacity in the first half of the year run higher with the back half of the year moderating due to time off taken during the summer vacation in fourth quarter holiday periods.
This seasonality is reflected in our full year guidance.
In terms of utilization or our ability to appropriately fill the time conditions make available to see patients we observed encouraging signs of improvement.
However, it is still early in the year and we would like to see these productivity trends continue before updating our go forward assumptions.
We are driving these improvements in utilization through operational discipline at the top middle and bottom of the patient funnel.
At the top of the funnel, we continue to attract new patients in line with the overall growth of our clinicians and their related capacity.
We also continue to do this at an extremely low cost per acquisition with minimal reliance on paid marketing.
For example, we are seeing benefits from our investment in boots on the ground primary care referral teams as they continue to expand and solidify local relationships.
This team has done a tremendous job delivering growth in primary care referrals.
Additionally, organic online marketing as well as increasing levels of brand awareness has had a positive effect at the top of the funnel, resulting in a roughly 50% increase in organic patient traffic sequentially.
Second at the middle of the funnel.
We are improving our scheduling of patients our intake teams are enhancing the overall conversion and matching experience for patients who prefer to schedule their appointments through the phone channel.
Additionally, we continue to leverage our digital capabilities to optimize patient matching via our online booking experience Obi.
At the end of Q1 Ob was live in 26 states and we remain on pace for a full national rollout by mid year.
These online and offline efforts have led to further progress at the middle of the funnel.
Finally at the bottom of the funnel.
In terms of scheduled appointments converting to completed visits our cancellation rates improved by nearly 2% down to 12% in the first quarter.
Our stronger execution at the top middle and bottom funnel contributed to better than expected productivity in the first quarter.
In closing I am proud of the team's efforts and improving operational performance.
We are encouraged by the positive signs in our key performance metrics and there remains significant opportunity for further progress as we focus on delivering on our commitments to our clinicians patients and shareholders.
With that I'll turn it back over to Ken for his closing remarks.
Thank you Don ish.
This is a multiyear journey.
We are in the very early phase of building the muscle to run a highly effective business commensurate with the immense market opportunity in front of us.
The need for accessible and affordable mental health care in our society has never been greater.
And our vision of aligning mental and physical health care Energizes Us every day.
We will now take your questions operator.
Thank you speakers at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Okay.
Our first question comes from the line of Craig Hudson Beth.
Morgan Stanley . Please go ahead.
Yes. Thank you.
Start to the year, our net clinician adds can you just talk about the organic recruiting efforts and what you're seeing in the marketplace more broadly for ads.
Yes sure this is Don ish.
From a recruiting perspective.
Perspective, we continue to.
See great momentum with our in house clinician recruiting team.
Our value proposition in the marketplace continues to resonate and our ability to both attract.
New clinicians in the states that we currently have a presence as well as continuing to scale that as we grow throughout the year.
<unk> strong so feeling very good about.
The overall environment there.
Got it and then a follow up for Ken just value based care and interesting to see that the women's health.
Announcements. This morning, just more broadly and I know it's early days can you just touch on the tighter integration of physical and mental health and just any other anecdotes from conversations you're having.
And then in the marketplace.
Sure Greg Youre right. This is in the very early days.
We're thrilled with this <unk>.
Partnership as 2 million women annually reach menopause.
And the kind of integrated care that we can provide working collaboratively with <unk>. We think is exactly what's what's needed.
As it relates to our value based pilots I would say, it's still too early for me to be.
Descriptive or definitive about the insights, but what I can tell you is that this is a core strategy for us and so I suspect this will not be the last time, we announce this type of partnership.
Got it thank you.
Our next question comes from the line of Lisa Gill from Jpmorgan Lisa. Please go ahead.
Great Good morning.
First I just really wanted to start with can you comment around the contract termination 30% versus 25%.
With the previous call.
One would there be more payer concentration posted and is there any single payer that makes up a large percentage of your business today and then secondly.
Any finding as you go.
Through those contracts as far as.
Regional concentration or anything else that we should be aware of it as you're thinking about what it will look like on a go forward basis.
Lisa Thanks for the question.
Want to just reiterate that while this is a big number in terms of contracts as I say approximately 30% it really is.
De minimis as it relates to patient visits and so yes consistent with the.
The prepared remarks in the script, what I would say is.
We had a lot of administrative complexity and work associated with maintaining these contracts and loading them et cetera.
That was just way out of whack with the actual value that was being derived from these particular.
Payers so.
We can do all of this and it still has less than a 1% impact on our total visits which means it is really not changing.
The concentration at all to your to the other part of your question as you might suspect when we look at national payers. They would represent a significant percentage of our total volume.
And then it drops off pretty substantially after the first dozen or so if that.
Provide you with some helpful color.
No. That's really helpful. And then just as a follow up to that doesn't look at the margin in the first quarter roughly 4% midpoint.
It moves the market's about five 1% for the year can you maybe just help me to think about cadence I mean previously they were roughly 7% how do we think about the cadence of the margin as we move throughout this year and maybe remind us of some of your longer term goals on the margin side.
Sure Lisa Good morning. This is Dave so the.
As far as the margin and how it will play out throughout the year, what we discussed when we were given our full year guidance.
Was that.
We would start out Q1 being the low margin lowest margin of the of the year and then it would increase as as payroll taxes.
We're less impactful after the first quarter as well as things like payroll.
Excuse me as payer rate increases started to kick in which will be mostly in the back half of the year as well as the third item being some of our higher revenue higher margin services that are low in the first quarter and then from a seasonality perspective, they ramp up throughout the year. So that's how I think about 2023.
As far as longer term guidance, what we talked about last quarter was that by the end of 2025 as we're exiting 2025, we expect to be at double digit margins.
Great. Thank you.
Yeah.
Our next question comes from the line of Ryan Daniels from William Blair Ryan Go ahead.
Hey, everyone. This is Jack on for Ryan Daniels. Thanks for taking my question and congrats on the quarter first on the guidance specifically on the top line. If we assume the midpoint for the second quarter guidance that would be the first half revenue would come in at more than 50% for the full year midpoint.
Can you maybe talk about this a bit more and how we should think about this I know historically I believe second half is typically higher than first but not sure if you're planning a slowdown this year consist strictly conservatism and more consistency when it comes to clinician productivity.
Any additional commentary on the cadence there would be appreciated.
Sure. Good morning, Jack This is Dave I'll take this one.
So when you think about the seasonality of revenue and you've looked at our historical performance, where you have to take into account is that the significant number of acquisitions that we did and masked the underlying organic.
Yes.
True seasonality of the business, which is what youre going to see more of this year. Since we we had three acquisitions in the first quarter and we're not planning on doing any more throughout the remainder of the year.
So so as a result, when we gave our full year guidance, what we talked about was roughly 50 50.
From a revenue perspective first half second half now it's a little.
A little bit more first half than second half, but again, we're still in that roughly 50 50.
And the big dynamic that I would point you to is that why we're still growing clinicians throughout the year.
The second half of the year has a lot more.
We assume a lot more vacations, yet the summer vacation season, you've got the holiday vacation season, and so as a result, we just have less we have less capacity from our clinicians as a result of them, taking vacations, and we and we bake that into how we build revenue for the year.
Perfect. Thanks, and then just as a quick follow up it looks like your total visits increased pretty nicely sequentially, but total revenue per visit per visits decreased attach is this more a factor of onboarding newer patients and it's more of a heavier lift in the beginning of their journey or is it stemming more from the clinician side.
Yes, yes.
I wouldn't point to either of those so it did sequence TRP V. Our total rate per visit did drop from the fourth quarter to the first quarter to two things that I would point you to the first is that we've talked about a lot. These higher higher revenue higher margin services in the seasonality there and so.
<unk>.
With the patient deductible reset in January .
Those are so those kinds of services are less prevalent in the first quarter and then they kind of they ramped throughout the year.
So that's the first thing where you get that drives the sequential decrease then the other is as we had some modest payor rate pressure.
Specifically related to Medicare rates, which isn't a big percentage of our book, but that that did also cause.
<unk> to go down a little bit in the first quarter and again, we would then expect CRP vision to build throughout the year.
As <unk>.
Pay rate increases.
Pay to raise rate increases go into effect.
Wonderful thanks, guys.
Your next question comes from the line of Kevin Caliendo from UBS, Kevin. Please go ahead.
Thanks, Thanks for taking my question I, just wanted to talk a little bit about.
A little bit about recruitment and also just about retention and churn those are numbers, we haven't really talked about lately.
And it was an overhang a year or so ago, just wondering how thats matured and what are you finding is most important in terms of retaining your clinicians and attracting new clinician visit compensation as the lifestyle I'm just wondering how the world has changed as we're sort of a.
Lapped the year of the great resignation.
Yeah. Thanks for the question Kevin This is Don I'll tackle that so in terms of.
The recruiting side of things like I mentioned earlier, we continue to see strength in our organic recruiting team and our ability to attract new clinicians to life stance our value proposition really does continue to resonate.
In the marketplace.
Is not just about compensation for our clinicians. So that's obviously a key component.
It really is about the overall value proposition that we offer in flexibility.
Both in the ability to do in person as well as telemedicine.
The collegiality that.
We built here within the ability for clinicians to work with each other across multiple sub specialties within inside the same office or state.
All of the digital investments that we make and the tools that we give them et cetera.
There is a broader value proposition that continues to stand out in the marketplace and as demonstrated in our ability to continue to attract new clinicians here and our net collection ad numbers.
As far as retention goes.
Our retention remains stable in Q1.
And from a planning perspective, we continue to expect consistent performance throughout.
Throughout the remainder of the year.
That being said for us.
Our focus is making sure that we have a phenomenal clinician experience.
Not just in how we attract our clinicians here, but how we deliver on that value proposition. Once they are here and so that includes things like we've spoken about before.
Around frontline support and our administrative staff.
Additional attention on billing and the service that we're providing not just to our clinicians but to the patients and how they.
Interact with our teams et cetera. So.
A lot to still do there.
But we feel good at where we're at today.
Has there been any change to the <unk>.
Mix with in person versus remote just even in the last three months or six months.
I know it was always a little bit higher than what was originally anticipated and I'm wondering if it's just going to the anticipation is just maintain that level going forward I think it was 75%.
Yes, we continue to see a slow return to in person as.
As far as our overall mix in Q1, it was 75% virtual 25% in person that was about a two to three point shift back towards the in person versus the previous quarter and thats been approximately the rate that we've seen it returning to in person.
<unk>.
Every quarter.
No.
We fully expect that that trend will continue.
We have seen patient demand for in person.
Increase.
As well as again, our clinicians returning.
More on personnel overtime.
Alright, Thanks Scott.
Our next question comes from the line of Jamie Paris from Goldman Sachs. Jamie. Please go ahead.
Hey, Thank you.
Good morning.
First on the center level margin. It seems like margin progression there has been a bit faster than expected can you just remind us the initiatives you have in place this year.
Around real estate, you know how much of those are already starting to come through in the first quarter performance versus still ahead of us.
The remaining portion of the year.
Yes. Good morning, Good morning, Jamie This is Dave.
This center margin performance in the first quarter I would think of as being a largely driven by the revenue beat and just getting getting.
Additional scale benefit and we do expect center margins to improve modestly throughout throughout the year and certainly the the benefit of the real estate.
<unk> helps that just to size that for you that would we expect about roughly $1 million of benefit from the real estate consolidation this year and about a $2 million run rate.
Of those savings into next year.
Okay. Thank you that's helpful. And then you guys mentioned the expiring expiry of the public health emergency and the changes youre, making preparations you're making for that.
Can you tie that to the broader landscape. If you think the exploration of the public health emergency changes anything competitively even in the short term in terms of.
Where clinicians and or just more broadly how you're thinking about any competitive changes from that thanks.
Yes. This is Ken I'll take that so very recently.
There wasn't announcement that theres going to be some flexibility and essentially about a six month extension.
The phe, our public health emergency.
Accommodations.
So I'll speak to the longer term I think in the longer term there.
There is clearly an advantage of having a hybrid model that offers both patients and clinicians.
The choice and the flexibility of either a in.
In person visit or remote visits so as it relates to.
Ah patients that are receiving these controlled substances.
On a go forward basis once the extension has expired.
There is no choice, but they will have to visit with a.
A clinician prescribing one of these controlled substances in person.
Yes.
Hello, Jamie are you still there.
Yes that was it for me. Thank you for that question.
Our next question comes from the line of Brian Chin.
<unk> from.
<unk> from Jefferies. Brian . Please go ahead.
Hey, good morning, guys congrats on the quarter.
I guess just a couple of quick questions as I think about payor rate improvement how much runway do you guys see to drive that.
Going forward.
Well, we think that.
There's a great deal of runway.
It's not going to be sort of a flip the switch but <unk>.
As we.
Continue to demonstrate the value of the services that our clinicians provide.
And with the increased understanding of the importance of mental health.
Integrated with physical health.
We think it's absolutely.
Critical.
<unk>.
The reimbursement follows the value that's that's being being.
Being created now.
In the short term.
We are able to provide some limited data in terms of what.
The value means in terms of quality of life and <unk>.
Absenteeism et cetera.
Some of those pilots that we've referenced we hope will build.
A database that is statistically valid that can demonstrate.
A true reduction in.
In person or excuse me in patient visits.
And emergency room visits.
And total cost of care, but as I said <unk>.
At the outset of the Q&A, we are still a ways away from that.
But that's the goal that's the intent that we can demonstrate.
That.
There are meaningful improvements obviously in the quality of life, but it's also a more efficient way to utilize health care resources.
Got it no that makes sense and then maybe Dave just a quick question.
This but in your revenue guidance raised.
How much of that on the clinician add how much of that was from the addition of acquired two initiatives versus just organic.
Yeah, we didn't parse that out Brian .
Of the clinician to clinician adds.
Being roughly 80% organic 20% from acquisition in the first quarter.
Alright got it thank you guys.
Okay.
There are no further questions at this time I'll turn the call back over to our presenters.
Well I want to thank you for the questions and I'd be remiss, if I didn't take this opportunity to say that.
We really appreciate the tremendous work that's being done by the 8000 employees across life stance.
Donnish and Dave and I have the privilege of being able to report these results, but they are created by the hard work the collaboration and the passion that these 8000 individuals' demonstrate each and every day. So my opportunity on behalf of Dave and the executive leadership team to thank.
Each and every one of them and.
And that will conclude our call for this quarter.
This concludes today's conference call you may now disconnect.
Okay.
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Good day, and welcome to life and Health first quarter 2023 earnings call. All lines have been placed on mute to prevent any crowd noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask the question drink time simply press star followed by the number one on your telephone keypad, if you would.
To withdraw your question.
My Star one again for operator assistance drop call. Please press star Zero, and finally, I would like to advise all participants that this call is being recorded I would now like to walk on Monica Calfskin to begin a fence Monica achieved.
Good morning, everyone and welcome to Lifespans Health first quarter 2023 earnings Conference call.
I'm Monica Perkowski, Vice President of Investor Relations.
Joining me today are Ken Burdick, Chief Executive Officer, Dave Barden, Chief Financial Officer, and Donnish, Karachi, Chief operating officer.
We issued the earnings release and presentation before the market opened this morning.
Both are available on the Investor Relations section of our website investor <unk> lifestyles Dot com and.
In addition, a replay of this conference call will be available following the call.
Before turning the call over to management for their prepared remarks. Please direct your attention to the disclaimers about forward looking statements included in the earnings press release and SEC filings.
Today's remarks contain forward looking statements, including statements about our financial performance outlook business model and strategy.
Those statements involve risks uncertainties and other factors as noted in our periodic filings with the SEC that could cause actual results to differ materially.
In addition, please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of prior and past performance.
A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix.
Unless otherwise noted all results are compared to the prior year comparative period at.
At this time I'll turn the call over to Ken Burdick CEO of lifespan Ken.
Thanks, Monica and thank you all for joining us today.
We are in the early innings of executing on our strategy and we are making progress on improving operational performance.
While we focus on operational improvement. We also continue to grow our clinician base now approaching 6000 W. Two employed clinicians who deliver on life stances mission to provide access to trusted affordable and personalized mental health care.
Our hybrid model provides tremendous flexibility to our patients and clinicians.
And uniquely positions us to respond to changes in the industry for example.
With the public health emergency or Phe, ending tomorrow may 11th.
We are pleased to share that we've been preparing for this for months now as we knew the pag would eventually sunset.
Our psychiatric clinicians have been working with our practice operations staff to ensure that all appropriate patients being prescribed a controlled substance are scheduled for an in person visit.
May is also mental health awareness month.
To promote the importance of mental health.
Life stance launched our newest iteration of our not one face marketing campaign.
With a focus on real people.
<unk> their experiences with anxiety.
As leaders in the mental health care space.
We have learned that mental health is non discriminated.
Mental health conditions may be associated with stereotypical images.
But the truth is.
These conditions have no one phase.
There are literally tens of millions of phases.
<unk> mental health to help people lead healthier more fulfilling lives is at the heart of everything we do here at life stance.
As we've previously stated.
We are committed to partnerships that support our vision.
Of a truly healthy society, where mental and physical health care our unified.
In alignment with this vision we.
We are excited to announce that life stance has partnered with <unk>.
A unified women's healthcare subsidiary that utilizes a team of doctors and Dieticians in all 50 states.
To offer a personalized care plan for women in menopause.
Jeff providers will work closely with life stance clinicians as a collaborative care team to.
To provide comprehensive treatment that takes a whole person approach.
<unk>.
Okay.
Regarding operational execution.
We're making progress on improving our performance for.
<unk> for example.
We are following through on the real estate optimization strategy that we announced on our last earnings call.
We remain on track to consolidate 30 to 40 centers.
And have detailed operational plans in place to do so with little or no disruption to our patients and clinicians.
To date, we have streamlined our physical footprint with the consolidation of over 20 centers.
We are also making progress on reducing.
<unk> administrative complexity by terminating our lower volume Payor contracts.
Consistent with the plan we discussed previously.
We are in the process of sending termination notifications for approximately 140 payer contracts with nearly half of the notifications set earlier this month.
This represents approximately 30% of our total payer contracts slightly greater than the initial 25% target.
Terminating these contracts will have an immaterial impact on.
Visit volume.
But we will have a material impact.
On efficiency for our Credentialing intake and revenue cycle management teams.
Finally.
We launched three strategic initiatives to build enterprise level scalable infrastructure over the next few years.
On this front, we have signed agreements with two vendors.
One we will implement a human resource information system.
Long overdue for a company with 8000 employees.
And the other will implement a technology platform that improves our credentialing and clinical onboarding processes.
We have also begun an EHR discovery initiative with the goal of evaluating a range of options by the end of this year.
Turning to our financial results in the first quarter.
We produced revenue of $253 million.
Center margin of $70 million adjusted.
Adjusted EBITDA of $10 million.
All of which exceeded our expectations.
Although it is still early.
We are encouraged by the first quarter results.
Dave will provide more color on the outlook shortly.
But we believe that our first quarter performance sets us up well for achieving our full year commitments.
In closing I remain confident about the tremendous opportunity in front of us.
In the near term I am proud of the team for remaining laser focused on our key objectives for 2023.
I believe that we are taking the right actions to streamline and improve the operations of our business.
To position life stands for long term profitable and sustainable growth.
While pleased with the progress we have made thus far.
My team and I fully recognize that we still have a great deal of work to do.
With that I will turn it over to Dave to provide additional commentary on our financial performance and outlook Dave.
Ken.
I would now like to Echo Ken's comments regarding our team's solid performance. So far this year, both operationally and in our financial results.
In the first quarter, we produced strong top line results with revenue of $253 million representing growth of 24% year over year.
This outperformance was primarily driven by higher than expected clinician productivity.
Visit volumes of $1 million 665 increased 20% year over year, primarily driven by higher net clinician count.
Total revenue per visit increased 4% year over year to $152, primarily driven by payer rate improvement.
The outperformance on revenue flowed through to center margin.
Center margin of $70 million in the quarter increased by 28% year over year.
Adjusted EBITDA of $10 million was slightly above our expectations.
Turning to liquidity and.
In the first quarter free cash flow was negative $16 million, a $9 million improvement year over year.
<unk> cash from operating activities was negative $8 million.
Both were in line with our expectations.
As we stated previously cash flow in the first quarter was impacted by one compensation costs, such as higher payroll taxes and bonus payments.
And to <unk>.
Temporarily higher DSO, driven by an increase in patient responsibility as deductibles reset every year in January .
In the first quarter DSO increased by two days sequentially to 42 days in line with our expectations.
We exited the quarter with cash of $68 million and net long term debt of $225 million.
As of the end of Q1, we had additional debt capacity from a delayed draw term loan of $66 million as well as a $50 million revolving debt facility.
Providing us with sufficient financial flexibility to run the business until we get to positive free cash flow in 2025.
In terms of our outlook for 2023, we are raising the lower end and narrowing our full year revenue range to $990 million to $1 billion $20 million and raising the lower end and narrowing our full year center margin range.
To $274 million to $290 million, we are reiterating our adjusted EBITDA guidance range of $50 million to $62 million.
While we are encouraged by early signs that the operational improvements we have been making to strengthen our performance are bearing fruit. We believe it's still too early to revise our assumptions for the remainder of the year.
As a result, we are reflecting the higher Q1 revenue and our full year guidance, but we believe that it is prudent to maintain our original assumptions for Q2 through Q4 until we have more evidence to support that higher productivity will persist, especially during the summer vacation season.
For the second quarter, we expect revenue of $250 million to $260 million center margin of $69 million to $76 million and adjusted EBITDA of $10 million to $16 million with that I will turn it over to <unk> for additional color.
With respect to operations.
Thank you Dave.
In addition to executing on the operational improvements and administrative simplification described by Tim Dave.
We continue to align our teams around to growth priorities net clinician adds and clinician productivity.
In terms of commission growth, we delivered 330 net clinician adds in the first quarter, bringing our total to 5961 clinicians an increase of 19% year over year.
We completed three small acquisitions at the beginning of the year and consistent with our shift towards organic growth. We are not planning for additional M&A. This year.
Regarding clinician productivity, we saw positive trends in both clinician capacity and utilization.
Clinician capacity or the time, our clinicians make available to see patients trended slightly higher compared to the last two quarters.
As a reminder, last year, we saw capacity in the first half of the year run higher with the back half of the year moderating due to time off taken during the summer vacation in fourth quarter holiday periods.
Seasonality is reflected in our full year guidance.
In terms of utilization or our ability to appropriately fill the time conditions make available to see patients we observed encouraging signs of improvement however.
However, it is still early in the year and we would like to see these productivity trends continue before updating our go forward assumptions.
We are driving these improvements in utilization through operational discipline at the top middle and bottom of the patient funnel.
At the top of the funnel, we continue to attract new patients in line with the overall growth of our clinicians and their related capacity.
We also continued to do this at an extremely low cost per acquisition with minimal reliance on paid marketing.
For example, we are seeing benefits from our investment in boots on the ground primary care referral teams as they continue to expand and solidify local relationships.
This team has done a tremendous job delivering growth in primary care referrals.
Additionally, organic online marketing as well as increasing levels of brand awareness has had a positive effect at the top of the funnel, resulting in a roughly 50% increase in organic patient traffic sequentially.
Second at the middle of the funnel, we are improving our scheduling of patients. Our intake teams are enhancing the overall conversion and matching experience for patients who prefer to schedule their appointments through the phone channel.
Additionally, we continue to leverage our digital capabilities to optimize patient matching via our online booking experience Obi.
At the end of Q1 Ob was live in 2006 states and we remain on pace for a full national rollout by mid year.
These online and offline efforts have led to further progress at the middle of the funnel.
Finally at the bottom of the funnel in terms of scheduled appointments converting to completed visits our cancellation rates improved by nearly 2% down to 12% in the first quarter.
Our stronger execution at the top middle and bottom funnel contributed to better than expected productivity in the first quarter.
In closing I am proud of the team's efforts and improving operational performance.
We are encouraged by the positive signs in our key performance metrics.
And there remains significant opportunity for further progress as we focus on delivering on our commitments to our clinicians patients and shareholders.
With that I'll turn it back over to Ken for his closing remarks.
Thank you Don ish.
This is a multiyear journey.
We are in the very early phase of building the muscle to run a highly effective business commensurate with the immense market opportunity in front of us.
The need for accessible and affordable mental health care in our society has never been greater.
And our vision of aligning mental and physical health care <unk>.
Energizes Us every day.
We will now take your questions operator.
Okay.
Thank you speakers at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Okay.
Our first question comes from the line of Craig Hudson Bank of Morgan Stanley . Please go ahead.
Yes. Thank you I was a good start to the year. Our net clinician adds can you just talk about the organic recruiting efforts and what you're seeing in the marketplace more broadly for ads.
Yes sure this is Don ish.
From a recruiting perspective, we continue to.
See great momentum with our in house clinician recruiting team.
Our value proposition in the marketplace continues to resonate and our ability to both attract.
New clinicians in the states that we currently have a presence as well as continuing to scale that as we grow throughout the year.
<unk> strong so feeling very good about.
The overall environment there.
Got it and then the follow up for Ken on just value based care and interesting to see that the women's health and the announcements. This morning, just more broadly and I know it's early days can you just touch on the tighter integration of physical and mental health and just any other anecdotes from.
<unk> you are having.
In the marketplace.
Sure Greg Youre right. This is in the very early days.
We're thrilled with this <unk>.
Partnership as 2 million women annually reach menopause, and the kind of integrated care that we can provide working collaboratively with <unk>. We think is exactly what's what's needed.
As it relates to our value based pilots.
I would say, it's still too early for me to be.
Descriptive or definitive about the insights, but what I can tell you is that this is a core strategy for us and so I suspect this will not be the last time, we announce this type of partnership.
Got it thank you.
Our next.
Comes from the line of Lisa Gill from Jpmorgan Lisa. Please go ahead.
Great Good morning.
First I, just really wanted to start with.
Can you comment around the contract termination, 30% versus 25%.
With the previous call.
One would there be more payer concentration posted and is there any single payer that makes up a large percentage of your business today and then secondly.
Any finding as you go.
Through those contracts as far as.
Regional concentration or anything else that we should be aware of it as you're thinking about what it will look like on a go forward basis.
Lisa Thanks for the question.
Want to just reiterate that while this is a big number in terms of contracts as I say approximately 30% it really is.
De minimis as it relates to patient visits and so yes consistent with the.
The prepared remarks in the script, what I would say is.
They we had a lot of administrative complexity and work associated with maintaining these contracts and loading them et cetera.
That was just way out of whack with the actual value that was being derived from these particular.
Payers so.
We can do all of this and it still has less than a 1% impact on our total visits which means it's really not changing.
The concentration at all to your to the other part of your question as you might suspect when we look at national payers. They would represent a significant percentage of our total volume.
And then it drops off pretty substantially after the first dozen or so if that.
Provide you with some helpful color.
No. That's really helpful. And then just as a follow up to that doesn't look at the margin in the first quarter roughly 4% midpoint.
Move the margins about five 1% for the year can you maybe just help me to think about cadence I mean previously they were roughly 7% how do we think about the cadence of the margin as we move throughout this year.
And maybe remind us of some of your longer term goals on the margin side.
Sure Lisa good morning, as Dave said.
As far as the margin and how it will play out throughout the year, what we discussed when we were given our full year guidance.
Was that.
We would start out Q1 being the low margin lowest margin of the of the year and then it would increase as.
Payroll taxes.
We're less impactful after the first quarter as well as things like payroll.
Excuse me as payer rate increases started to kick in which will be mostly in the back half of the year as well as the third item being some of our higher revenue higher margin services that are low in the first quarter and then from a seasonality perspective, they ramp up throughout the year. So that's how I think about 2023.
As far as longer term guidance, what we talked about last quarter was that by the end of 2025 as we're exiting 2025, we expect to be at double digit margins.
Great. Thank you.
Okay.
Our next question comes from the line of Ryan Daniels from William Blair Ryan Go ahead.
Hey, everyone. This is Jack on for Ryan Daniels. Thanks for taking my question and congrats on the quarter first on the guidance specifically on the top line. If we assume the midpoint for the second quarter guidance that would be the first half revenue would come in at more than 50% for the full year midpoint.
Can you maybe talk about this a bit more and how we should think about this I know historically I believe second half is typically higher than first but not sure if you're planning a slowdown for this year, just strictly conservatism and more consistency when it comes to clinician productivity.
Any additional commentary on the cadence here would be appreciated.
Sure. Good morning, Jack This is Dave I'll take this one.
So when you think about the seasonality of revenue and you've looked at our historical performance. We have to take into account is that the significant number of acquisitions that we did and masked the underlying organic.
<unk>.
True seasonality of the business, which is what youre going to see more of this year. Since we we had three acquisitions in the first quarter and we're not planning on doing any more throughout the remainder of the year.
So so as a result, when we gave our full year guidance, what we talked about was roughly 50 50.
From a revenue perspective first half second half now it's a little.
A little bit more first half and second half, but again, we're still in that roughly 50 50.
And the big dynamic that I would point you to is that while we're still growing clinicians throughout the year.
The second half of the year has a lot more.
We assume a lot more vacations, yet the summer vacation season, you've got the holiday vacation season, and so as a result, we just have less we have less capacity from our clinicians as a result of them, taking vacations, and we and we baked that into how we build revenue for the year.
Perfect. Thanks, and then just as a quick follow up it looks like your total visits increased pretty nicely sequentially, but total revenue per visit per visits decreased attach is this more a factor of onboarding newer patients and it's more of a heavier lift in the beginning of their journey or is it stemming more from the clinician side.
Yes, yes.
I wouldn't point to either of those so it did sequence TRP V. Our total rate per visit did drop from the fourth quarter to the first quarter to two things that I would point you to the first is that we've talked about a lot. These higher higher revenue higher margin services in the seasonality there until the.
<unk>.
With the patient deductible reset in January .
Those are so those kinds of services are less prevalent in the first quarter and then they kind of they ramp throughout the year.
So that's the first thing where you get that drives the sequential decrease then the other is as we had some modest payor rate pressure.
Specifically related to Medicare rates, which isn't a big percentage of our book, but that that did also cause.
<unk> to go down a little bit in the first quarter and again, we would then expect TRP vision to build throughout the year.
As <unk>.
Pay rate increases.
Pay to raise rate increases go into effect.
Wonderful thanks, guys.
Your next question comes from the line of Kevin Caliendo from UBS, Kevin. Please go ahead.
Thanks, Thanks for taking my question I, just wanted to talk a little bit about.
A little bit about recruitment and also just about retention and churn those are numbers, we haven't really talked about lately.
And it was an overhang a year or so ago, just wondering how thats matured and what are you finding is most important in terms of retaining your clinicians and attracting new clinicians as a compensation as the lifestyle I'm just wondering how the world has changed as we're sort of a.
Lapped the year of the great resignation.
Yeah. Thanks for the question Kevin This is Don I'll tackle that so in terms of.
The recruiting side of things like I mentioned earlier, we continue to see strength in our organic recruiting team and our ability to attract new clinicians to life stance our value proposition really does continue to resonate.
In the marketplace.
Is not just about compensation for our clinicians. So that's obviously a key component.
It really is about the overall value proposition that we offer in flexibility.
Both in the ability to do in person as well as telemedicine.
The collegiality that.
We built here within the ability for clinicians to work with each other across multiple sub specialties within inside the same office or state.
All of the digital investments that we make and the tools that we give them et cetera. So there is a broader value proposition that continues to stand out in the marketplace and as demonstrated in our ability to continue to attract new questions here and are not clinician add numbers.
As far as retention goes.
Our retention remains stable in Q1.
And from a planning perspective, we continue to expect consistent performance.
Throughout the remainder of the year.
That being said for us.
Our focus is making sure that we have a phenomenal clinician experience.
Not just in how we attract our clinicians here, but how we deliver on that value proposition. Once they are here and so that includes things like we've spoken about before.
Around frontline support and our administrative staff.
Additional attention on billing and the service that we're providing not just to our clinicians but to the patients and how they.
Interact with our teams et cetera. So.
A lot to still do there.
But we feel good at where we're at today.
Has there been any change to the <unk>.
Mix with in person versus remote just even in the last three months or six months.
I know it was always a little bit higher than what was originally anticipated and I'm wondering if it's just going to the anticipation is just maintain that level going forward I think it was 75% if I'm not mistaken.
Yes, we continue to see a slow return to in person as.
As far as our overall mix in Q1, it was 75% virtual 25% in person that was about a two to three point shift back towards the in person versus the previous quarter and thats been approximately the rate that we've seen it returning to in person.
<unk>.
Every quarter.
No.
We fully expect that that trend will continue.
We have seen patient demand for in person.
Increase.
As well as again, our clinicians returning.
More in person over time.
Alright, Thanks Scott.
Our next question comes from the line of Jamie Paris from Goldman Sachs. Jamie. Please go ahead.
Hey, Thank you.
Good morning.
<unk> first on the center level margin. It seems like margin progression there has been a bit faster than expected can you just remind us the initiatives you have in place. This year. These days around real estate you know how much of those are already starting to come through in the first quarter performance versus still ahead of us.
The remaining portion of the year.
Yes. Good morning, Good morning, Jamie This is Dave.
Center margin performance in the first quarter I would think of as being largely driven by the revenue beat and just getting getting.
Additional scale benefit.
And we do expect center margins to improve modestly throughout throughout the year and certainly.
The benefit of the real estate consolidation.
Consolidation helps that just to size that for you that would we expect about roughly $1 million of benefit from the real estate consolidation this year and about a $2 million run rate.
Of those savings into next year.
Okay. Thanks, that's helpful. And then you guys mentioned the expiring expiry of the public health emergency and the changes youre, making preparations you're making for that.
Can you tie that to the broader landscape. If you think the exploration of the public health emergency changes anything competitively even in the short term in terms of.
Where clinicians and or just more broadly how you're thinking about any competitive changes from that thanks.
Yes. This is Ken I'll take that so very recently.
There was an announcement that theres going to be some flexibility and essentially about a six month extension.
The pag, our public health emergency.
Accommodations.
So I'll speak to the longer term I think in the longer term there.
There is clearly an advantage of having a hybrid model that offers both patients and clinicians.
The choice and the flexibility of either a in.
In person visit or remote visits so as it relates to.
Ah patients that are receiving these controlled substances.
On a go forward basis once the extension has expired.
There is no choice, but they will have to visit with a.
A clinician prescribing one of these controlled substances in person.
Okay.
Hello, Jamie are you still there.
Yes that was.
It for me. Thank you for that question.
Our next question comes from the line of Brad and Tim.
<unk> from.
<unk> from Jefferies. Brian . Please go ahead.
Hey, good morning, guys congrats on the quarter.
I guess just a couple of quick questions as I think about payor rate improvement how much runway do you guys see to drive that.
Going forward.
Well, we think that.
There is a great deal of runway.
It's not going to be sort of a flip the switch but.
As we.
Continue to demonstrate the value of the services that our clinicians provide.
And with the increased understanding of the importance of mental health.
Integrated with physical health.
We think it's absolutely.
Critical.
That.
The reimbursement follows the value that's that's being.
Being created now.
In the short term.
We are able to provide some limited data in terms of what.
The value means in terms of quality of life and <unk>.
Absenteeism et cetera.
Some of those pilots that we've referenced we hope will build.
A database that is statistically valid that can demonstrate.
A true reduction in.
In person or excuse me in patient visits.
And emergency room visits.
And total cost of care, but as I said <unk>.
Right at the outset of the Q&A, we are still a ways away from that.
But that's the goal that's the intent that we can demonstrate.
That.
There are meaningful improvements obviously in the quality of life, but it's also a more efficient way to utilize healthcare resources.
Got it no that makes sense and then maybe Dave just a quick question I think I.
I just missed this but in your revenue guidance raise.
How much of that and then on the clinician add how much of that was from the addition of acquired through initiatives versus just organic.
We didn't parse that out.
Ryan.
Think of the clinician the clinician adds.
Being roughly 80% organic 20% from acquisition in the first quarter.
Alright got it thank you guys.
Yeah.
There are no further questions at this time I'll turn the call back over to our presenters.
Well I want to thank you for the questions and I'd be remiss, if I didn't take this opportunity to say that.
We really appreciate the tremendous work that's being done by the 8000 employees across life stance.
Donnish and Dave and I have the privilege of being able to report these results, but they are created by the hard work that collaboration and the passion that these 8000 individuals' demonstrate each and every day. So my opportunity on behalf of Dave and the executive leadership team to thank.
Each and every one of them.
And that will conclude our call for this quarter.
This concludes today's conference call you may now disconnect.