Q2 2024 LifeStance Health Group Inc Earnings Call

August 8, 2024

Hermione: Thank you for standing by. My name is Hermione and I will be your conference operator today.

Speaker Change: At this time, I would like to welcome everyone to Lifespan's Health 2nd Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.

I would now like to turn the call over to Monica Prokocki. Please go ahead.

Unknown Executive: Thank you, operator. 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.Lifestance.com. In addition, a replay of this conference call will be available following the call. 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 current and past performance.

Monica Prokocki: Good morning everyone, and welcome to Lifestance Health's second quarter 2024 earnings conference call. I'm Monica Prokocki, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer, and Dave Bourdon, Chief Financial 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.lifestance.com. In addition, a replay of this conference call will be available following the call.

Monica Prokocki: Thank you, operator.

Monica Prokocki: Good morning, everyone, and welcome to Lifestance Health's 2nd Quarter 2024 Earnings Conference Call.

I'm Monica Prokocki, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer, and Dave Bourdon, Chief Financial Officer.

Speaker Change: 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.lifestance.com. In addition, a replay of this conference call will be available following the call.

Monica Prokocki: 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 current and past performance. A reconciliation to the most directly comparable gap measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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 current and past performance.

A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix.

Speaker Change: Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Ken Burdick, CEO of Lifestance. Ken?

Monica Prokocki: At this time, I'll turn the call over to Ken Burdick, CEO of Lifestance. Ken? Thanks.

Kenneth Burdick: Monica, and thank you all for joining us today. We continue to execute on our plan in the second quarter. This is now our seventh consecutive quarter of meeting or exceeding expectations. The team delivered revenue growth of 20%, or $312 million, and adjusted EBITDA of $29 million. Based on the strength of the quarter.

Unknown Executive: We continue to execute on our plan in the second quarter, a consecutive quarter of meeting or exceeding expectations based on the strength of the quarter.

Ken Burdick: Thanks, Monica, and thank you all for joining us today.

Ken Burdick: We continued to execute on our plan in the second quarter.

Speaker Change: this is now our seventh

Speaker Change: consecutive quarter of meeting or exceeding expectations

Speaker Change: The team delivered revenue growth of 20%.

Speaker Change: or three hundred twelve million dollars and adjusted ebitda of twenty nine million dollars

Kenneth Burdick: We are once again raising our full-year guidance for all financial metrics. Our value proposition and differentiated hybrid model of in-person and virtual care continue to resonate with both our clinicians and patients, as we see increasing demand for in-person services. We are now approaching 7,000 employed clinicians with year-over-year growth of 14% and 118 net clinician additions in the quarter. This growth has been 100% organic.

Speaker Change: based on the strength of the quarter we are once again raising our full year guidance for all financial metrics

Unknown Executive: Our value proposition and differentiated hybrid model of in-person and virtual care, as we see increasing demand for in-person services, for the past five quarters. Additionally, as reflected in our net promoter score of 86 and Average Google Reviews across Lifestance Centers at 4.6 out of 5 stars. We have successfully implemented the first six states and are actively implementing the tool in five additional states, while still in the early stages, and Improvements in Patient Collections, where this tool has been deployed. Third, The corner is straightforward.

Speaker Change: Our value proposition and differentiated hybrid model of in-person and virtual care continues to resonate with both our clinicians and patients.

Speaker Change: as we see increasing demand for in-person services.

Speaker Change: We are now approaching 7,000 employed clinicians with year-over-year growth of 14% and 118 net clinician ads in the quarter.

Speaker Change: For the past five quarters, this growth has been 100% organic.

Kenneth Burdick: Additionally, our clinicians continue to provide excellent care to our patients, as reflected in our net promoter score of 86 and Average Google Reviews across Lifestance Centers at 4.6 out of 5 stars, regarding operational execution. We continue to make progress on initiatives to streamline the business and improve our performance. I'll share three tangible examples with you. First,

Speaker Change: additionally

Speaker Change: our clinicians continue to provide excellent care to our patients

Speaker Change: as reflected in our Net Promoter Score of 86.

Speaker Change: and average google reviews across lifestan centers at four point six out of five stars

Speaker Change: Regarding operational execution.

Speaker Change: We continue to make progress on initiatives to streamline the business and improve our performance.

Kenneth Burdick: We are finalizing the rollout of our digital matching tool for booking new patients by phone, to improve efficiency and the user experience for our customer care specialists. We continue to roll out our new digital patient check-in tool. We have successfully implemented the first six states and are actively implementing the tool in five additional states, while still in the early stages. We are seeing higher patient satisfaction. Operational Efficiency and Improvements in Patient Collections, where this tool has been deployed.

Speaker Change: i'll share three tangible examples with you first

Speaker Change: We are finalizing the rollout of our digital matching tool for booking new patients by phone.

Speaker Change: Improving efficiency and the user experience for our customer care specialists.

Speaker Change: Second.

Speaker Change: we continue to roll out our new digital patient check in tool

Speaker Change: We have successfully implemented the first six states and are actively implementing the tool in five additional states.

Speaker Change: while still in the early stages.

Speaker Change: We are seeing higher patient satisfaction.

Speaker Change: Operational Efficiencies

Speaker Change: and improvements in patient collections where this tool has been deployed

Kenneth Burdick: Third, the redesign of the operating model was launched on July 1st. This represents an investment in improved patient and clinician experience by standardizing the operational model across our 33 states. This includes enhancing the staffing levels of front office support and increasing the dedicated clinical leadership focused on coaching and supporting our clinicians. The quarter was straightforward, with solid performance, including stronger than expected pre-cast. We expect this past generation to remain strong for the remainder of the year as we continue to recover from the disruption of the changed healthcare cyber attack. With that, I'll turn it over to Dave to provide additional commentary on our financial performance and outlook. Dave?

Speaker Change: third

Speaker Change: The redesign of the operating model was launched on July 1st.

Speaker Change: This represents an investment in improved patient and clinician experience by standardizing the operational model across our 33 states.

Speaker Change: this includes enhancing the staffing levels of front office support

Speaker Change: and increasing the dedicated clinical leadership focused on coaching and supporting our clinicians

Speaker Change: The quarter is straightforward.

Speaker Change: with solid performance, including stronger than expected pre-cash flow.

Speaker Change: We expect this past generation to remain strong for the remainder of the year as we continue to recover from the disruption of the changed healthcare cyber attack.

Speaker Change: With that, I'll turn it over to Dave to provide additional commentary on our financial performance and outlook. Dave? Thanks, Ken. Like Ken, I'm pleased with the team's operational and financial performance in the second quarter.

David Bourdon: Like Ken, I'm pleased with the team's operational and financial performance in the second quarter. We produced strong top-line results with revenue of $312 million, representing growth of 20% year-over-year. The outperformance was driven by higher total revenue per visit and increased visit volume. Visit volumes of 2 million increased 15% year over year, primarily driven by clinician growth. In the second quarter, we added 118 net clinicians, which met our expectations. This brings our total clinician base to 6,984 clinicians, representing growth of 14% year over year.

Unknown Executive: We produced strong top-line results with revenue of $312 million, representing growth of 20% year over year. Visit volumes of 2 million increased 15% year over year, primarily driven by clinician growth.

David Bourdon: In addition, similar to last year, we expect our net clinician growth to step up seasonally in the third quarter. As for clinician productivity, it was slightly ahead of our expectations in the second quarter. Total revenue per visit increased 4% year-over-year to $159, primarily driven by payorating regarding profitability. The better-than-expected top-line results flowed through to Spinner Market. Center margin of $98 million in the quarter increased by 34% year over year. The year-over-year improvement was primarily due to higher total revenue per visit and operating leverage and center costs, mainly driven by real estate optimization.

Dave Bourdon: We produced strong top-line results with revenue of $312 million, representing growth of 20% year-over-year.

Speaker Change: The outperformance was driven by higher total revenue per visit and increased visit volume.

Speaker Change: Visit volumes of 2 million increase 15% year-over-year, primarily driven by clinician growth.

Dave Bourdon: In the second quarter, we added 118 net clinicians, which met our expectations.

Speaker Change: This brings our total clinician base to 6,984 clinicians, representing growth of 14% year-over-year.

Speaker Change: In addition, similar to last year, we expect our net clinician growth to seasonally step up in the third quarter.

Speaker Change: With regard to clinician productivity, it was slightly ahead of our expectations in the second quarter.

Speaker Change: Total revenue per visit increased 4% year-over-year to $159, primarily driven by pay rate increases.

Unknown Executive: The better-than-expected top-line results flowed through to Spinner Market. Outperformance in the quarter was primarily driven by favorable spending and higher total revenue per visit. Adjusted EBITDA of $29 million in the quarter was strong and outperformed our expectations, increasing 103% year over year. The outperformance in the quarter is attributable to the improvement in the center market.

Speaker Change: Regarding profitability.

Speaker Change: The better-than-expected top-line results flowed through to Spinner Margin.

Speaker Change: Center margin of $98 million in the quarter increased by 34% year-over-year.

Speaker Change: The year-over-year improvement was primarily due to higher total revenue per visit and operating leverage and center costs, mainly driven by real estate optimization.

David Bourdon: Outperformance in the quarter was primarily driven by favorable spending and higher total revenue per visit. Adjusted EBITDA of $29 million in the quarter was strong and outperformed our expectations, increasing 103% year over year. Adjusted EBITDA as a percentage of revenue grew nearly four points year over year to 9.2%. The outperformance in the quarter is attributable to the improvement in center margin. Turning to liquidity,

Speaker Change: Outperformance in the quarter was primarily driven by favorable spending and higher total revenue per visit.

Speaker Change: adjusted ebitda of twenty-nine million dollars in the quarter was strong and outperformed our expectations increasing one hundred and three percent year-over-year

Speaker Change: adjusted ebitda as a percentage of revenue grew nearrely four points year-over-year than nine point two percent

Speaker Change: the outperformance in the quarter is attributable to the improvement in centender margin

Unknown Executive: Turning to liquidity, in the second quarter, we generated a strong free cash flow of $39 million. We exited the quarter with $87 million in cash and net long-term debt of $279 million. Disciplined Capital Deployment, and Resolution of Collection Issues with Payors. As a result, we continue to have sufficient financial flexibility and have no intention of raising additional debt or equity. DSO improved four days sequentially to 49 days in the quarter. We are continuing to work through the impact of the change in health care collections disruption, with net leverage improving sequentially over 90 basis points to 2.2 times.

David Bourdon: In the second quarter, we generated strong free cash flow of $39 million. We exited the quarter with $87 million in cash and net long-term debt of $279 million. We are pleased to have finished the first half of 2024 free cash flow positive. In the third quarter, we will see a cash impact of approximately $18 million from the payment of the 401k match. We remain confident that we will finish the full year with positive free cash flow due to stronger year-over-year operating results.

Speaker Change: Turning to liquidity.

Speaker Change: In the second quarter, we generated strong free cash flow of $39 million. We exited the quarter with $87 million in cash and net long-term debt of $279 million.

Speaker Change: We are pleased to have finished the first half of 2024 free cash flow positive.

Speaker Change: In the third quarter, we will see a cash impact of approximately $18 million from the payment of the 401k match.

Speaker Change: we remain confident that we will finish the full year with positive free cash flow due to stronger year-over-year operating results

David Bourdon: Disciplined Capital Deployment and Resolution of Collection Issues with Payors. As a result, we continue to have sufficient financial flexibility and have no intention of raising additional debt or equity. DSO improved four days sequentially to 49 days in the quarter. We are continuing to work through the impact from the change. Healthcare collections disruption. We still believe this is a timing issue that will be resolved by the end of the year.

Speaker Change: Disciplined Capital Deployment, and Resolution of Collection Issues with Payers.

Speaker Change: As a result, we continue to have sufficient financial flexibility and have no intention of raising additional debt or equity.

Speaker Change: DSO improved four days sequentially to 49 days in the quarter. We are continuing to work through the impact from the changed healthcare collections disruption. We still believe this is a timing issue that will be resolved by the end of the year.

David Bourdon: We continue to see improvement in our leverage ratio, with net leverage improving sequentially over 90 basis points to 2.2 times. We are pleased with our current net leverage ratio, and it is expected to continue to improve over the remainder of the year. In terms of our outlook for 2024, we are raising our full-year revenue range by $6 million at the midpoint, to $1,200,000,000 to $1,242,000,000. We are also raising our full-year center margin range by $10 million at the midpoint, to $363 to $383 million, and the four-year adjusted EBITDA range by $2 million at the midpoint, to $90 to $100 million.

Speaker Change: We continue to see improvement in our leverage ratios, with net leverage improving sequentially over 90 basis points to 2.2 times.

Unknown Executive: We are pleased with our current net leverage ratio and expect it to continue to improve over the remainder of the year. In terms of our outlook for 2024, we are raising our full-year revenue range by $6 million at the midpoint, and the four-year adjusted EBITDA range by $2 million at the midpoint to $90 to $100 million.

Speaker Change: We are pleased with our current net leverage ratio and expected to continue to improve over the remainder of the year.

Speaker Change: in terms of our outlook for two thousand and twenty-four we are raising our full year revenue range by six million dollars at the midpoint

Speaker Change: to one billion two hundred millionthe one billion two hundred forty two million dollars

Speaker Change: We are also raising our full-year center margin range by $10 million at the midpoint to $363 to $383 million.

Speaker Change: and the full year adjusted EBITDA range by $2 million at the midpoint to $90 to $100 million.

David Bourdon: Based on the adjusted EBITDA outperformance in the first half of the year, we are giving ourselves flexibility through the back half of the year to make additional investments to better position us to achieve our 2025 objectives. For the third quarter, we expect revenue of $290 to $310 million, center margin of $83 to $95 million, and adjusted EBITDA of $15 to $21 million. Additionally, we now expect stock-based compensation to land towards the lower end of our originally guided range of approximately $80 to $95 million in 2024, compared with $99 million last year.

Speaker Change: Based on the adjusted EBITDA outperformance in the first half of the year, we are giving ourselves flexibility through the back half of the year to make additional investments to better position us to achieve our 2025 objectives.

Speaker Change: for the third quarter we expect revenue of two hundred and ninety the three hundred ten million dollars center margin of eighty-three to ninety-five million dollars and adjusted ebitda of fifteen the twenty-one million dollars

Speaker Change: additionally we now expect stock-based compensation to land towards the lower end of our originally guided range of approximately eighty to ninety five million dollars in two thousand and twenty four compared with ninety nine million dollars last year

David Bourdon: As compared with our original expectations of opening no more than 20 de Novos in 2024, we now expect to open fewer than 10 by year-end. These updates reflect our increased emphasis on profitable growth and disciplined capital deployment. With that, I'll turn it back to Ken for his closing remarks. Thanks, Dave.

Speaker Change: As compared with our original expectations of opening no more than 20 de Novos in 2024, we now expect to open fewer than 10 by year-end.

Speaker Change: these updates reflect our increased emphasis on profitable growth and disciplined capital deployment

Speaker Change: With that, I'll turn it back to Ken for his closing remarks.

Kenneth Burdick: I'm pleased with the progress made this quarter. We beat and surpassed each of our guided financial metrics for the year, delivered another quarter of strong organic revenue growth and operating leverage, and achieved positive free cash flow for the first half of the year. The operational improvements and investments that we've been making in people, processes, and systems over the past two years are starting to give us greater consistency and visibility into the performance of the business, while also improving the experience for patients, clinicians, and team members.

Ken Burdick: Thanks, Dave. In closing, I'm pleased with the progress made this quarter.

Unknown Executive: We beat and surpassed each of our guided financial metrics for the year and achieved positive free cash flow for the first half of the year.

Speaker Change: we be and raised on each of our guided financial metrics for the year

Speaker Change: Delivered another quarter of strong organic revenue growth and operating leverage.

Ken Burdick: and achieved positive free cash flow for the first half of the year.

Ken Burdick: the operational improvements and investments that we've been making in people, processes and systems.

Ken Burdick: Over the past two years,

Ken Burdick: are starting to give us greater consistency and visibility into the performance of the business.

Ken Burdick: while also improving the experience for patients, clinicians, and team members.

Speaker Change: Operator, we're now ready for questions.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Craig Hettenbach with Morgan Stanley. Please go ahead. Thanks.

Operator: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Craig Hettenbach with Morgan Stanley. Please go ahead.

Operator: Thank you. The floor is now open for questions.

Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Ken Burdick: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, press star 1 to join the queue and your first question comes from the line of Craig Hettenbach with Morgan Stanley . Please go ahead.

Craig Hettenbach: Thanks. Ken, can you provide an update on payer rates, what you're seeing at large payers broadly, and then also any anecdotes you can share in instances where you're seeing rate increases, if you can touch on that.

Kenneth Burdick: We are very pleased with the results of our payer negotiations, as we've said before. We just put this team in place in the early..., half of last year, and they are doing a tremendous job.

Speaker Change: we are very pleased with the results of our payer negotiations as we said before

Ken Burdick: But we just put this team in place in the early half of last year and they are doing a tremendous job We're trying to build

Kenneth Burdick: We're trying to build a partnership mindset with our payers so that we're having ongoing conversations, not just about the rates, but also about the administrative terms, about delegated credentialing, and ultimately, we hope to have meaningful discussions about value-based arrangements. And that was a payer that was out of market in terms of the level of reimbursement and had substantial volume. Other than that single exception, I would say our payer rates and payer contracting is going quite well.

Speaker Change: a partnership mindset with our payers so that we're having ongoing conversations not just about the rates but also about the administrative terms about delegated potentialally and ultimately we hope to have meaningful discussions about value-based arrangements

Unknown Executive: So there is the one single exception that we spoke about at length last time. And that was a payer that was out of market in terms of the level of reimbursement and had substantial volume. Other than that single exception, I would say our payer rates and payer contracting is going quite well.

Ken Burdick: so there is a one single exception that we spoke about at length last time

Speaker Change: And that was a payer that was out of market in terms of the level of reimbursement and had substantial volume. Other than that single exception, I would say our payer rates and payer contracting is going quite well.

Kenneth Burdick: Got it. And then just as a follow-up on clinician growth, Dave, you mentioned seasonal strength expected in Q3. Any update on just, I know there are plans you guys are trying to shift the mix more towards fuller-time clinicians, how that's working out, and, you know, what that could mean for capacity into next year?

Speaker Change: Got it. And then just as a follow-up on clinician growth, Dave, you mentioned seasonal strength expected in Q3. Any update on just, I know there's plans you guys are trying to shift the mix more towards fuller time clinicians, how that's working out and, you know, what that could mean for capacity into next year.

Unknown Executive: Sure, Craig, I'll take that as well. Pipeline for clinician growth continues to be robust, a component of our growth story. And while we are doing things, as you mentioned, like skewing toward more full-time employment and making sure that we are recruiting clinicians with the license type needed in a specific geographic market, even with that refined approach.

Kenneth Burdick: Sure, Craig, I'll take that as well. The pipeline for clinician growth continues to be robust. Our value proposition resonates, as we did share last quarter. Second quarter tends to be sort of the low watermark, in part based on when new clinicians are graduating from school, but it continues to be an important component of our growth story. And while we are doing things, as you mentioned, like skewing toward more full-time employment and making sure that we are recruiting clinicians with the license type needed in a specific geographic market, even with that refined approach, as I say, we expect that clinician growth will be an ongoing process. Our recruiting engine is extremely strong, and our team is doing a fantastic job.

Dave Bourdon: Pipeline for clinician growth continues to be robust.

Speaker Change: our value proposition resonates

Speaker Change: As we did share last quarter, second quarter tends to be sort of the low watermark.

Speaker Change: In part, based on when new clinicians are...

Speaker Change: graduating from school.

Speaker Change: But it's, it continues to be important.

Speaker Change: component of our growth story.

Speaker Change: And while we are doing things, as you mentioned, like skewing toward more full-time employment and making sure that we are recruiting clinicians with the license type needed in a specific geographic market, even with that refined approach.

Speaker Change: as i say we expect that clinician growth will be an ongoing part our recruiting engine is extremely strong and our team is doing a fantastic job

Operator: Your next question comes from the line of Lisa Gill with J.P. Morgan. Please go ahead. Agreed.

Speaker Change: Your next question comes from the line of Lisa Gill with J.P. Morgan. Please go ahead.

Lisa Gill: Great. Good morning. Thank you for the question and congratulations on the results. Ken, I just want to follow up on what you just talked about with the clinician ads, where you talked about the value proposition. Has anything materially changed from a competitive standpoint in the marketplace? I know over the last several years, there were times where things ebbed and flowed because clinicians were looking to be more virtual or working from different locations. Is there anything that's changed from a competitive standpoint from your perspective when we think about the clinician market?

Lisa Gill: ate good morning thank you for the question and congratulations on the resultscan i actually tofollow up and what youve justtalked about what the clinician adds and you talked about the value proposition has anything materially changed from a competitive standpoint in the marketplace i know over the last several years you know there were times where things have been flowed because clinicians were looking to be more virtual or working from different locations is there anything that's changeed from a competitive standpoint from your perspective when we think about

Unknown Executive: I think there's been a bringing in of the right clinicians through the front door and trying to mitigate the outflow of the back door, and to that point, our retention has stabilized. It's slightly better than where it was last year, but it's not where we want it to be, so we will continue to work on that.

Kenneth Burdick: I think there's been... from a competitive standpoint... some movement back toward in-person visits. We saw this quarter about a 1.5% bump toward in-person versus virtual. And in terms of the competitive environment, obviously, there's still a great demand for mental health clinicians. But we will continue to work on both, bringing in the right clinicians through the front door and trying to mitigate the outflow of the back door, and to that point, our retention has stabilized. It's slightly better than where it was last year, but it's not where we want it to be, so we will continue to work on that.

Speaker Change: it's a clinician market

Speaker Change: I think there's been...

Speaker Change: from a competitive standpoint some movement of back toward in person visits we saw this quarter about a one point five percent bump toward in person versus virtual

Speaker Change: But we will continue to work on both.

Speaker Change: bringing in the right clinicians through

Speaker Change: Trying to mitigate the outflow in the back door and Our to that point our retention has stabilized. It's slightly better than

Unknown Executive: And where were you in the quarter on virtual versus in person?

Kenneth Burdick: And where were you in the quarter on virtual versus in person?

Speaker Change: where it was last year but it's not where we wanted to be so we will continue to work on that

Unknown Executive: and where were you in the quarter on virtual versus in person

Kenneth Burdick: Oh, let's see. Roughly, I'm going to say 71%, virtual 29% in person. And as I say, interestingly, during 23, we saw that kind of quarter over quarter change, and then for about three quarters it stabilized, it's only this past quarter that that trend seems to be continuing with about a one and a half point bump quarter over quarter.

Speaker Change: Oh, let's see, roughly, I'm going to say 71%, virtual 29% in person. And as I say, interestingly, during 23, we saw that kind of

Unknown Executive: virtual 29% in person. And as I say, interestingly, during 23, we saw that kind of

Speaker Change: quarter over-quarter change and then for about three quarters it had stabilized it's only this past quarter that that trend seems to be continuing with about a one and a half point bump quarter-over-quarter

Unknown Executive: Reporter. That's helpful. And then, just as a quick follow-up, Dave, you mentioned investments in the back half of the year. Can you give us an idea of what some of the investments are that you're making for 2025?

Lisa Gill: Reporter. That's helpful. And then, just as a quick follow-up, Dave, you mentioned investments in the back half of the year. Can you give us an idea of what some of the investments are that you're making for 2025?

Unknown Executive: myte and thenjust as a quick followllow on davy mentioned investments in the back half of the year can you give us an idea of what some of the investments are that you're making for two thousand and twenty five

David Bourdon: Yeah, good morning, Lisa. It's Dave.

Speaker Change: like morning sucharch gave

Dave: so so we are giving ourselves some flexibility to make some additionalinvest in the backhalf of the year based on the strong performance during the first half it really the intent is is to position ourselves even better for success in two thousand and twent five and beyond so we'reaccelerating

Speaker Change: some things that we, you know, we would have been doing next year. Like, for example,

Speaker Change: accelerating the hiring out some business development cl on the street individuals that go in

Dave: Sign up, you know, new referral sources for us with the local medical community, those kinds of things, but we're still working through the list, but I would say an emphasis on

Dave: Growth, and Achieving 2025 Targets, as well as non-recurring spend, where we make sure that we're positioning ourselves for success around the delivery of our strategic initiatives and things like that.

David Bourdon: So we are giving ourselves some flexibility to make some additional investments in the back half of the year based on the strong performance through the first half. The real intent is to position ourselves even better for success in 2025 and beyond. So we're accelerating some things that we would have been doing next year, like, for example, accelerating the hiring of some business development groups on the street, individuals that go in and sign up new referral sources for us with the local medical community, those kinds of things, but we're still working through the list.

David Bourdon: But I'd say an emphasis on growth and achieving 2025 targets, as well as non-recurring spend, to make sure that we're positioning ourselves for success around the delivery of our strategic initiatives and things like that.

Unknown Executive: Great, thank you very much.

Operator: Okay, great. Thank you very much.

Operator: Your next question comes from the line of Ryan Daniels with William Blair. Please go ahead.

Ryan Daniels: Okay, great. Thank you very much.

Operator: Your next question comes from the line of Ryan Daniels with William Blair. Please go ahead.

Jack Senft: Hey guys, this is Jack Senft. I'm on behalf of Ryan Daniels.

Jack Senft: Thanks for taking the question. This is similar to Lisa's last question there, but if we look at the midpoint of the third quarter guidance, even the margins look like they're contracting by about 300 basis points sequentially. So is this decrease in margins just largely related to the increased investments you mentioned, or is there really anything additional to kind of call out on the margin contraction? Thanks.

Speaker Change: hey guys this is jack sm done for indanddaniel thanks for taicking the this is similar to leases last question there but if we look the midpoint of the third quarter guidance even the margins like like they're contractking by about three hundred basis points sequentially so

Jack Senft: Is this decrease in margins just largely related to the increased investments you mentioned? Or is there really anything additional to kind of call out on the margin contraction? Thanks.

David Bourdon: Hey, Jack, it's Dave. I'll take that one. So there are a few things going on in the third quarter. First of all, revenue at the midpoint is down approximately $12 million quarter over quarter. And that's driven by two things. Logo visits. So, as you're aware, with our model, we have the beginning of the vacation season, and that impacts productivity as well as introduces a little bit more variability.

jack dave: jack dave all i'll take that one so there's a few things going on in the third quarter so first of all i'would start with revenue at the midpoint is down approximately twelve million dollars quarter over quarterand that's driven by two things

Unknown Executive: Global Visits. So, as you're aware, with our model, we have to get into the vacation season, and that impacts productivity as well as introduces a little bit more variability. So you have lower visits in Q3 versus Q2. And the other thing is, what we talked about in the last quarter about the calendar performance of the TRPV, and then it was going to step down in the second half of the year.

Speaker Change: Lower Visits. As you're aware, with our model...

Unknown Executive: We have the beginning of the vacation season, and that impacts productivity, as well as introduces a little bit more variability. So you have lower visits in Q3 versus Q2. And the other thing is what we talked about in the last quarter around the calendar performance.

David Bourdon: So you have lower visits in Q3 versus Q2. And the other thing is what we talked about in the last quarter about the calendar performance of the TRPV, and then it was going to step down in the second half of the year. So those two things are driving the $12 million revenue step down quarter over quarter. And I would dimension that for you and roughly half-half, half TRPV, half visit. So you take that combined with the increase in GNA related to investments, and then that's how you get to the adjusted EBITDA step down quarter over quarter.

Unknown Executive: So those two things are driving the $12 million revenue step down quarter over quarter. And I would dimension that for you and roughly half-half, half TRPV, half visit. Then that's how you get to the adjusted EBITDA step down quarter over quarter.

Unknown Executive: of the tp v and it was going to step down in the second half of the year so those two things

Unknown Executive: are driving the $12 million revenue step down quarter over quarter. I would dimension that for you and roughly half-half, half TRPV, half visits.

Speaker Change: take that combined with the increase in g a related to investments then that's how you get to the address ebit a step down quarter over quarter

Operator: At this time, I would like to welcome everyone to Lifestance Healt, 2nd quarter, 2024 earnings calls. All lines have been placed on youth to prevent any background noise. Out speakers remarks, there will be a question and an anti-tession. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.

Jack Senft: Okay, perfect. Thank you. And if I can just ask one more, in your prepared remarks, too, you mentioned the redesign of the operating model that was launched in early July, and it included the enhancement of the staffing levels and front office support. And I think you said, too, that this was only rolled out to a few states so far.

Speaker Change: okperfect thank you and if i can just ask one more and near prepared marks to you mention the redesign of the operating model that was launched an early july and it included hancing of the staffing levels and front office support and i think he said to that this was only rolled out to a few states so far so as we kind of look to the remainder of year how should we think about this maybe impacting the cadence of you know opex growth there' just maybe the general impact to just operating expensesis going forward thanks

Jack Senft: So as we kind of look to the remainder of the year, how should we think about this maybe impacting the cadence of, you know, OPEX growth or just maybe the general impact on just operating expenses going forward? Thanks.

Monica Prokocki: I would now like to turn the call over to Monica Prokocki, please go ahead. Thank you operator, good morning everyone, and welcome to Lifestance Healt, 2nd quarter, 2024 earnings conference call. I'm Monica Prokocki, vice president of investor relations. Joining me today are Ken Burdick, chief executive officer and Dave Bourdon, chief finance officer. We issues the earnings release and presentations before the market opened this morning. Those are available on the investor relations section of our website, investor.lifestands.com. In addition, a replay of this conference call will be available following the call.

Kenneth Burdick: Sure, I'll take that one. This is Ken. So we call this our one-stance operating model, and there were several things that we intended to accomplish, and in large part, it was rolled out July 1. There will be some phasing, but think of this really as a national initiative. So unlike our digital check-in tool where we're sort of going state by state, this one we felt it was important to do it pretty much within a 60 or 90-day period and had spent more than six months planning for it.

Ken: Sure, I'll take that one. This is Ken. So we call this our one-stance operating model. And there were several things that we intended to accomplish. And in large part, it was rolled out on July 1. On July 1, there will be some phasing.

Ken: Sure, I'll take that one. This is Ken. So we call this our one stance operating model. And there were several things that

Ken: But think of this really as a national initiative. So unlike our digital check-in tool, where we're sort of going state by state, this one, we felt it was important to do it. A pretty intentional move to put more resources in the local market to support both our patients and our clinicians. And we are already starting to see some positive impact from that change.

Ken: we intended to accomplish and in large part it was rolled out july want there will be some phasing but

Ken: think of this really has as a national initiative so unlike our digital check tool where we're sort of going state by state this one we felt it was important to to do it

Monica Prokocki: Before turning the call over to management for their prepared remarks, please direct your attention to the dislamers about forward-looking statements included in the earnings press release and SEC filing. Stage remarks contained 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 piling with the SEC that could cause actual results to differ materially. In addition, please note that we report results using non-gap financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable gap measures is included in the earnings press release tables and presentation of pending. Unless otherwise noted, all results are compared to the comparable period in the prior years.

Speaker Change: pretty much

Speaker Change: within a 60 or 90 day period and had spent more than six months of planning for it. So let me speak to it is certainly a contributor to increased expenses in the back half of the year versus the first half of the year.

Kenneth Burdick: So let me speak to it. It is certainly a contributor to increased expenses in the back half of the year versus the first half of the year. But we're excited about it because what we're accomplishing here is a level of standardization across all of our markets, so that people have the same job description, there's the same level of staffing, and there are standardized processes. In addition, we've made a very conscious, intentional move to put more resources in the local market to support both our patients and our clinicians, and we are already starting to see some positive impact from that change.

Speaker Change: but we're excited about it because what we're accomplishing here is a level of standardization across all of our markets

Ken: so that people have the same job description, there's the same level of staffing, there are standardized processes. In addition, we've made a very conscious

Ken: in

Ken: intentional move to put more resources in the local market to support both our patients and our clinicians and we are already starting to see some positive impact from from that change.

Operator: Okay, great. Thank you. And congrats again on the job.

Unknown Executive: Okay, great. Thank you. And congrats again on the job.

Ken Burdick: At this time, I'll turn the call over to Ken Burdick, CEO of LISTANCE. Ken? Thanks, Monica, and thank you all for joining us today. We continue to execute on our plan in the second quarter. This is now our seventh consecutive quarter of meeting or exceeding expectations. The team delivered revenue growth of 20% or $312 million and adjusted EBITDA of $29 million. Based on the strength of the quarter, we are once again raising our full-year guidance for all financial metrics.

Speaker Change: Okay, great, thank you and congrats again on the quarter.

Operator: Your next question comes from the line of Kevin Caliendo with UBS. Please go ahead.

Kevin Caliendo: Thank you.

Speaker Change: Your next question comes from the line of Kevin Caliendo with UBS. Please go ahead.

Dylan Finley: Thank you, and congratulations on the quarter. This is Dylan Finley on for Kevin.

Kevin Caliendo: Thank you and congratulations on the quarter. This is Dylan Finley for Kevin.

Dylan Finley: Thank you and congrats on the quarter. This is Dylan Finlay on for Kevin.

Dylan Finley: As you guys look at your center footprint today, how do you feel about your relative capacity there to add jobs? Do you think that footprint is something that you'll need to grow on in 2025 as you add jobs, or do you think you still have a lot of leeway?

Dylan Finley: As you guys look at your center footprint today, how do you feel about your relative capacity there to add dots? Do you think that footprint is something that you'll need to grow on in 2025 as you add dots, or do you think you still have a lot of leeway?

Dave: Secondary doses, Dave, I'll take that one.

Speaker Change: So, first of all, we feel good about the footprint that we have.

Ken Burdick: Our value proposition and differentiated hybrid model of in-person and virtual care continues to resonate with both our clinicians and patients, as we see increasing demand for in-person services. We are now approaching 7,000 employed clinicians with year-over-year growth of 14% and 118 net clinician ads in the quarter. For the past five quarters, this growth has been 100% organic. Finley. Our clinicians continue to provide excellent care to our patients, as reflected in our net promoter score of 86 and average Google reviews across lifestand centers at 4.6 out of 5 stars.

Speaker Change: Right now, as you were aware, we did some right sizing of that last year with consolidation of centers. And as I mentioned, my prepared remarks, we're only going to add less than 10.

Dave: Good morning. This is Dave. I'll take that one.

Speaker Change: Denovo's this year. So we're pretty, pretty stable footprint.

Speaker Change: This year, there is still a lot of capacity.

Dave: So, first of all, we feel good about the footprint that we have right now. As you are aware, we did some rightsizing of that last year with the consolidation of centers. And, as I mentioned in my prepared remarks, we're only going to add less than 10 de novos this year.

Dave: In our footprint, when you look across the country, there are local geographies that where we've been successful with recruiting, as well as have higher in-person patient utilization, where, you know, those are the areas where we'll continue to need to grow.

Dave: So, we're at a pretty stable footprint this year. There is still a lot of capacity in our footprint when you look across the country. There are local geographies where we've been successful with recruiting, as well as where we have higher in-person patient utilization. Those are the areas where we'll continue to need to grow de novos. So, again, I would expect that it'll be more of the same next year, where we'll have a modest amount of de novo ads while we continue to grow into our footprint.

Speaker Change: deothose so i would know again i would expect that it'll be more of the same next year where we'll have a modest amount of genenovo ads why we continue to grow into our footprint

Ken Burdick: Regarding operational execution, we continue to make progress on initiatives to streamline the business and improve our performance. I'll share three tangible examples with you. First, we are finalizing the rollout of our digital matching tool for booking new patients by phone, improving efficiency, and the user experience for our customer care specialist. Second, we continue to roll out our new digital patient check-in tool. We have successfully implemented the first six states and are actively implementing the tool in five additional states.

Dylan Finley: Thank you, that's helpful. And then just for a follow-up, you talked about the explanation as to why your margin might be depressing a bit in the back half with those discrete investments. As we kind of look towards 2025, knowing that you haven't provided any outlook there, should we still look at that exit rate, double-digit margin at the end of 2025 as achievable? Or do you think anything's changed maybe with regard to the investments that you want to put into the business today and keep today?

David Bourdon: Good morning. This is Dave. I'll take that one.

Dylan Finley: Thank you, that's helpful. And then, I guess for a follow-up, you talked to the explanation as to why the margin might be depressing a bit in the back half with those

Speaker Change: cre investments as we

Dylan Finley: kind of look towards two thousand and twenty five

Dylan Finley: Knowing that you haven't provided any outlooks there.

Dylan Finley: um

Dylan Finley: Should we still look at that exit rate double-digit margin at the end of 25 as achievable, or do you think anything's changed maybe with regards to the investments that you want to put into the business today and keep today?

Ken: Yeah, this is Ken. I want to jump in on that. It's a really important point. I want to, on behalf of Dave, myself, and the entire organization, emphasize that we are absolutely committed to those three goals that we set last year. One of these was that we would exit 25 with double-digit margins. Another was that we would maintain a mid-teens growth trajectory. And the third was about positive cash flow.

David Bourdon: So, first of all, we feel good about the footprint that we have right now. As you are aware, we did some rightsizing of that last year with the consolidation of centers. And as I mentioned in my prepared remarks, we're only going to add less than 10 de Novos this year.

Ken Burdick: While still in the early stages, we are seeing higher patient satisfaction, operational efficiencies, and improvements in patient collections where this tool has been deployed. Third, the redesign of the operating model was launched on July 1st. This represents an investment in improved patient and clinician experience by standardizing the operational model across our 33 states. This includes enhancing the staffing levels of front-office support and increasing the dedicated clinical leadership focused on coaching and supporting our clinicians.

David Bourdon: So we're in a pretty stable footprint this year. There is still a lot of capacity in our footprint when you look across the country. There are local geographies where we've been successful with recruiting, as well as where we have higher in-person patient utilization where, you know, those are the areas where we'll continue to need to grow de Novos. So I would, you know, again, I would expect that it'll be more of the same next year where we'll have a modest amount of de Novo ads while we continue to grow into our footprint.

Ken: This is Ken. I want to jump in on that. It's a really important point.

Dylan Finley: Thank you, that's helpful. And then just for a follow-up, you talked about the explanation as to why your margin might be depressing a bit in the back half with those discrete investments. As we kind of look towards 2025, knowing that you haven't provided any outlook there, should we still look at that exit rate double-digit margin at the end of 25 as achievable, or do you think anything's changed maybe with regard to the investments that you want to put into the business today and keep today?

Ken: i want to on behalf of dave myself from the entire organization

Ken: emphasize that we are absolutely committed to those three goals that we set last year, one of which was that we would exit 25 at double-digit margins

Kenneth Burdick: Yeah, this is Ken. I want to jump in on that. It's a really important point.

Kenneth Burdick: I want to, on behalf of Dave, myself, and the entire organization, emphasize that we are absolutely committed to those three goals that we set last year, one of which was that we would exit 25 with double-digit margins, one of which was that we would maintain a mid-teens growth trajectory, and the third was about positive cash flow. At that time, we committed to positive cash flow in 2025 for the full year. As you know from our prior quarter, we have moved that up, and we are now committing to positive free cash flow for the full year 2020.

Ken: one of which was that we would maintain a mid-teens's growth trajectory

Ken: At that time, we committed to positive cash flow in 2025 for the full year. As you know, from our prior quarters, we have moved that up, and we are now committing to positive free cash flow for the full year 2020.

Ken: And the third was about positive cash flow. At that time, we committed to positive cash flow in 2025 for the full year. As, as you know, from our prior quarter, we have moved that up and we are now committing to positive free cash.

Speaker Change: for the full year 2024.

Unknown Executive: Thank you. I appreciate it.

Operator: Thank you. I appreciate it.

Ken Burdick: The quarter is straightforward with solid performance, including stronger than expected pre-cash flow. We expect this hash generation to remain strong for the remainder of the year as we continue to recover from the disruption of the change healthcare-diver attack.

Operator: Your next question comes from the line of Brian Tanquilut with Jefferies. Please go ahead.

Brian Tanquilut: Thank you. Appreciate it.

Operator: Your next question comes from the line of Brian Tankilit with Jefferies. Please go ahead.

Jack Levin: Hey, good morning. Jack Levin on for Brian.

Brian Tanquilut: Hey, good morning. It's Jack Levin. I'm here for Brian.

Jack Levin: Hey, good morning. It's Jack Levin. I'm for Brian . Congrats on the quarter.

Jack Levin: Congratulations on the quarter. Similar question, but maybe ask it a little bit differently in regards to the 2025 margin. The color so far has been helpful, I think, in explaining how to think about that back half step down and appreciate the investments, but I guess maybe as we look at it, given some of the moves on the contract, is the back half the right sort of starting point to bridge toward those 2025 goals, especially the exit rate on margin? And from the current standpoint, how do you think about the building blocks here to get to that margin level? Thanks.

Brian Tanquilut: Similar question but maybe ask it a little bit differently as in regards to 2025 margins.

Jack Levin: Um, congrats on the quarter. Similar question, but maybe ask it a little bit differently as regards the 2025 margin. The color so far has been helpful, I think, in how to think about that back half step down and appreciate the investments. But I guess maybe as we look at it, given some of the moves on the contract, is the back half the right sort of starting point to bridge toward those 2025 goals, especially the exit rate on margin? And from the current standpoint, how do you think about the building blocks here to get to that margin level? Thanks.

Dave Bourdon: With that, I'll turn over to Dave to provide additional commentary on our financial performance and outlook. Dave? Thanks, Ken. Like Ken, I'm pleased with the team's operational and financial performance in the second quarter. We produced strong top-line results with revenue of $312 million representing growth of 20% year-over-year. The outperformance was driven by higher total revenue per visit and increased visit volume. Visit volumes of $2 million increased 15% year-over-year primarily driven by clinician growth.

Jack Levin: The color so far has been helpful, I think, on how to think about that back half step down and appreciate the investments. But I guess maybe as we look at it, given some of the moves on the contracts.

Jack Levin: Is the back half the right sort of starting point to bridge toward those 2025 goals, especially the exit rate on margin?

Jack Levin: And from the current standpoint, how do you think about the building blocks here to get to that margin level? Thanks.

Dave: Yes, it's Dave. I'll take that. So in the second half of the year, we'll continue to grow our specialty services, things like neuropsych testing that have higher margin profiles. And then the third is even with the one outlier payer situation that we've discussed at length, we expect to achieve a low single-digit increase in TRPV next year, so we'll get some margin expansion from rates as well. So those building blocks will get us to exit next year with a double-digit margin. Again, all according to plan and what we've laid out for you from a three year journey.

David Bourdon: Yes, it's Dave. I'll take that. So for that half of the year, If not for the investments, we would have been round numbers around 7% adjusted EBITDA margin, and that's consistent with our initial guide for 2024. So we're feeling very good about where we're finishing the year from a margin perspective. If you take a step back and remember when we talked about 2024 and 2025, we said in 2024, we would see some margin expansion, and the midpoint of our guide right now is 220 bps of margin expansion year over year, but that we would see even more margin expansion in 2025, when we're able to realize the benefits of all of the investments that we're making in 2023 and 2024. So we're finishing the year This is Step Into 2025.

Dave: Yeah, it's Dave. I'll take that. So, that half of the year,

Dave Bourdon: In the second quarter, we added 118 net clinicians which met our expectations. This brings our total clinician base that 6,984 clinicians representing growth of 14% year-over-year. In addition, similar to last year, we expect our net clinician growth to seasonally step up in the third quarter. With regard to clinician productivity, it was slightly ahead of our expectations in the second quarter. Total revenue per visit increased 4% year-over-year to $159. Primarily driven by per visit, for Energy Increases.

Speaker Change: If not for the investments, as you said, we would have been, round numbers, around 7% adjusted EBITDA margin. And that's consistent with our...

Dave: initial guide for two thousand and two thousand and twenty four so we're feeling very good about where we're finishing the year from a margin perspective as you take a step back

Dave: And remember, when we talked about 2024 and 2025, we said in 2024, we would see some margin expansion. And the midpoint of our guide right now is 220 bps.

Dave: of Margin Expansion year over year, but that we would see even more Margin Expansion in 2025, were we able to realize the benefits of all of the investments that we were making in 23 and 24.

Dave Bourdon: Regarding profitability, the better than expected top-line results flowed through to Center Margin. Center Margin of $98 million in the quarter increased by 34% year-over-year. The year-over-year improvement was primarily due to higher total revenue per visit and operating leverage in center costs, mainly driven by real estate optimization. Outperformance in the quarter was primarily driven by favorable spending and higher total revenue per visit. Adjusted EBITDA of $29 million in the quarter was strong and outperformed our expectations increasing 103% year-over-year.

Dave: So we're finishing the year where we wanted to in the multi-year journey to exiting 2025 with double-digit margins.

David Bourdon: It's the same building blocks that are getting us margin expansion in 2024, just a little bit, you know, but more and more enhanced, especially around operating leverage. So you'll see strong operating leverage in 2025. We'll continue to grow our specialty services, things like neuropsych testing that have higher margin profiles. And then, even with the one outlier payer situation that we've discussed at length, we expect to achieve a low single-digit increase in TRPV next year, so we'll get some margin expansion from rates as well. So those building blocks will get us to exiting next year with a double-digit margin. Again, all according to plan and what we've laid out for you on a three-year journey.

Speaker Change: He's stepping to 2025.

Dave: It's the same building blocks that are getting us

Speaker Change: the Margin Expansion in 2024, just a little bit, you know, but more and more enhanced, especially around operating leverage. So you'll see strong operating leverage in 2025.

Dave: We'll continue to grow our specialty services, things like neuropsych testing that have the higher margin profiles.

Dave: And then the third is, is...

Dave: is even with the one outlier payer.

Dave Bourdon: Adjusted EBITDA as a percentage of revenue grew nearly four points year-over-year to 9.2%. The outperformance in the quarter is attributable to the improvement in Center Margin. Turning to liquidity, in the second quarter, we generated strong free cash flow of $39 million. We exited the quarter with $87 million in cash and net long-term debt of $279 million. We are pleased to have finished the first half of 2024 free cash flow positive. In the third quarter, we will see a cash impact of approximately 18 million dollars from the payment of the 401K match.

Dave: situation that we've discussed at length. We expect to achieve low single-digit

Dave: increase in TRPV next year. So we'll get some margin expansion from rates as well. So those building blocks will get us to exiting next year with the double-digit margins.

Dave: again all basically according to plan and what we've laid out for you from a three year journey

Operator: Got it. Appreciate that. Really helpful, and congrats again on the quarter.

Operator: Your last question comes from the line of Stephanie Davis with Park Place. Please go ahead.

Stephanie Davis: Got it, appreciate that. Really helpful and congrats again on the quarter.

Operator: Thanks.

Operator: Your last question comes from the line of Stephanie Davis with Park Place. Please go ahead.

Stephanie Davis: Hey guys, congrats on the 4N. Thanks for putting me in the queue. I was hoping to dig a little bit into your ramp and your credentialing platform. And just how you're thinking about the timeline. And then thinking about credentialing processes. You know, it's often a clinician by clinician blocking and tackling process. Is there any re-credentialing process with a new platform that we should factor in to that

Stephanie Davis: Hey guys, congrats on the query and thanks for putting me in the queue. I was hoping to dig a little bit into your ramp and your credentialing platform. And just how you're thinking about the timeline. And then thinking about credentialing processes, you know, it's often a clinician by clinician blocking and tackling process. Is there any re-credentialing process with a new platform that we should factor in to that timeline

Stephanie Davis: Hey guys, congrats on the core and thanks for putting me in the queue. I was hoping to dig a little bit into your ramp and your credentialing platform.

Dave Bourdon: We remain confident that we will finish the full year with positive free cash flow due to stronger year-over-year operating results, discipline, capital deployment and resolution of collection issues with payers. As a result, we continue to have sufficient financial flexibility and have no intention of raising additional debt or equity. DSL improved four days sequentially to 49 days in the quarter. We are continuing to work through the impact from the change health care collections disruption.

Stephanie Davis: and just how you're thinking about the timeline and then thinking about credentialing processes, you know, it's often a clinician by clinician blocking and tackling process. Is there any re-credentialing process with a new platform that we should factor in to that timeline?

Unknown Executive: So Stephanie, we, we have certainly made improvements. We're migrating to a new platform.

Kenneth Burdick: So Stephanie, we have certainly made improvements. We're migrating to a new platform. You're right; a lot of our credentialing right now is the re-credentialing of our existing clinician base. And, um, One of the things that we're feeling quite positive about is the continued progress that we've had with our payers, persuading them that if they delegate credentialing to us, we can dramatically increase the speed with which our clinicians can come online and see patients. So that has been a very positive development that perhaps we haven't spoken enough about. So, thanks for the question.

Unknown Executive: So Stephanie, we have certainly made improvements. We're migrating to a new platform. You're right, a lot of our credentialing right now is the re-credentialing of our existing clinician base.

Unknown Executive: You're right; a lot of our credentialing right now is the recredentialing of our existing clinician base. One of the things that we're feeling quite positive about is the continued progress that we've made with our payers. Persuading them that if they delegate credentialing to us, we can dramatically increase the speed with which our clinicians can come online and see patients. So that has been a very positive development that perhaps we haven't spoken enough about. So, thanks for the question.

Unknown Executive: one of the things that we're feeling quite positive about is the continued progress that we've had

Dave Bourdon: We still believe this is a timing issue that will be resolved by the end of the year. We continue to see improvement in our leverage ratios with net leverage improving sequentially over 90 basis points to 2.2 times. We are pleased with our current net leverage ratio and expected to continue to improve over the terms of our outlook for 2024.

Unknown Executive: with our payers.

Unknown Executive: persuading them that if they if they delegate credentialing to us we can dramatically increase the speed with which our clinicians can come online and see patients. So that has been probably a very positive development that perhaps we haven't spoken enough about.

Stephanie Davis: and a follow-up, the other side of the competitive coin. We're seeing some of the DDC mental health solutions evolve to more of a super service insurance product. Given that uptick, how are you thinking about your go-to? Where are you at? Yeah, we have a...

Stephanie Davis: and a follow-up, the other side of the competitive coin. We're seeing some of the DDC mental health solutions evolve to more of a fee-for-service insurance product.

Stephanie Davis: So thanks for the question.

Stephanie Davis: and a follow up the other side of the competitive landscape plut cha just wring some of the dc mental health solutions ofevolved tim more a a super service insurance product

Dave Bourdon: We are raising our full-year revenue range by $6 million at the midpoint to $1 billion, $200 million to $1 billion, $242 million. We are also raising our full-year center margin range by $10 million at the midpoint, the $363, the $383 million. In the full-year adjusted EBITDA range by $2 million at the midpoint to $90 million to $100 million. Based on the adjusted EBITDA outperformance in the first half of the year, we are giving ourselves flexibility through the back half of the year to make additional investments to better position us to achieve our 2025 objectives.

Unknown Executive: Given that uptick, how are you thinking about your go-to? where you're at. Yeah, we have a

Speaker Change: Given that uptick, how are you thinking about your go-to-market for patients or maybe how you're advertising to them a little bit differently?

Kenneth Burdick: Yeah, we have a very, very different model. We spend a de minimis amount of marketing in terms of patient acquisition. We are heavily reliant on referrals that come from primary care and specialists, and that has served us well. And when we talk about business development, we have a team that's continuing to nurture and expand those relationships with primary care and specialists. And that really is at the heart of sort of our mission and vision.

Speaker Change: Yeah, we have a very, very different model.

Unknown Executive: of Marketing, in terms of patient acquisition. We are heavily reliant on referrals that come from primary care and specialists.

Speaker Change: In terms of marketing, in terms of patient acquisition, we are heavily reliant on the referrals that come from primary care and specialists.

Unknown Executive: And that has served us well. And when we talk about business development, we have a team that's continuing to nurture and expand those relationships with primary care and specialists. And that really is the heart of sort of our mission and vision. We're looking to unify.

Unknown Executive: And that has served us well and when we talk about business development, we have a team that's

Unknown Executive: continuing to nurture and expand those relationships with primary care and specialists and that really is a heart of sort of our mission and vision. We're looking to unify

Dave Bourdon: For the third quarter, we expect revenue of $290 to $310 million, center margin of $83 to $95 million, and adjusted EBITDA of $15 to $21 million. Additionally, we now expect stock-based compensation to land toward the lower end of our originally guided range of approximately $80 to $95 million in 2024, compared with $99 million last year. As compared with our original expectations of opening no more than 20 de novo's in 2024, we now expect to open fewer than 10 by year end. These updates reflect our increased emphasis on profitable growth in disciplined capital deployment.

Kenneth Burdick: We're looking to unify mind and body treatment, especially for chronic conditions, because we think the kind of value that that's going to bring to the overall healthcare system is enormous. So we do that, primarily because it does have the benefit of being far less expensive than having to pay significant amounts of money for patient acquisition by the ones.

Unknown Executive: The mind and body treatment, especially of chronic conditions, because we think the kind of value that that's going to bring to the overall health care system is enormous. So we do that.

Speaker Change: primarily because it's consistent with our overall strategy but it does have the benefit of being far less expensive than having to pay

Speaker Change: Significant amounts of money for patient acquisition by the ones.

Operator: That concludes today's Q&A session. I will now turn the conference back over to Ken Burdick, CEO, for closing remarks.

Speaker Change: Helpful. Thank you.

Unknown Executive: That concludes today's Q&A session. I will now turn the conference back over to Ken Burdick, CEO , for closing remarks.

Kenneth Burdick: Thank you, operator. Just a few brief comments.

Ken Burdick: With that, I'll turn it back to Ken for his closing remarks. Thanks, Dave. In closing, I'm pleased with the progress made this quarter.

David: thank you operator just a few brief comments obviously davidand i report the numbers and this was yet another really solid quarter with a beat and raise it's our seventh quarter but we don't lose sight of who's doing the work

Ken Burdick: We beat and raised on each of our guided financial metrics for the year, delivered another quarter of strong organic revenue growth and operating leverage, and achieved positive free cash flow for the first half of the year. The operational improvements and investments that we've been making in people, processes, and systems over the past two years are starting to give us greater consistency and visibility into the performance of the business, while also improving the experience for patients, clinicians, and key members.

Unknown Executive: and it's the nearly 9,500 employees across Lifestance.

Unknown Executive: who are working hard first and foremosts to make sure that patients and our clients get the care the great deserve and that they need

Unknown Executive: But it takes a village, and the entire team is rallying, and I have great confidence and tremendous appreciation for the work that's being done by our associates across the company. So an opportunity to thank them for their great work. And This concludes today's conference call. You may now disconnect.

Speaker Change: for their great work and a great deal of excitement about the future and I love being able to put up clean quarters like we've just done this morning. So thank you everyone for your interest in Lifestance, for your time this morning and with that I hope you have a great day.

Operator: Operator, we're now ready for questions. Thank you.

Kenneth Burdick: Obviously, Dave and I report the numbers, and this was yet another really solid quarter with a beat and raise. It's our seventh quarter.

Kenneth Burdick: But we don't lose sight of who's doing the work. And it's the nearly 9500 employees across Lifestance who are working hard, first and foremost, to make sure that patients and our clients get the care that they deserve and that they need. But it takes a village, and the entire team is rallying.

Kenneth Burdick: And I have great confidence and tremendous appreciation for the work that's being done by our associates across the company. So an opportunity to thank them for their great work, and a great deal of excitement about the future. And I love being able to put up clean quarters like we just did this morning. So, thank everyone for your interest in Lifestance and for your time this morning. And with that, I hope you have a great day.

Operator: The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to answer a question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your hand and ensure that your phone is not on mute when asking your question.

Operator: This concludes today's conference call. You may now disconnect.

Unknown Executive: This concludes today's conference call. You may now disconnect.

Unknown Executive: Thanks for watching!

Kate Hettenbach: Again, press star one to join the queue and your first question comes from the line of Kate, heading back with Morgan Stanley. Please go ahead. Thanks, Ken.

Ken Burdick: Can you provide an update on pay rates, what you're seeing at large payers broadly, and then also any anecdotes you can share in instances where you're seeing rate increases if you can touch on that? Boomer, we are very pleased with the results of our payer negotiations. As we've said before, we just put this team in place in the early half of last year and they are doing a tremendous job. We're trying to build a partnership mindset with our payers so that we're having ongoing conversations, not just about the rates but also about the administrative terms, about delegated credentialing, and ultimately we hope to have meaningful discussions about value-based arrangements.

Unknown Executive: , , , , , , , , , , , , , , , , , , [music]

Ken Burdick: So, there is the one single exception that we spoke about at length last year. Time. And that was a pair that was out of market in terms of the level of reimbursement and had substantial volume. Other than that single exception, I would say our pair rates and pair contracting is going quite well. Got it.

Dave Bourdon: And then just as a follow-up on clinician growth, Dave, you mentioned seasonal strength expecting Q3.

Dave Bourdon: Any update on just, I know those plans you guys are trying to shift and mix more towards full-of-time clinicians, how that's working out, and what that could mean for capacity into next year. Good, Craig. I'll take that as well. The pipeline for clinician growth continues to be robust. Our value proposition resonates as we did share last quarter. Second quarter tends to be sort of a low water mark in part based on when new clinicians are graduating from school.

Dave Bourdon: But it continues to be an important component of our growth story. And while we are doing things as you mentioned, like skewing toward more full-time employment and making sure that we are recruiting clinicians with the license type needed in a specific geographic market, even with that refined approach, as I say, we expect that clinician growth will be an ongoing part. Our recruiting engine is extremely strong and our team is doing a fantastic job. Got it. Thanks for that.

Speaker Change: ?? ?? ?? ?? ??

Lisa Gill: Your next question comes to the line of Lisa Jill with JP Morgan. Please go ahead.

Ken Burdick: Okay, good morning. Thank you for the question and congratulations on the results. Ken, I just want to follow up on what you just talked about with the clinician ads and you talked about the value proposition. Has anything materially changed from a competitive standpoint in the marketplace? I know over the last several years there were times where things have been flowed because clinicians were looking to be more virtual or working from different locations.

Ken Burdick: Is there anything that's changed from a competitive standpoint from your perspective when we think about the clinician market? I think there's been from a competitive standpoint some movement back toward in-person visits. We saw this quarter about a 1.5% bump toward in-person versus virtual and in terms of the competitive environment, obviously, they're still a great demand for mental health clinicians but we will continue to work on both bringing in the right clinicians through the front door and trying to mitigate the outflow of the back door and to that point, our retention has stabilized.

Ken Burdick: It's slightly better than where it was last year but it's not where we want it to be so we will continue to work on that. And where were you in the quarter on virtual versus in person? Oh, let's see. Roughly, I'm going to say 71% virtual 29% in person. And as I say, interestingly, during 23, we saw that kind of quarter over quarter change. And then for about three quarters, it had stabilized. It's only this past quarter that that trend seems to be continuing with about a one and a half point from quarter over quarter. What's helpful?

Lisa Gill: And then just a quick follow-up.

Dave Bourdon: Dave, you mentioned investments in the back half of the year.

Dave Bourdon: Can you give us an idea of what some of the investments are that you're making for 2025? Yeah, good morning, Lisa, it's Dave. So we are giving ourselves some flexibility to make some additional investments in the back half of the year based on the strong performance through the first half. It really, the intent is to position ourselves even better for success in 2025 and beyond. So we're accelerating some things that we, you know, we would have been doing next year, like for example, accelerating, hiring out some business development boots on the street individuals that go and and sign up, you know, removal for all sources for us with a local medical community for those kinds of things.

Unknown Executive: Okay.

Unknown Executive: [music].

Dave Bourdon: But we're still working through the list. But I would say emphasis on growth and achieving 2025 targets, as well as non-recurring spend where it makes sure that we, you know, positioning ourselves for success around the delivery of our strategic initiatives and things like that.

Unknown Executive: Okay.

Lisa Gill: Great. Thank you very much.

Unknown Executive: Okay.

Unknown Executive: Yes.

Jack Senft: Your next question comes from the line of Ryan Daniel to William Blair, please go ahead. Hey, guys, this is Jack. I'm done for Ryan Daniel. Thanks for taking the question. This is similar to Lisa's last question there. But if we look at the midpoint of the third quarter guidance, even the margins look like they're contracting by about 300 basis points. So, is this decrease in margins just largely related to the increase in investments you mentioned or is there is there really anything additional to kind of call out on the margin contraction?

Unknown Executive: Thanks.

Jack Senft: Thanks. Hey, Jack, Dave. I'll take that one. So there's a few things going on in the third quarter. So first of all, I would start with revenue at the midpoint is down approximately $12 million quarter over quarter. And that's driven by two things, lower visits in Azure, where with our model, we have to be getting to vacation season and that impacts productivity as well as introduces a little bit more variability. So you have lower visits in two, three versus Q2 and the other thing is is what we talked about in the last quarter around the calendar, the calendar performance of the TRPV and then it was going to step down in the second half of the year.

Unknown Executive: Yes.

Jack Senft: So those two things are driving the $12 million revenue step down quarter over quarter. And I would dimension that for you and roughly half half, half TRPV, half visit. Do you take that combined with the increase in GNA related to investments? Then that's how you get to the address of even a step down quarter over quarter.

Speaker Change: Thank you.

Jack Senft: Okay, perfect. Thank you.

Unknown Executive: Okay.

Unknown Executive: [music].

Ken Burdick: And if I can just ask one more, and you're prepared, Mark, so you mentioned the redesign of the operating model that was launched in early July and it included the enhancing of the staffing levels and front office support. And I think you said too that this was only rolled out to a few states so far.

Ken Burdick: So as we kind of look to the remainder of the year, how should we think about this maybe impacting the cadence of, you know, op-x growth or just maybe the general impact just operating expenses going forward? Thanks. Sure, I'll take that when this is Ken. So we call this our one-stance operating model, and there were several things that we intended to accomplish. And in large part, it was rolled out throughout July 1.

Ken Burdick: There will be some phasing, but think of this really as a national initiative. So unlike our digital check-in tool where we're sort of going state by state, this one, we felt it was important to do it pretty much within a 60 or 90 degree period and had spent more than six months of planning for it. So let me speak to it is certainly a contributor to increased expenses in the back half of the year versus the first half of the year.

Ken Burdick: But we're excited about it because what we're accomplishing here is a level of standardization across all of our markets so that people have the same job description. There's the same level of staffing. There are standardized processes. In addition, we've made a very conscious intentional move to put more resources in the local market to support both our patients and our clinicians. And we are already starting to see some positive impact from that change. Great, thank you and congrats again on the quarter.

Operator: Thank you.

Dylan Finley: Your next question comes from the line of Kevin Carriendo with UBS. Please go ahead. Thank you and congrats on the quarter. This is Dylan Finlayon for Kevin. As you guys look at your center footprint today, how do you feel about your relative capacity there to add dots? Do you think that footprint is something that you'll need to grow on in 2025 as you add dots? Or do you think you still have a lot of leeway?

Dylan Finley: That's the one goes to Dave. I'll take that one. So first of all, we feel good about the footprint that we have right now. As you were aware, we did some right sizing up that last year with the consolidation of centers. And as I mentioned, my corporate remarks, we're only going to add less than 10 Denovos this year. So we're pretty stable footprint this year. There is still a lot of capacity in our footprint when you look across the country.

Dylan Finley: There are local geographies that where we've been successful with recruiting, as well as have higher in-person appreciate utilization, where those are the areas where we'll continue to need to grow Denovos. So again, I would expect that it'll be more of the same next year, where we'll have a vast amount of Denovos as why we continue to grow into our footprint.

Ken Burdick: Thank you. That's helpful. I think it's for a follow-up. You talked to the explanation of why you did margin might be depressing a bit in the back half with those discrete investments. As we kind of look towards 2025, knowing that you haven't provided any outlook there, could we still look at that exit rate, double-digit margin at the end of 25 as achievable? Or do you think anything's changed maybe with regards to the investments that you want to put into the business today and keep today?

Ken Burdick: Yeah, this is Ken. I want to jump in on that. It's a really important point. I want to, on behalf of Dave, myself and the entire organization, emphasize that we are absolutely committed to those three goals that we set last year. One of which was that we would exit 25 at double-digit margins. One of which was that we would maintain a mid-teens growth trajectory. And the third was about positive cash flow.

Ken Burdick: At that time, we committed to positive cash flow in 2025 for the full year. As you know from our prior quarter, we have moved that up, and we are now committing to positive free cash for the full year 2024.

Ken Burdick: Thank you.

Ken Burdick: Appreciate it.

Jack Senft: Your next question comes from the line of Brian Tankelet with Jeffries. Peace go ahead. Hey, good morning. Jack's leaven on for Brian. Congrats on the quarter. Similar question, but it may be asking a little bit differently in regards to the 2025 margins. The color so far has been helpful, I think on how to think about that back half step down and appreciate the investments. But I guess maybe as we look at it, given some of the moves on the contracts, is the back half the right sort of starting point to bridge towards those 2025 goals, especially the exit rate on margin.

Jack Senft: And from the current standpoint, how do you think about the building blocks here to get to that margin level? Thanks. Yes, it's Dave. I'll take that. So the back half of the year, if not for the investments, we would have been round numbers around 7% at just the EBITO margin. And that's consistent with our initial guide for 2024. So we're feeling very good about where we're finishing the year from a margin perspective.

Jack Senft: And if you take a step back and remember, when we talked about 2024 and 2025, we said in 2024, we would see some margin expansion. And our midpoint of our guide right now is 220 dips of margin expansion year over year, but that we would see even more margin expansion in 2025. We're able to realize the benefits of all of the investments that we're making in 24 and 24. So we're finishing the year where we wanted to in our multi year, in the multi year journey to exiting 2025 with double digit margins.

Jack Senft: If you step into 2025, it's the same building blocks that are getting us the margin expansion in 2024 just a little bit, you know, but more, more in hand. Especially around operating leverage. So you'll see strong operating leverage in 2025. We'll continue to grow our specialty services, things like neuropsych testing that have the higher margin profiles. And the third is is even with the one outlier payer situation that we've discussed that link, we expect to achieve low single digit increase in TRPV next year.

Jack Senft: So we'll get some margin expansion from rates as well. So those building blocks will get us to exiting next year with the double digit margin. And then all basically according to plan and what we've laid out for you from a three year journey. Got it, appreciate that. Really helpful and congrats to get on the quarter. Thanks.

Stephanie Davis: Your last question comes from the line of Stephanie Davis with Barclays, please go ahead.

Ken Burdick: Hey guys, congrats on the 4th and thanks for being the Q. I um, I was hoping to dig a little bit into your random, your credentialing platform and just how you're picking up the timeline and then picking about credentialing processes, you know, it's often a clinician by clinician's loss and impact access process. Is there any re-credentialing process with a new platform that we should factor in to that timeline? So, Stephanie, we um, we have certainly made improvements.

Ken Burdick: We're migrating to a new platform. You're right. A lot of our credentialing right now is the re-credentialing of our existing clinician base and um, one of the things that we're feeling quite positive about is the continued progress that we've had with our payers, persuading them that if they, if they delegate credentialing to us, we can dramatically increase the speed with which our clinicians can come online and see patients. So that has been probably a very positive development that perhaps we haven't spoken enough about. So thanks for the question.

Ken Burdick: And follow up the other side of the competitive landscape question, just receiving some of the DTC mental health solutions evolved to more of a super service insurance product, given that up tick, how are you thinking about your go-to-market for patients or maybe how you're advertising some a little bit differently? Yeah, we have a very, very different model. We spend a diminished, diminished amount of marketing in terms of patient acquisition. We are heavily reliant on the referrals that come from primary care and specialists.

Ken Burdick: And that has served us well. And when we talk about business development, we have a team that's continuing to nurture and expand those relationships with priorities. And that really is a heart of sort of our mission and vision. We're looking to unify the mind and body treatment, especially of chronic conditions, because we think the kind of value that that's going to bring to the overall health care system is enormous. So we do that primarily because it's consistent with our overall strategy, but it does have the benefit of being far less expensive than having to pay significant amounts of money for patient acquisition by the ones.

Operator: That concludes today's Q&A session.

Ken Burdick: I will not turn the conference back over to Ken Birdic, CEO for closing remarks. Thank you, operator. Just a few brief comments. Obviously Dave and I report the numbers and this was yet another really solid quarter with a beat and raise. It's our seventh quarter, but we don't lose sight of who's doing the work. And it's the nearly 9,500 employees across life stands who are working hard, first and foremost, to make sure that patients and our clients get the care that they deserve and that they need.

Ken Burdick: But it takes it takes a village and the entire team is rallying and I have great confidence and tremendous appreciation for the work that's being done by our associates across the company. So an opportunity to thank them for their great work and a great deal of excitement about the future. And I love being able to put up clean quarters like we've just done this morning. So thank everyone for your interest in life stands for your time this morning and with that, I hope you have a great day.

Operator: This concludes today's conference call you may now disconnect Thank you very much for your time, and I'll see you in the next one. .

Unnamed Speaker: [inaudible] I love you, I love you, I love you, I love you I love you, I love you, I love you

Q2 2024 LifeStance Health Group Inc Earnings Call

Request a DemoDemo

LFST

Lifestance Health

Earnings