LifeStance Health Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 9 speakers on the call.

Operator

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the LifeStance Health 4th Quarter 2023 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. At this time, I would like to turn the conference over to Monica Prokotsky, Vice President of Investor Relations.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to LifeStamps Health's Q4 2023 earnings conference call. I'm Monica Borkoski, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer Dave Borden, Chief Financial Officer and Dhanush Qureshi, Chief Operating Officer. We issued the earnings release and presentation before the market opened this morning.

Speaker 1

Both are available on the Investor Relations section of our website, investor. Lifestamps.com. In addition, a replay of this conference call will be available following the call. Before turning the call over to management for their prepared remarks, please direct your attention to the disclaimers about forward looking statements included in the earnings press release and SEC filings. Today's remarks contain forward looking statements, including statements about our financial performance outlook, business model and strategy.

Speaker 1

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 GAAP 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. At this time, I'll turn the call over to Ken Burdick, CEO of LifeSpan.

Speaker 1

Ken?

Speaker 2

Thanks, Monica, and thank you all for joining us today. I'd like to begin by highlighting what we stand for here at LifeStance. Every day, we are focused on 3 foundational pillars: the patient experience, clinical quality and developing an inclusive purpose driven culture. First, we are committed to putting the patient experience at the forefront of everything we do. Since the start of the pandemic, the country has experienced an alarming increase in the rates of anxiety and depression, as well as deaths resulting from overdose and suicide.

Speaker 2

More than 150,000,000 people live in an area with a shortage of mental health professionals and only 56% of psychiatrists accept commercial insurance. Tens of millions of Americans are unable to access mental health care treatment with devastating effects on families and communities. In 2023, LifeStance's team of over 6,600 clinicians helped address these access challenges by providing mental health services to over 880,000 patients who depend on our care. With our differentiated hybrid model of in person and virtual visits, we meet patients where they are. By accepting insurance, we provide patients with affordable access to mental health care, whereas much of the market is cash pay and therefore out of reach for the majority of Americans.

Speaker 2

The exceptional care provided by our clinicians is reflected in the feedback we've received from our patients. In 2023, LifeStance received a patient Net Promoter Score of 82 and our average Google review score across all LifeStance Centers stood at 4.5 out of 5 stars. As you will hear in our prepared remarks, we continue to focus on enhancing the end to end experience for our patients. 2nd, we're dedicated to clinical quality. LifeStamps and our team of multidisciplinary clinicians are committed to providing patients with personalized high quality care with clinical integrity.

Speaker 2

We provide training programs for our clinicians and conduct clinical audits to conform with best practice guidelines, which also afford an opportunity for our clinical leaders to collaborate with and mentor our clinicians. Our focus is on delivering the most appropriate treatment for each patient's individual needs based on informed clinical judgment. As we enhance our capabilities around clinical quality, I am excited to announce the appointment of Doctor. Gujwal Ramkikar as Chief Medical Officer. He joined LifeStamps in January and is off to a great start.

Speaker 2

Ujjwal is Board certified in pediatric and adult psychiatry and has held multiple senior clinical leadership roles in our industry. Last but not least, we are evolving from an entrepreneurial company focused almost exclusively on growth to one that is more balanced and disciplined when it comes to prioritization and execution. While we continue to grow as a company, we are also growing up to ensure that as a company we have the people, systems, processes and culture to deliver on our mission at scale. As a leadership team, we are committed to developing a sustainable, inclusive and purpose driven culture that keeps our organization aligned with our vision, mission and values. 2024 represents the 2nd year of our 2 year plan to invest in the business, fortify our foundation and standardize our operations.

Speaker 2

At the 1 year mark, we're beginning to see some tangible benefits. 1st, we beat on all guided metrics for the full year 2023. This quarter represents the 5th consecutive quarter that LifeStance has met or exceeded expectations across all financial metrics. 2nd, we are making solid progress on our 3 strategic investments. We remain on track to launch both our human resource information system and our new credentialing and clinician onboarding system by this summer.

Speaker 2

For the 3rd initiative, the electronics health record, we completed the initial discovery process where we identified incremental opportunities for improvement with our existing platform. For 2024, we are focused on those improvements and enhancing related processes. As a result, we will further evaluate our long term EHR solution in 2025. One example of the improvements we are making is a digital patient check-in tool that we believe will enhance the patient, clinician and front office staff experience while reducing our administrative costs. While it is still early, we have seen encouraging results in our initial launch.

Speaker 2

And 3rd, we've become much more strategic when it comes to our payer strategy. In 2023, we terminated roughly 30%

Speaker 3

of

Speaker 2

our 4 40 payer contracts. In 2024, we will continue to evaluate our payer relationships and focus on aligning with payer partners who share our vision of expanding access to mental health care. And finally, we continue to remain laser focused on profitability, while making the near term investments needed for the long term success of the business. This was the first time in recent quarters where our revenue grew faster than our adjusted G and A. Going forward, we expect operating leverage and margin expansion to be the norm at LifeStance.

Speaker 2

This year, we will continue to strengthen our operational processes by streamlining, standardizing and automating end to end workflows. While we have made meaningful progress, there is plenty of work remaining to improve our operational and financial performance. Said differently, we have steadied the ship, but we have not yet come close to optimizing the potential of our business. With that, I'll turn it over to Dave to provide additional commentary on our Q4 and full year financial performance as well as our 2024 guidance. Dave?

Speaker 3

Thanks, Ken. Like Ken, I'm pleased with the team's operational and financial performance in 2023, exceeding our expectations for the full year. In the Q4, we achieved strong top line results with revenue of $281,000,000 representing growth of 22% year over year, with outperformance in the quarter driven primarily by positive visit volumes as our clinicians delivered more visits during the holiday season than expected. Visit volumes of 1,800,000 dollars increased 20% year over year, primarily driven by organic clinician growth and modest productivity improvements. Total revenue per visit increased by 2% year over year to $157 primarily driven by payer rate increases.

Speaker 3

For the full year, we delivered revenue of 1.0 $56,000,000 up 23% year over year. Regarding profitability, the better than expected top line results flowed through to center margin. Center margin of $83,000,000 in the quarter increased by 33% year over year. Full year center margin of $302,000,000 grew 27 percent year over year. Adjusted EBITDA of $20,000,000 in the quarter was strong and consistent with our expectations.

Speaker 3

Our 4th quarter adjusted EBITDA increased 99% year over year. For the full year, adjusted EBITDA was $59,000,000 representing 5.6% of revenue. Turning to liquidity. In the Q4, we generated positive free cash flow of $5,000,000 and $17,000,000 in cash from operating activities. These improvements in cash flow were driven by higher collections with DSL improvement of 11 days from 52 in Q3 to 41 in Q4.

Speaker 3

Each one of these days represents approximately $3,000,000 in cash. As expected, DSO improved in Q4 as we released claims that we had intentionally held in Q3 due to positive updates from rate negotiations with several large payers. Free cash flow and cash from operating activities were negatively impacted in the quarter due to the shareholder litigation settlement. As disclosed in an 8 ks filing earlier this month, we have now fulfilled our obligations related to this settlement, which we discussed in our last earnings call. This included intentionally accelerating into Q4 the final $25,000,000 payment that was due in Q1.

Speaker 3

For the full year 2023, free cash flow was negative $57,000,000 which includes shareholder litigation expenses of approximately $50,000,000 We exited the quarter with $79,000,000 in cash and net long term debt of $280,000,000 We have additional debt capacity from a delayed draw term loan of $8,000,000 as well as the $50,000,000 revolving debt facility providing us with sufficient financial flexibility. In terms of our outlook for 2024, we expect full year revenue of $1,190,000,000

Speaker 2

to $1,240,000,000

Speaker 3

center margin of $345,000,000 to $365,000,000 and adjusted EBITDA of $80,000,000 to $90,000,000 Our annual guidance assumes year over year revenue growth driven primarily by higher visits from clinician growth combined with a low single digit increase in the total revenue per visit. Otherwise, we're assuming generally consistent operational performance year over year. Our guidance also contemplates a revenue split of roughly fifty-fifty in the first and second half of the year due to seasonality. Regarding earnings, as compared to 2023, where they were weighted to the second half, we expect this year's earnings to be more balanced throughout the year. This is due to the timing of investments and variation in rates, which are the result of payer rate changes and other mixed components like geography and services.

Speaker 3

For the Q1, we expect revenue of $287,000,000 to $307,000,000 center margin of $81,000,000 to $93,000,000 and adjusted EBITDA of $17,000,000 to $23,000,000 Additionally, we expect stock based compensation of approximately $80,000,000 to $95,000,000 in 2024, including approximately $20,000,000 to $25,000,000 from new 20.24 grants. Consistent with our prior messaging on pausing M and A, we are not planning to pursue any acquisitions in 2024. I am excited to announce that we expect to achieve a company milestone by generating positive free cash flow for full year 2024. This will be driven by improved profitability and lower capital expenditures as we continue to strategically moderate the opening of de novo centers. We expect leverage to come down significantly this year, anticipate net leverage to be below 2.5x by the end of the year.

Speaker 3

We continue to have sufficient financial capacity to run the business and we do not intend to raise additional debt or equity in 2024. Related to strategic initiatives, in 2023, we recognized a total of approximately $5,500,000 of costs for the HRIS and credentialing and onboarding platform. Of this, dollars 3,000,000 were recognized as G and A expenses with the remainder in CapEx. As Ken stated, for the EHR, we are focused on improving our existing current year. In closing, we are pleased with the progress we made in 2023 and we are confident as we look ahead to 2024.

Speaker 3

Now I'll turn it over to Dhanush to share the work done in 2023 and the priority areas for 2024 that will position us to achieve our commitments. Thanks, Dave. We continue to align our teams around 2 growth priorities, net clinician adds and clinician productivity.

Speaker 4

We grew by 227 net clinician adds in the 4th quarter and 10.14 for the full year, bringing our total clinicians to 6,645, an increase of 18% year over year. Importantly, our growth in Q4 remains 100% organic for the 3rd consecutive quarter. Our clinician value proposition remains strong and we are proud of our clinician recruiting and operations teams great work in delivering clinician growth in 2023. Turning to clinician productivity. For 2023, on a visits per average clinician basis, we saw productivity increase by 2%, driven by many of the operational actions we took throughout the year.

Speaker 4

As a reminder, productivity is a function of 2 components: clinician capacity or the time clinicians give us and utilization, our ability to fill clinician time with patients. In 2023, we put our focus towards utilization, delivering on our core commitment to our clinicians to fill their schedules by driving operational discipline throughout the patient funnel. At the top of the funnel, we made enhancements to our primary care referral team, organic search traffic, internal clinician referrals and enterprise referral partnerships. These actions delivered improvements in attracting new patients above the growth of our clinician base, demonstrated by our growing wait list for services. I will note that our cost per new patient acquisition continued to decline year over year and we spend a de minimis amount on paid advertising as part of our top of funnel strategy.

Speaker 4

2nd, at the middle of the funnel, in terms of converting patients to scheduled appointments, we continue to leverage our digital capabilities to improve patient matching via our online booking experience Obi, which we rolled out nationwide. Additionally, we enhanced the patient experience with better online clinician profiles, reduced scheduling complexity and enhancements to our phone intake processes, which is a key area for 2024. Finally, at the bottom of the funnel, in terms of scheduled appointments converting to completed business, our cancellation and no show rates have now stabilized in the 9% to 10% range, which is a significant improvement from the previous 15% level when we set this as the focus area for improvement. As we head into 2024, we are shifting our attention to the other side of the productivity equation, clinician capacity. We have early initiatives in place to grow overall clinician capacity with a goal to reward and incentivize those clinicians offering full time hours.

Speaker 4

For example, we are using tiered benefits to provide incentives such as medical coverage and 401 match to full time clinicians. Additionally, our recruiting team is focused on attracting clinicians who desire full time employment. And finally, we offer equity ownership through our long term incentive program to attract and retain our highest contributing clinicians. In addition to improving clinician productivity, we made notable strides in other areas during the past year. First, in terms of leadership, we reorganized and upgraded our practice operations senior leadership team.

Speaker 4

We made significant changes streamlining the number of senior leaders, promoting top performers and bringing in new external talent with the appropriate skill sets to guide an organization of Lifestamps' current and future scale. 2nd, in terms of KPIs, we reoriented our operations teams around the metrics driven approach to managing the business and instituted a new reporting suite of KPIs to bring focus, prioritization and data driven decision making to the organization, while continuing to emphasize the patient and clinician experience. 3rd, in terms of culture, we re centered the company around supporting local operations and clinician needs, while emphasizing belonging and connection. For example, we prioritize increased teammate engagement via social gatherings, recognition and appreciation and participation in community volunteer events. 4th, in terms of cost efficiency, we completed our real estate optimization project.

Speaker 4

In total, we consolidated 82 centers in 2023 with little to no disruption to our patients and clinicians. We opened 35 de novo centers and we'll continue to intentionally moderate our pace of openings with an expectation of no more than 20 de novos in 2024. Finally, we made tangible progress in standardizing and streamlining the business, including moving to a single EHR, phone system, KPI suite and online booking tool, as well as creating a single operating model for our regional support teams. Looking ahead to 2024, there is no shortage of opportunities for improvement with many new initiatives unlocked by the work done in 2023. Delivering an amazing patient and clinician experience remains a top priority for us.

Speaker 4

I'd like to take a moment to discuss 3 tangible examples of how we are going to do this, while also generating operating leverage. First, we are continuing to invest in the front office of our centers, focusing our resources on those areas of support that most directly impact the experience of our patients and clinicians. We are increasing our center staffing levels over 25% by year end and redesigning our processes to better support our patients, clinicians and administrative support teams. 2nd, we are making improvements for new patients booking by the phone. We are rolling out a new phone booking tool that leverages the matching capabilities of Ovi, our online booking tool.

Speaker 4

This will further enhance the patient matching experience while significantly reducing complexity and increasing the speed of scheduling over the phone for our intake team. 3rd, we are piloting a new digital patient check-in tool that will allow us to collect and verify patient information upfront as well as allow patients to pay their balances more easily. This will reduce stress for our patients and manual complexity for our operations and billing teams. We are doing all three of these things while also meeting our commitments to margin expansion in 2024, demonstrating that delivering improved patient and clinician experiences while also delivering improved operating leverage can be accomplished simultaneously. I'm proud of what our teams have accomplished over the past year and I'm equally excited about the opportunities in front of us in 2024 and beyond.

Speaker 4

I'm also particularly proud of the strength of the leadership bench that we have built, which delivered on our commitments for the full year 2023 and will be instrumental in leading the long term profitable growth of the business. With that, I'll turn it back to Ken for his closing remarks.

Speaker 2

Thanks, Dhanush. In closing, I am encouraged by the progress made in 2023. We remain focused on operational improvements, profitable growth and disciplined capital deployment. Our 2024 guidance reflects the strong positive momentum of the organization and we look forward to continuing to invest in the patient and clinician experience, while at the same time delivering margin expansion. In particular, I am thrilled that we expect to achieve the important milestone of positive free cash flow for 2024.

Speaker 2

Along with Dave and Danesh, I offer my thanks and appreciation to our 9,500 colleagues who demonstrate their dedication to our vision, mission and values in the work they do every day. It is due to their collective efforts that we have made significant strides toward realizing LifeStance's potential. Operator, please open up the line for Q and A.

Operator

Thank you. We'll go first to Craig Hettenbach at Morgan Stanley.

Speaker 5

Great. Thank you. Ken, despite the comments of improved track record that you've seen in the last five quarters, there's still some noise out there in terms of inflation turnover and growth. So I'd love to get your take in terms of things you've done to kind of steady the shift and expectations going forward on those metrics.

Speaker 2

Sure. I'm going to let Donish respond to the clinician turnover. Generally, what I would say is, obviously, we posted a strong Q4 and as Danish, Dave and I have all said in our prepared remarks, there is plenty of work that remains to do. And I'll let Ganesh perhaps elaborate on some of his comments as it relates to clinician growth and retention.

Speaker 4

Sure. Hey, Craig. So in terms of clinician retention, it continues to remain stable. We have witnessed that throughout 2023 and feel really good about what we've been able to accomplish there. But as I indicated in my prepared remarks, we are continuing to focus on enhancing our value proposition to our clinicians through the way that we are investing in the practice group, things like I mentioned around increasing our front office staffing to have a very tangible and direct feeling of support for our clinicians across the country as one specific example.

Speaker 4

But as indicated by our net clinician adds of over 1,000, which we're very proud of, our ability to both attract and retain clinicians remains strong. We continue to be able to deliver that despite moving to is essentially been for the last three quarters 100 percent organic and delivered net clinician adds above 2022 while moving towards 100 percent organic strategy. So all in all, we feel great about where we're at today.

Speaker 5

Got it. And then just a follow-up question for Dave just on operating leverage. I know whether it's the free consolidation, payer consolidation, there are a number of things in play. But for this year in particular, are there any that you would single out in terms of that's going to be important to deliver operating leverage? And then maybe as you go into 2025, does that look to same or are there different things that come into the fold?

Speaker 3

Craig, it's Steve. I think I got the gist of your question, which was focused on operating leverage. You were cutting out pretty bad. As far as the operating leverage, yes, we're guiding to improvements in operating leverage in 2024. I mean, one of the ways we're doing that is if you look at our Q1 guide and our full year guide on G and A, it's pretty flat throughout the year.

Speaker 3

And the way I explain that is in the Q1, you're going to get a pop up in G and A as the result of the resumption of the payroll taxes. And then as that goes away in the subsequent quarters, it's being replaced by some of the investments that Dhanush talked about, digital check-in tool and things like that. But having said that, we're able to keep G and A spend relatively flat because of the efficiencies that we've been working on as we've been strengthening and fortifying the business. So, we feel really good about the margin expansion that we're seeing both in the bottom line as well as incentive margin for 2024.

Speaker 5

Thanks for that.

Operator

We'll move to our next question from Lisa Gill at JPMorgan.

Speaker 1

Thanks very much and good morning. Ken, I was wondering if you could give us an update on where you are on the managed care payer contracting strategy. How much is left to be done here in 2024? And then when I look at the revenue per clinician, I think you talked about rates getting better in the Q4 and holding some claims until the Q4. How do I think about that progression of revenue per clinician going into 2024?

Speaker 2

Sure. Lisa, I'll take the first part of that and let Anur speak to the revenue per clinician. Our payer strategy really is going to continue the work that we started in 2023, which is I was very surprised to see the number of payer contracts we had. It was well in excess of 400. We reduced that by about 30% last year.

Speaker 2

We will do an additional reduction this year, probably not quite as large. But I think what's most important is sharing the underlying rationale of why we're doing it. So when we think about our payer contracts, 1st and foremost, we found that we had many, many where there was such little volume. It just didn't make sense administratively to maintain the work, to reload the rates, to do the credentialing, etcetera. So that's important.

Speaker 2

Beyond volume, we look at the administrative terms that we have with a payer and look to try to make them simple and straightforward and not overly complex and onerous. We also look at whether or not we have delegated credentialing because we have found there's a dramatic reduction in the time it takes to onboard a clinician when they grant us delegation. And then the last two things are we certainly look at the reimbursement that we're paid and their desire and willingness to partner with us with strategic initiatives such as value based care and integrated care between physical and mental health.

Speaker 3

Lisa, this is Dave. I'll take your the kind of TRPV growth question. So in the Q4, as you noted, we had a material step up in our rates or the revenue we were collecting per clinician. The primary drivers of a TRPV improvement in the Q4 were driven by the higher an increase in the higher margin, higher revenue services. We've talked about like neuropsych testing and services like that.

Speaker 3

In addition, we did get some nice increases in payer rates in the Q4. I'd have you think about that as largely we were getting increases for 2024 just a few months earlier. So that's what drove the increase in the total rate per visit in the Q4. You mentioned the holding of claims. That was more of a cash phenomenon.

Speaker 3

So that impacted our cash. We were still booking to appropriate levels of revenue. So that didn't and you saw TRP or you saw DSO come down significantly in the Q4 as we expected.

Speaker 1

And if I can just squeeze in a quick follow-up. Just you talked about full time employees and the capacity opportunity there. You talk about how many of your clinicians are full time today and what the ultimate goal would be?

Speaker 4

Yes. This is Danish. So our long term goal is to always make sure that we're creating an environment where clinicians feel like they can dedicate their full caseload and time to LifeStance. And we continue to enhance our benefits, create incentives and rewards for clinicians to do that. However, we do have both clinicians that are providing what you consider kind of full time at the higher end of hours and we have ones that are more part time And our value proposition though different to each continues to resonate for both.

Speaker 4

The point in our prepared remarks was that we continue to focus our energies around incentivizing and rewarding clinicians to really build their careers here and have this be their primary or only source of income.

Speaker 1

Okay. Thanks for the comments.

Operator

We'll go next to Ryan Daniels at William Blair.

Speaker 6

Yes. Hey, guys. This is Jack Lempt on for Ryan Daniels. Congrats on the quarter and thanks for taking the questions. Just for a clarification, for 2024, I know you aren't expecting open more than 20 clinics.

Speaker 6

I guess, just what is your expectation for consolidating clinics this year? Are you completely past that hurdle now? Or is this kind of an ongoing situation?

Speaker 4

Yes. Hey, this is Donish. So I can talk about that. So again, as we mentioned in the prepared remarks, we consolidated 82 centers in 2023. At this point, kind of a broad scale consolidation like that we would consider complete and behind us.

Speaker 4

On a go forward basis, as leases come up for renewal every year, we will continue to evaluate each and renew or close as it makes sense, but it will not be a large scale effort like what we saw in 2023. We will drive further optimization primarily through moderating the pace of our de novos and placing those in markets where in person demand continues to increase beyond the footprint we have in any of those markets as well as building further clinician density within the existing 5 75 centers that we have today. I would note that in person continues to be a very important part of our overall hybrid strategy and is a significant differentiator for us versus others that are out there. And we continue to believe firmly in the hybrid model and that we have done the large lift in optimizing our footprint in 2023.

Speaker 6

Okay, perfect. Thanks. As a quick follow-up to Lisa's question, in the prepared remarks, you did mention that shifting your focus towards clinician capacity, that you want to reward and incentivize clinicians offering full time off hours. Can you just dive a bit deeper on this a little bit more? Are clinicians coming from private practices or competitors desiring these type of benefits more?

Speaker 6

Or is there anything you've learned with incoming hires that you can kind of talk about with these incentives?

Speaker 4

Sure. Yes, this is Josh. I can cover that. So yes, as we look at where we attract clinicians, it tends to fall into 3 areas. 1 is clinicians that are looking for improved lifestyle and are moving away from typically inpatient physicians or hospital based physicians with heavy caseloads.

Speaker 4

And they are looking to have benefits as part of that transition because that's typically what they're receiving at the other environment. The other areas you see is new grads coming out of training that are looking for to start their careers and are looking for someone that can provide overall employment inclusive of benefits as they begin to start operating as a practicing clinician. And then the third is clinicians that are coming either out of solo practice or other small group practices that are typically 10.99 in nature and do not offer benefits. And so particularly for that group, though across all three it resonates, but particularly for that group of clinicians, being able to incentivize and award them through benefits like healthcare, 401 match, etcetera is something that is unique that we offer and continues to be a differentiator for our value proposition.

Operator

We'll take our next question from Kevin Caliendo at UBS.

Speaker 5

Thank you very much. This is actually Dylan Findlay on for Kevin Caliendo. As you guys are approaching 25% and your prior comments on exiting that year with double digit margins,

Speaker 4

I

Speaker 5

guess, first of all, is this still a reasonable objective as of today? And then secondly, based off the improvement indicated in 2024, it seems like 2025 might be a year with a little more of a heavier lift. And just wondering if you could break out the sources of that margin expansion. Does that contemplate further center margin improvement versus a reduction in certain operating expenses? Thank you.

Speaker 2

Yes. As we look at the guidance for 2024 and our previous comments relative to exiting 25 at double digit margins, I would describe this as right on track. We've said in the past it wouldn't necessarily be completely linear. And we're really pleased that as compared to our sort of long term comments where we were projecting and committing to free cash flow for full year 2025. In this call this morning, we're announcing that a year early, such that in 2024, we are now expecting a full year that will generate free cash.

Speaker 5

Great. Thank you. No follow ups for me.

Operator

We'll move to our next question from Brian Tanquilut at Jefferies.

Speaker 7

Hey, good morning guys. Maybe just to Dennis' point on increasing incentive offers to clinicians, How should we be thinking about the impact of that on SWB as you roll that out?

Speaker 2

On it, FLEB. We didn't catch the last part of your question.

Speaker 7

Yes, just on the impact of rolling out a new incentive program on the salaries, wages and benefits line.

Speaker 4

So this wouldn't be a new benefits program. This is just simply shaping the overall benefits program that we administer to help lean heavier towards incentivizing clinicians that are offering full time hours versus those that remain part time or very part time. So there's not a growth in the overall cost structure as it relates to benefits, just again the shaping of how we are aligning that between part time and full time clinicians.

Speaker 7

Got it. Okay. And then maybe Ken, just any thoughts that you can share with us on your view on the fundamental trends within behavioral health and your patient population because as we look at your growth rate, right, I mean, you've seen it in the high teens to low 20% range. Just your thoughts on the sustainability of that level of volume growth, especially given the backdrop that we see in the mental health space? Thanks.

Speaker 2

Yes. Certainly, on a macro basis, the demand for outpatient mental health services has not subsided at all. So we have a very significant long term tailwind there. Specifically for LifeStance, obviously, as we continue to grow larger and larger, the days of 75% and 100% year over year growth are behind us. We continue to feel strong conviction around our estimates around mid teen organic growth.

Speaker 2

And then obviously, when we go back to pursuing acquisitions that will drive it beyond the mid teens. So we think there's plenty of opportunity for continued growth in the business even as we sort of double down and focus on margin expansion and profitability and efficient capital deployment. Awesome. Thank you.

Operator

We'll move next to Stephanie Davis at Barclays.

Speaker 8

Hey, guys. Congrats on the quarter and thanks for taking my question. First, Dinesh, we've seen some pretty rapidly changing trends over the past few years around patient acquisition, efficiency and cost. So I was hoping we could dig in a little more to that patient acquisition strategy and touch on your comments. Talk to me about top mind share each is taking and maybe what areas you could be focusing less on versus some of the prior years?

Speaker 4

Sure, Stephanie. Thanks for the question. So as I mentioned in our prepared remarks, we continue to be focused on all three top, middle and bottom of the funnel. However, as I think back to 2023, considerable amount of our effort went into improvements in the bottom of the funnel, which we talked about each quarter in the improvements we saw in our no show in cancellation rates by approximately 5 points to 6 points over the kind of the year plus that we've been talking about that. And so though there remains some additional opportunity there over time, I largely view the work in optimizing the bottom of the funnel as complete and stable.

Speaker 4

And so we will continue to shift our attention towards particularly the middle of the funnel where we are improving our matching capabilities both online through the rollout of OBE and through improving our phone intake and matching experience by leveraging a lot of the capabilities first developed for OB. And then top of the funnel, though it will always be a focus, we have been able to demonstrate not just patient acquisition in terms of volume above the pace of growth of our clinician base, but we've also been able to deliver that while bringing down the cost of acquisition for each new visit over time. And so it will by the nature of the business require us to remain focused there. But over the last year and what we would view at least for 2024 and likely beyond, is patient demand will continue to outstrip supply. So an area of focus, but middle of the funnel between the 3 is going to be the most focus on area for 2024.

Speaker 8

And when I think about the forward for kind of your patient acquisition strategy, is this something where it's being tweaked and you're making some of these last year was bottom of funnel, now you're doing middle top of funnel more and then it's kind of a more stable process in the out years

Speaker 1

Or is this something that has

Speaker 8

to be continually improved upon?

Speaker 4

I mean, I view anything as you continue to scale as a business that you are forever optimizing. And so, whether there are significant whether there is significant room for improvement over a longer trajectory will remain to be seen. But I mean, we will always be optimizing around the edges for both top, middle and bottom of the funnel. But at least as it pertains to the bottom, the heavy lift is done. I think 24 will be a middle of the funnel focus.

Speaker 4

And then at that point, just optimization as the business continues to scale over the coming years.

Speaker 2

I'll just add that I think one of the most powerful things that Don has shared in his remarks is the extent to which we are able to rely on referrals from physicians and such that our paid advertising to acquire new patients is quite tiny frankly compared to some others in our space.

Speaker 8

Super helpful. Thank you, guys.

Operator

And there are no further questions at this time. I would like to turn the conference over to Ken Burdick for closing remarks.

Speaker 2

Thank you. As I shared previously, the founders of LifeStance designed a great model, achieved exceptional growth and have given newcomers like myself and Dave an opportunity to evolve and scale a great business. I want to remind everyone, we are still in the early stages. We are a young business. We have grown through both acquisition, approximately 100 acquired independent practices and thousands of clinicians hired 1 by 1.

Speaker 2

And as we continue to emphasize these phrases like operational improvement and plenty of work to do, I want you to understand that is not false humility. That is a realistic acknowledgment of where we are in our multiyear journey. We have more work to do. We continue to improve our focus on execution, prioritization, standardization, so that we can run a more efficient business. Recognizing that there's more work to do, I do want to be sure to call out that I could not be more proud of my teammates across LifeStance.

Speaker 2

The passion that they demonstrate, the work ethic that they display is not only the key to our past accomplishments, but it's going to be the source of our future achievements as we continue to realize the potential of our business. Thank you for your interest in LifeStance and thanks for joining us today.

Operator

And this does conclude today's conference call. Thank you for your participation. You may now disconnect.

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Key Takeaways

  • LifeStance reported Q4 revenue of $281 million, up 22% year-over-year, with full-year revenue of $1.056 billion (+23%) and Q4 adjusted EBITDA of $20 million (+99%), marking the fifth consecutive quarter of exceeding expectations.
  • For 2024, the company forecasts revenue of $1.19–1.24 billion, center margin of $345–365 million, adjusted EBITDA of $80–90 million, and expects to achieve positive free cash flow for the full year.
  • During 2023, LifeStance streamlined its payer network by terminating roughly 30% of ~440 contracts and will continue aligning with payers who share its vision of expanding access to mental health care.
  • Key operational investments in 2024 include rolling out a new HRIS, credentialing/onboarding system, EHR process enhancements, a digital patient check-in tool and an improved phone-booking experience to boost efficiency and patient satisfaction.
  • In 2023, over 6,600 clinicians served more than 880,000 patients, delivering a patient Net Promoter Score of 82 and a 4.5-star Google review average, while clinician productivity rose 2% and headcount grew 18% organically.
AI Generated. May Contain Errors.
Earnings Conference Call
LifeStance Health Group Q4 2023
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