PR Newswire | Aug 11, 2021 04:12PM EDT

08/11 15:12 CDT

LifeStance Health Reports Second Quarter 2021 Results SCOTTSDALE, Ariz., Aug. 11, 2021

SCOTTSDALE, Ariz., Aug. 11, 2021 /PRNewswire/ --

Second Quarter 2021 Highlights

* Revenue of $160.5 million increased $76.5 million or 91%1 compared to revenue of $38.6 million for the period from April 1, 2020 to May 14, 2020 (Predecessor) and $45.4 million for the period from April 13, 2020 to June 30, 2020 (Successor) * Total clinicians of 3,975 up 94% year over year, including 674 net clinician adds in the second quarter * Net loss was $70.0 million compared to net loss of $27.6 million for the period from April 1, 2020 to May 14, 2020 (Predecessor) and $4.3 million for the period from April 13, 2020 to June 30, 2020 (Successor) * Adjusted EBITDA of $14.5 million increased $4.1 million or 39%1 compared to Adjusted EBITDA of $4.4 million for the period from April 1, 2020 to May 14, 2020 (Predecessor) and $6.0 million for the period from April 13, 2020 to June 30, 2020 (Successor) * Successfully completed initial public offering (IPO) on the Nasdaq Global Select Market on June 10, 2021; net proceeds of $548.9 million used to retire debt and for general corporate purposes * Established the LifeStance Health Foundation with initial endowment of $10.0 million; announced partnership with The Mental Health Coalition to help end the stigma around mental health conditions and committed $30,000 to the U.S. Olympic & Paralympic Foundation in support of athletes' mental health * Initiating 2021 guidance: Revenue of $668 million to $678 million; Center Margin of $198 million to $208 million; Adjusted EBITDA of $47 million to $53 million

LifeStance Health Group, Inc. (NASDAQ: LFST), one of the nation's largest providers of outpatient mental health care, today announced financial results for the second quarter ended June 30, 2021.

"LifeStance delivered strong performance in our inaugural quarter as a public company, achieving year over year revenue growth of 91%1," said Michael Lester, CEO, LifeStance Health. "Increasing access to mental health care services is more important than ever. We are well positioned to continue to grow as we help address our nation's mental health needs every day and deliver personalized care, one patient at a time, both virtually and in-person. I am extremely proud of the efforts of our purpose-led organization to reimagine mental health through a tech-enabled care delivery model built to expand access, tackle affordability, improve outcomes and lower overall health care costs."

Financial Highlights

Successor Predecessor

(in $ millions) Three months ended April 13 to April 1 to June 30, 2021 June 30, 2020 May 14, 2020

Total revenue 160.5 45.4 38.6

(Loss) income from operations (47.0) 0.1 3.1

Center Margin 51.2 14.2 11.4

Net loss (70.0) (4.3) (27.6)

Adjusted EBITDA 14.5 6.0 4.4

As % of total revenue:

(Loss) income from operations (29.3%) 0.2% 7.9%

Center Margin 31.9% 31.2% 29.6%

Net loss (43.6%) (9.6%) (71.6%)

Adjusted EBITDA 9.1% 13.2% 11.5%

Second Quarter 2021 Results

* Total revenue was $160.5 million, up 91%1 year over year primarily driven by a 94% increase in clinicians through both organic hiring and acquisitions. * Trailing twelve-month2 revenue was $523.8 million. This represents an increase of 88% year over year. * Loss from operations3 was $47.0 million, driven by stock and unit-based compensation of $29.5 million, a $10.0 million endowment to the LifeStance Health Foundation, and $8.1 million in Director and Officer insurance expense incurred in connection with the IPO. Net loss was $70.0 million. * Center Margin was $51.2 million, up 100%1 year over year, and 31.9% of total revenue, primarily driven by the continued clinician ramp in prior year de novo centers. * Adjusted EBITDA was $14.5 million, up 39%1 year over year. Strong Center Margin growth was partially offset by an increase in general and administrative costs driven by investments in growth initiatives and public company infrastructure.

Strategy and Key Developments

During the second quarter, LifeStance took several actions in support of its strategy:

* Added a net of 674 clinicians who are empowered to improve the lives of their patients * Opened 35 de novo Centers, building upon our first-mover advantage * Entered 5 new states, expanding our geographic footprint * Completed 10 acquisitions, supporting both organic and inorganic growth priorities

These actions are consistent with the Company's strategy to expand into new markets, build market density, and offer a technology enabled experience for our patients and clinicians.

Balance Sheet, Cash Flow and Capital Allocation

LifeStance listed its shares on the Nasdaq Global Select Market on June 10, 2021, in conjunction with the Company's initial public offering. In total, 46.0 million shares of its common stock were sold consisting of 32.8 million shares sold by LifeStance and 13.2 million shares sold by certain existing stockholders, including the full exercise by the underwriters of their option to purchase up to 6.0 million additional shares.

The Company received net proceeds of $548.9 million from the IPO after deducting customary offering expenses. The Company used $294.0 million of proceeds for debt principal repayment, with the remaining proceeds retained for general corporate purposes. For the six months ended June 30, 2021, cash flow used in operations was $7.0 million, which included an $8.8 million charge in connection with the voluntary prepayment of outstanding debt.

LifeStance ended the second quarter with cash of $276.2 million, long-term debt of $158.7 million, and full availability of a $20 million undrawn revolving credit facility.

2021 Guidance

The Company is establishing financial guidance for 2021:

Full Year

Total revenue $668 million - $678 million

Center Margin $198 million - $208 million

Adjusted EBITDA $47 million - $53 million

For Q3 and Q4 2021 we expect the following:

Q3 Q4

Total revenue $168 million - $173 million $196 million - $201 million

Center Margin $47 million - $52 million $56 million - $61 million

Adjusted EBITDA $8 million - $11 million $12 million - $15 million

Our guidance reflects revenue and clinician base growth that is higher than company expectations from earlier this year driven by continued strength in new clinician hiring and new center additions, partially offset by a recent change in clinician retention levels that is consistent with the broader healthcare industry for 2021. Additionally, it includes increased investments in infrastructure and operations to support and sustain our long-term growth opportunities.

Full-year guidance does not assume any material changes in the current environment as it pertains to the COVID-19 pandemic and the state of variants, as well as the current labor market conditions.

Footnotes:

(1) Reflects a year over year comparison to the same period in the prior yearwhich includes the summation of the Predecessor Period April 1 to May 14, 2020and Successor Period of April 13 to June 30, 2020. This is not intended to be asubstitute for financial reporting periods presented in accordance withGAAP. For the period from April 13, 2020 through May 14, 2020, the operationsof LifeStance TopCo, L.P. (Successor) were limited to those incident to itsformation and the acquisition of LifeStance by affiliates of TPG Global, LLC(the "TPG Acquisition"), which were not significant. Earnings from April 13 toMay 14 were reflected in the Predecessor 2020 Period.

(2) Trailing twelve-month growth is calculated as the difference in revenuebetween July 1, 2020 - June 30, 2021 compared to July 1, 2019 - June 30, 2020^1.

(3) Includes stock and unit-based compensation of $29.5 million, a $10.0million endowment to the LifeStance Health Foundation, and $8.1 million inDirector and Officer insurance incurred in connection with the IPO. Theincrease in stock and unit-based compensation was primarily due to themodification of vesting terms of equity awards in connection with the IPO.

Conference Call, Webcast Information, and Presentations

LifeStance Health will hold a conference call today, August 11, at 5:00 p.m. Eastern Time to discuss second quarter 2021 results. Investors who wish to participate in the call should dial 1-888-660-0230, domestically, or 1-409-217-8218, internationally approximately 10 minutes before the call begins and provide conference ID number 4165046 or ask to be joined into the LifeStance Health call. A real-time audio webcast can be accessed via the Events and Presentations section of the LifeStance Health Investor Relations website ( https://investor.lifestance.com), where related materials will be posted prior to the conference call.

About LifeStance Health Group, Inc.

Founded in 2017, LifeStance Health (NASDAQ: LFST) is reimagining mental health. We are one of the nation's largest providers of virtual and in-person outpatient mental health care for children, adolescents and adults experiencing a variety of mental health conditions. Our mission is to help people lead healthier, more fulfilling lives by improving access to trusted, affordable and personalized mental healthcare. LifeStance Health employs nearly 4,000 psychiatrists, advanced practice nurses, psychologists and therapists and operates across 31 states and 468 centers. To learn more, please visitwww.LifeStance.com.

Forward-Looking Statements

Statements in this press release and on the related teleconference that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements. These statements include, but are not limited to, statements about the Company's financial position; business plans and objectives; general economic and industry trends; operating results; and working capital and liquidity and other statements contained in this presentation that are not historical facts. When used in this press release and on the related teleconference, words such as "may," "will," "should," "could," "intend," "potential," "continue," "anticipate," "believe," "estimate," "expect," "plan," "target," "predict," "project," "seek" and similar expressions as they relate to us are intended to identify forward-looking statements. They involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to, we may not grow at the rates we historically have achieved or at all, even if our key metrics may imply future growth, including if we are unable to successfully execute on our growth initiatives and business strategies; if we fail to manage our growth effectively, our expenses could increase more than expected, our revenue may not increase proportionally or at all, and we may be unable to execute on our business strategy; if reimbursement rates paid by third-party payors are reduced or if third-party payors otherwise restrain our ability to obtain or deliver care to patients, our business could be harmed; we conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations or experience adverse publicity, which could have a material adverse effect on our business, results of operations and financial condition; we are dependent on our relationships with affiliated practices, which we do not own, to provide health care services, and our business would be harmed if those relationships were disrupted or if our arrangements with these entities became subject to legal challenges; we operate in a competitive industry, and if we are not able to compete effectively, our business, results of operations and financial condition would be harmed; the impact of health care reform legislation and other changes in the healthcare industry and in health care spending on us is currently unknown, but may harm our business; if our or our vendors' security measures fail or are breached and unauthorized access to our employees', patients' or partners' data is obtained, our systems may be perceived as insecure, we may incur significant liabilities, including through private litigation or regulatory action, our reputation may be harmed, and we could lose patients and partners; our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems; our existing indebtedness could adversely affect our business and growth prospects; and other risks and uncertainties set forth under "Risk Factors" in the final prospectus, dated June 9, 2021, for the Company's initial public offering. LifeStance does not undertake to update any forward-looking statements made in this press release to reflect any change in management's expectations or any change in the assumptions or circumstances on which such statements are based, except as otherwise required by law.

Non-GAAP Financial Information

This press release contains certain non-GAAP financial measures, including Center Margin, Adjusted EBITDA, and Adjusted EBITDA margin. Tables showing the reconciliation of these non-GAAP financial measures to the comparable GAAP measures are included at the end of this release. Management believes these non-GAAP financial measures are useful in evaluating the Company's operating performance, and may be helpful to securities analysts, institutional investors and other interested parties in understanding the Company's operating performance and prospects. These non-GAAP financial measures, as calculated, may not be comparable to companies in other industries or within the same industry with similarly titled measures of performance. Therefore, the Company's non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP, such as net income (loss) or income (loss) from operations.

Center Margin and Adjusted EBITDA anticipated for 2021 are calculated in a manner consistent with the historical presentation of these measures at the end of this release. Reconciliations for our forward-looking Center Margin and Adjusted EBITDA guidance is not being provided, as LifeStance does not currently have sufficient data to accurately estimate the variables and individual adjustments for such reconciliations. LifeStance management therefore cannot estimate on a forward-looking basis without unreasonable effort the impact these variables and individual adjustments will have on its reported results.

Management acknowledges that there are many items that impact a company's reported results and the adjustments reflected in these non-GAAP measures are not intended to present all items that may have impacted these results.

Consolidated Financial Information and Reconciliations

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except for par value)



Successor

June 30, 2021December 31, 2020

CURRENT ASSETS

Cash and cash equivalents $ 276,187 $ 18,829

Patient accounts receivable 60,069 43,706

Prepaid expenses and other current assets 27,804 13,745

Total current assets 364,060 76,280

NONCURRENT ASSETS

Property and equipment, net 91,799 59,349

Intangible assets, net 316,534 332,796

Goodwill 1,138,734 1,098,659

Deposits 3,300 2,647

Total noncurrent assets 1,550,367 1,493,451

Total assets $ 1,914,427$ 1,569,731

LIABILITIES, REDEEMABLE UNITS AND STOCKHOLDERS'/MEMBERS' EQUITY

CURRENT LIABILITIES

Accounts payable $ 9,958 $ 7,688

Accrued payroll expenses 50,380 38,024

Other accrued expenses 38,783 14,685

Current portion of contingent consideration 10,876 10,563

Other current liabilities 2,561 4,961

Total current liabilities 112,558 75,921

NONCURRENT LIABILITIES

Long-term debt, net 157,067 362,534

Other noncurrent liabilities 15,704 11,363

Contingent consideration, net of current portion 3,247 5,851

Deferred tax liability, net 81,219 81,226

Total noncurrent liabilities 257,237 460,974

Total liabilities $ 369,795 $ 536,895

COMMITMENT AND CONTINGENCIES (see Note 16)

REDEEMABLE UNITS

Redeemable Class A units - 0 and 35,000 units authorized, issued and outstanding as of June 30, 2021 - 35,000 and December 31, 2020, respectively

STOCKHOLDERS'/MEMBERS' EQUITY

Common units A-1 - 0 and 959,563 units authorized, issued and outstanding as of June 30, 2021 and - 959,563 December 31, 2020, respectively

Common units A-2 - 0 and 49,946 units authorized, issued and outstanding as of June 30, 2021 and - 49,946 December 31, 2020, respectively

Common units B - 0 and 179,000 units authorized as of June 30, 2021 and December 31, 2020, - - respectively; no units issued and outstanding as of June 30, 2021 and December 31, 2020

Preferred stock - par value $0.01 per share; 25,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding as of - - June 30, 2021 and December 31, 2020

Common stock - par value $0.01 per share; 800,000 and 0 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 374,149 and 0 shares issued and 3,742 - outstanding as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,669,480 1,452

Accumulated deficit (128,590) (13,125)

Total stockholders'/members' equity 1,544,632 997,836

Total liabilities, redeemable units and stockholders'/members' equity $ 1,914,427$ 1,569,731

CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

(unaudited)

(In thousands, except for Net Loss per Share)



Successor Predecessor

Three months endedSix months endedApril 13 to April 1 to January 1 to June 30, 2021 June 30, 2021 June 30, 2020*May 14, 2020 May 14, 2020

TOTAL REVENUE $ 160,549 $ 303,681 $ 45,453 $38,555 $111,661

OPERATING EXPENSES

Center costs, excluding depreciation and amortization 109,341 208,475 31,275 27,143 78,777 shown separately below

General and administrative 85,479 118,130 8,642 7,192 20,854 expenses

Depreciation and amortization 12,774 25,002 5,432 1,160 3,335

Total operating expenses $ 207,594 $ 351,607 $ 45,349 $35,495 $102,966

(LOSS) INCOME FROM OPERATIONS $ (47,045) $ (47,926) $ 104 $3,060 $8,695

OTHER INCOME (EXPENSE)

(Loss) gain on remeasurement (250) (557) (51) (32) 322 of contingent consideration

Transaction costs (1,996) (3,530) (181) (32,294) (33,247)

Interest expense (23,174) (31,806) (5,562) (1,340) (3,020)

Other expense (1,356) (1,445) (22) (14) (14)

Total other expense $ (26,776) $ (37,338) $ (5,816) $(33,680) $(35,959)

LOSS BEFORE INCOME TAXES (73,821) (85,264) (5,712) (30,620) (27,264)

INCOME TAX BENEFIT 3,788 6,549 1,370 3,022 2,319

NET LOSS AND $ (70,033) $ (78,715) $ (4,342) $(27,598) $(24,945) COMPREHENSIVE LOSS

Accretion of Redeemable Class - (36,750) - - - A units

Accretion of Series A-1 redeemable convertible - - - (272,582) (272,582) preferred units (Note 12)

Cumulative dividend on Series A redeemable convertible - - - (217) (662) preferred units (Note 12)

NET LOSS AVAILABLE TO COMMON $ (70,033) $ (115,465) $ (4,342) $(300,397) $(298,189) STOCKHOLDERS/MEMBERS

NET LOSS PER SHARE, BASIC (0.22) (0.37) (0.01) AND DILUTED

Weighted-average shares used to compute basic and diluted net 313,536 309,559 297,237 loss per share



* For the period from April 13, 2020 through May 14, 2020, the operations of LifeStance TopCo, L.P. (Successor) were limited to those incident to its formation and the TPG Acquisition, which were not significant. Earnings from April 13 to May 14 were reflected in the Predecessor 2020 Period.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)



Successor Predecessor

Six months ended April 13 to January 1 to June 30, 2021 June 30, 2020* May 14, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (78,715) $(4,342) $(24,945)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization 25,002 5,432 3,335

Stock and unit-based compensation 30,120 292 -

Deferred income taxes - 2,866 (2,345)

Loss on debt extinguishment 5,620 3,066 -

Amortization of debt issue costs 1,081 135 215

Loss (gain) on remeasurement of contingent consideration 557 51 (322)

Endowment of shares to LifeStance Health Foundation 9,000 - -

Change in operating assets and liabilities, net of businesses acquired:

Patient accounts receivable (11,831) (2,463) (5,122)

Prepaid expenses and other current assets (14,964) (4,394) (4,526)

Accounts payable 2,261 891 (1,638)

Accrued payroll expenses 9,580 (3,844) 8,753

Other accrued expenses 15,283 (35,007) 40,031

Net cash (used in) provided by operating activities (7,006) (37,317) 13,436

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment (31,803) (5,120) (12,804)

Acquisition of Predecessor, net of cash acquired - (643,717) -

Acquisitions of businesses, net of cash acquired (39,126) (22,376) (12,274)

Net cash used in investing activities (70,929) (671,213) (25,078)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from initial public offering, net of underwriters discounts and 554,169 - - commissions and deferred offering costs

Issuance of common units to new investors 1,000 - -

Contributions from Members related to acquisition of Predecessor - 633,585 -

Repurchase of Series A redeemable convertible preferred units - - (1,000)

Proceeds from long-term debt 98,800 235,900 74,350

Payments of debt issue costs (2,360) (6,411) (650)

Payments of long-term debt (310,729) (138,540) (18,222)

Payments of contingent consideration (5,587) (2,200) (19,093)

Net cash provided by financing activities 335,293 722,334 35,385

NET INCREASE IN CASH AND CASH EQUIVALENTS 257,358 13,804 23,743

Cash and Cash Equivalents - Beginning of period 18,829 - 3,481

CASH AND CASH EQUIVALENTS - END OF PERIOD $ 276,187 $13,804 $27,224

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest and prepayment premium $ 24,889 $2,773 $2,857

Cash paid for taxes $ 900 $- $25

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES

Unpaid deferred offering costs included in accounts payable and $ 5,264 $- $- other accrued expenses

Equipment financed through capital leases $ 14 $1 $415

Contingent consideration incurred in acquisitions of businesses $ 2,739 $3,191 $3,788

Acquisition of property and equipment included in liabilities $ 10,233 $2,694 $2,718

Issuance of common units for convertible promissory note conversion $ - $511 $-

Issuance of common units for acquisitions of businesses $ 1,486 $4,500 $-



* For the period from April 13, 2020 through May 14, 2020, the operations of LifeStance TopCo, L.P. (Successor) were limited to those incident to its formation and the TPG Acquisition, which were not significant. Earnings from April 13 to May 14 were reflected in the Predecessor 2020 Period.

RECONCILATION OF (LOSS) INCOME FROM OPERATIONS TO CENTER MARGIN



Successor Predecessor

Three months endedSix months endedApril 13 to April 1 to January 1 to June 30, 2021 June 30, 2021 June 30, 2020May 14, 2020May 14, 2020

(in thousands)

(Loss) income from operations$ (47,045) $ (47,926) $ 104 $ 3,060 $ 8,695

Adjusted for:

Depreciation and amortization 12,774 25,002 5,432 1,160 3,335

General and administrative 85,479 118,130 8,642 7,192 20,854 expenses ^(1)

Center Margin $ 51,208 $ 95,206 $ 14,178 $ 11,412 $ 32,884

Represents salaries, wages and employee benefits for our executive(1) leadership, finance, human resources, marketing, billing and credentialing support and technology infrastructure.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA



Successor Predecessor

Three months endedSix months endedApril 13 to April 1 to January 1 to June 30, 2021 June 30, 2021 June 30, 2020May 14, 2020May 14, 2020

(in thousands)

Net loss $ (70,033) $ (78,715) $ (4,342) $ (27,598) $ (24,945)

Adjusted for:

Interest expense 23,174 31,806 5,562 1,340 3,020

Depreciation and amortization 12,774 25,002 5,432 1,160 3,335

Income tax benefit (3,788) (6,549) (1,370) (3,022) (2,319)

Loss (gain) on remeasurement of 250 557 51 32 (322) contingent consideration

Stock and unit-based 29,515 30,120 292 - - compensation

Management fees ^(1) 1,356 1,445 16 14 14

Loss on disposal of assets - - 6 - -

Transaction costs ^(2) 1,996 3,530 181 32,294 33,247

Offering related costs ^(3) 8,747 8,747 - - -

Endowment to the LifeStance 10,000 10,000 - - - Health Foundation

Other expenses ^(4) 544 1,176 182 228 635

Adjusted EBITDA $ 14,535 $ 27,119 $ 6,010 $ 4,448 $ 12,665

Represents management fees paid to certain of our executive officers and affiliates of our principal stockholders pursuant to the management(1) services agreement entered into in connection with the TPG Acquisition. The management services agreement terminated in connection with the IPO and Company were required to pay a one-time fee of $1.2 million to such parties.

Primarily includes capital markets advisory, consulting, accounting and legal expenses related to our acquisitions and costs related to the TPG(2) Acquisition. Of the transaction costs incurred in the period from January 1, 2020 to May 14, 2020 (Predecessor), $32.9 million relate to the TPG Acquisition.

Primarily includes non-recurring incremental professional services, such as(3) accounting and legal, and directors' and officers' insurance incurred in connection with the IPO.

Primarily includes costs incurred to consummate or integrate acquired centers, certain of which are wholly-owned and certain of which are affiliated practices, in addition to the compensation paid to former owners of acquired centers and related expenses that are not reflective of the(4) ongoing operating expenses of our centers. Acquired center integration, former owner fees, and other are components of general and administrative expenses included in our consolidated statement of income (loss). Impairment on loans is a component of center costs, excluding depreciation and amortization included in our consolidated statement of income (loss).

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SOURCE LifeStance Health