LifeStance Health (LFST) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited Q1 2024 financial statements show a 19% revenue increase to $300.4 million, a narrowed net loss, and a decrease in cash due to increased receivables Consolidated Balance Sheets Total assets slightly decreased to $2.106 billion as of March 31, 2024, driven by reduced cash and increased patient accounts receivable Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $49,451 | $78,824 | | Patient accounts receivable, net | $175,937 | $125,405 | | Total current assets | $244,117 | $225,731 | | Noncurrent Assets | | | | Goodwill | $1,293,346 | $1,293,346 | | Total assets | $2,106,316 | $2,109,969 | | Liabilities & Equity | | | | Total current liabilities | $207,464 | $202,873 | | Long-term debt, net | $279,870 | $280,285 | | Total liabilities | $677,319 | $681,039 | | Total stockholders' equity | $1,428,997 | $1,428,930 | Consolidated Statements of Operations and Comprehensive Loss Q1 2024 total revenue increased 19% to $300.4 million, with operating loss narrowing to $16.8 million and net loss improving to $21.1 million Q1 2024 vs. Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenue | $300,437 | $252,589 | | Total Operating Expenses | $317,209 | $286,682 | | Loss from Operations | $(16,772) | $(34,093) | | Net Loss | $(21,097) | $(34,242) | | Net Loss Per Share, Basic and Diluted | $(0.06) | $(0.09) | Consolidated Statements of Cash Flows Net cash used in operations increased to $21.8 million in Q1 2024, driven by higher receivables, leading to a $29.4 million cash decrease Summary of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(21,838) | $(7,890) | | Net cash used in investing activities | $(5,104) | $(27,549) | | Net cash used in financing activities | $(2,431) | $(4,888) | | Net Decrease in Cash | $(29,373) | $(40,327) | Notes to Consolidated Financial Statements The notes cover accounting policies, revenue concentration, Q1 2024 acquisition absence, debt compliance, stock-based compensation, and ongoing legal contingencies - Revenue is highly concentrated, with 91% derived from commercial payors. Two specific payors, Payor A and Payor B, represented 17% and 15% of total revenue, respectively, for the three months ended March 31, 2024[34] - The company completed no acquisitions in the first three months of 2024, a shift from the same period in 2023 when it acquired 3 outpatient mental health practices for a total consideration of $22.0 million[41][42] - The company is a defendant in three class action lawsuits: two related to employee compensation and one concerning website privacy. Management has not recorded any material accruals for these contingencies as the ultimate resolution cannot be predicted[78][80] Stock-Based Compensation Expense (in thousands) | Period | Expense | | :--- | :--- | | Three Months Ended March 31, 2024 | $20,581 | | Three Months Ended March 31, 2023 | $23,866 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 revenue growth to increased clinicians and payor rates, improving profitability despite cyberattack-related liquidity impacts Key Metrics and Non-GAAP Financial Measures Q1 2024 key metrics show revenue growth to $300.4 million, with Center Margin at $94.7 million and Adjusted EBITDA at $27.7 million Key Financial Metrics (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenue | $300,437 | $252,589 | | Revenue growth | 19% | 24% | | Loss from operations | $(16,772) | $(34,093) | | Center Margin | $94,726 | $69,602 | | Net loss | $(21,097) | $(34,242) | | Adjusted EBITDA | $27,651 | $10,104 | Reconciliation of Loss from Operations to Center Margin (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Loss from operations | $(16,772) | $(34,093) | | Depreciation and amortization | $22,564 | $19,069 | | General and administrative expenses | $88,934 | $84,626 | | Center Margin | $94,726 | $69,602 | Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(21,097) | $(34,242) | | Adjustments (Interest, D&A, Taxes, etc.) | $48,748 | $44,346 | | Adjusted EBITDA | $27,651 | $10,104 | Results of Operations Q1 2024 revenue grew 19% due to increased clinicians and patient visits, with center costs and G&A expenses rising at slower rates - Revenue growth was primarily driven by a net increase of 905 clinicians, which led to a 15% increase in patient visits. Higher Total Revenue Per Visit (TRPV) due to payor rate increases also contributed[121] - Center costs increased by 12% to $205.7 million, a slower pace than revenue growth. The increase was mainly due to a $22.3 million rise in center-based compensation tied to the growth in clinicians and patient visits[123] - General and administrative expenses increased by 5% to $88.9 million. This was primarily due to a $7.9 million increase in salaries, wages, and employee benefits, which was partially offset by a $3.3 million decrease in stock-based compensation expense[125] Liquidity and Capital Resources Cash decreased to $49.5 million due to a Change Healthcare cyberattack impacting claims, with $288.8 million in outstanding debt - The decrease in cash and cash equivalents to $49.5 million was primarily due to the disruption to operations resulting from the cyberattack on Change Healthcare's information technology systems, which caused delays in claims submission and cash remittance from payors[129][130] - As of March 31, 2024, the company had an aggregate principal amount of $288.8 million outstanding under its 2022 Credit Agreement and was in compliance with all financial covenants[132][135] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is variable interest rates on its debt, mitigated by an interest rate swap, with no material impact from inflation - The company's main market risk is from variable interest rates on its $288.8 million of outstanding debt[143][144] - To mitigate interest rate risk, the company uses an interest rate swap to eliminate the variability of cash flows on a significant portion of its variable-rate loan[144] Controls and Procedures Disclosure controls were ineffective as of March 31, 2024, due to ongoing material weaknesses in accounting, IT, and policies, with remediation in progress - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024[148] - The ineffectiveness is due to ongoing material weaknesses, including an insufficient complement of resources in accounting/finance and IT, lack of formal accounting policies, and ineffective IT general controls over program changes and user access[149] - The company is actively working on a remediation plan, which includes hiring additional personnel (new head of Internal Audit, SVP of IT), engaging external consultants, and implementing more formalized controls and procedures[150][155] PART II. OTHER INFORMATION Legal Proceedings Details on legal proceedings, including three ongoing class action lawsuits, are referenced in Note 12 of the financial statements - For details on legal proceedings, the report refers to Note 12, Commitments and Contingencies, in the financial statements[157] Risk Factors No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have been made to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[158] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[159]