10-Q 1 lfst-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40478

 

LifeStance Health Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-1832801

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4800 N. Scottsdale Road Suite 2500

Scottsdale, Arizona

85251

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (602) 767-2100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

LFST

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 1, 2024, the registrant had 382,287,766 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Consolidated Balance Sheets

2

Consolidated Statements of Operations and Comprehensive Loss

3

 

Consolidated Statements of Changes in Stockholders' Equity

4

Consolidated Statements of Cash Flows

5

Notes to Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

Signatures

29

 

i


 

 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. For example, all statements we make relating to: our ability to grow our business, expand access to our patients and our payors and invest in our platform; our plan to partner with additional hospital systems, large primary care groups and other specialist groups; our expectation that we will continue to open de novo center and acquire new centers; our growth rates and financial results; our plans and objectives for future operations, growth or initiatives and strategies; and our expected market opportunity are forward-looking statements.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, factors and assumptions described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the "SEC") on February 28, 2024, including, among other things:

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 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;
our ability to recruit new clinicians and retain existing clinicians;
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 supported 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 and financial performance 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
the other factors set forth under “Risk Factors.”

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise, except as required by law.

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

 

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

For the quarterly period ended March 31, 2024

 

1


 

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except for par value)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,451

 

 

$

78,824

 

Patient accounts receivable, net

 

 

175,937

 

 

 

125,405

 

Prepaid expenses and other current assets

 

 

18,729

 

 

 

21,502

 

Total current assets

 

 

244,117

 

 

 

225,731

 

NONCURRENT ASSETS

 

 

 

 

 

 

Property and equipment, net

 

 

182,428

 

 

 

188,222

 

Right-of-use assets

 

 

165,845

 

 

 

170,703

 

Intangible assets, net

 

 

208,529

 

 

 

221,072

 

Goodwill

 

 

1,293,346

 

 

 

1,293,346

 

Other noncurrent assets

 

 

12,051

 

 

 

10,895

 

Total noncurrent assets

 

 

1,862,199

 

 

 

1,884,238

 

Total assets

 

$

2,106,316

 

 

$

2,109,969

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

11,938

 

 

$

7,051

 

Accrued payroll expenses

 

 

100,432

 

 

 

102,478

 

Other accrued expenses

 

 

37,272

 

 

 

35,012

 

Contingent consideration

 

 

4,454

 

 

 

8,169

 

Operating lease liabilities, current

 

 

49,729

 

 

 

46,475

 

Other current liabilities

 

 

3,639

 

 

 

3,688

 

Total current liabilities

 

 

207,464

 

 

 

202,873

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

Long-term debt, net

 

 

279,870

 

 

 

280,285

 

Operating lease liabilities, noncurrent

 

 

173,255

 

 

 

181,357

 

Deferred tax liability, net

 

 

15,970

 

 

 

15,572

 

Other noncurrent liabilities

 

 

760

 

 

 

952

 

Total noncurrent liabilities

 

 

469,855

 

 

 

478,166

 

Total liabilities

 

$

677,319

 

 

$

681,039

 

COMMITMENTS AND CONTINGENCIES (see Note 12)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock – par value $0.01 per share; 25,000 shares authorized as of
   March 31, 2024 and December 31, 2023;
0 shares issued and outstanding as
   of March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock – par value $0.01 per share; 800,000 shares authorized as of
   March 31, 2024 and December 31, 2023;
382,105 and 378,725 shares
   issued and outstanding as of March 31, 2024 and December 31, 2023,
   respectively

 

 

3,821

 

 

 

3,789

 

Additional paid-in capital

 

 

2,204,233

 

 

 

2,183,684

 

Accumulated other comprehensive income

 

 

2,886

 

 

 

2,303

 

Accumulated deficit

 

 

(781,943

)

 

 

(760,846

)

Total stockholders' equity

 

 

1,428,997

 

 

 

1,428,930

 

Total liabilities and stockholders’ equity

 

$

2,106,316

 

 

$

2,109,969

 

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

2


 

LIFESTANCE HEALTH GROUP, INC.

consolidated statements of operations and comprehensive loss

(unaudited)

(In thousands, except for Net Loss per Share)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

TOTAL REVENUE

 

$

300,437

 

 

$

252,589

 

OPERATING EXPENSES

 

 

 

 

 

 

Center costs, excluding depreciation and amortization
  shown separately below

 

 

205,711

 

 

 

182,987

 

General and administrative expenses

 

 

88,934

 

 

 

84,626

 

Depreciation and amortization

 

 

22,564

 

 

 

19,069

 

Total operating expenses

 

$

317,209

 

 

$

286,682

 

LOSS FROM OPERATIONS

 

$

(16,772

)

 

$

(34,093

)

OTHER EXPENSE

 

 

 

 

 

 

Gain on remeasurement of contingent consideration

 

 

2,015

 

 

 

1,037

 

Transaction costs

 

 

 

 

 

(86

)

Interest expense, net

 

 

(5,903

)

 

 

(5,092

)

Other expense

 

 

(74

)

 

 

(45

)

Total other expense

 

$

(3,962

)

 

$

(4,186

)

LOSS BEFORE INCOME TAXES

 

 

(20,734

)

 

 

(38,279

)

INCOME TAX (PROVISION) BENEFIT

 

 

(363

)

 

 

4,037

 

NET LOSS

 

$

(21,097

)

 

$

(34,242

)

NET LOSS PER SHARE, BASIC AND DILUTED

 

 

(0.06

)

 

 

(0.09

)

Weighted-average shares used to compute basic and diluted
  net loss per share

 

 

376,331

 

 

 

360,902

 

 

 

 

 

 

 

 

NET LOSS

 

$

(21,097

)

 

$

(34,242

)

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

Unrealized gains (losses) on cash flow hedge, net of tax

 

 

583

 

 

 

(1,270

)

COMPREHENSIVE LOSS

 

$

(20,514

)

 

$

(35,512

)

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

3


LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited)

(In thousands)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2023

 

 

378,725

 

 

$

3,789

 

 

$

2,183,684

 

 

$

2,303

 

 

$

(760,846

)

 

$

1,428,930

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,097

)

 

 

(21,097

)

Issuance of common stock upon
   vesting of restricted stock units

 

 

5,687

 

 

 

56

 

 

 

(56

)

 

 

 

 

 

 

 

 

 

Forfeitures

 

 

(2,307

)

 

 

(24

)

 

 

24

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

583

 

 

 

 

 

 

583

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

20,581

 

 

 

 

 

 

 

 

 

20,581

 

Balances at March 31, 2024

 

 

382,105

 

 

$

3,821

 

 

$

2,204,233

 

 

$

2,886

 

 

$

(781,943

)

 

$

1,428,997

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

375,964

 

 

$

3,761

 

 

$

2,084,324

 

 

$

3,274

 

 

$

(572,636

)

 

$

1,518,723

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,242

)

 

 

(34,242

)

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,948

)

 

 

(1,948

)

Issuance of common stock upon
   vesting of restricted stock units

 

 

1,711

 

 

 

17

 

 

 

(17

)

 

 

 

 

 

 

 

 

 

Forfeitures

 

 

(1,138

)

 

 

(11

)

 

 

(3,354

)

 

 

 

 

 

 

 

 

(3,365

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,270

)

 

 

 

 

 

(1,270

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

27,231

 

 

 

 

 

 

 

 

 

27,231

 

Balances at March 31, 2023

 

 

376,537

 

 

$

3,767

 

 

$

2,108,184

 

 

$

2,004

 

 

$

(608,826

)

 

$

1,505,129

 

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

4


 

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(21,097

)

 

$

(34,242

)

Adjustments to reconcile net loss to net cash used in operating
   activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

22,564

 

 

 

19,069

 

Non-cash operating lease costs

 

 

9,687

 

 

 

10,113

 

Stock-based compensation

 

 

20,581

 

 

 

23,866

 

Amortization of discount and debt issue costs

 

 

424

 

 

 

549

 

Gain on remeasurement of contingent consideration

 

 

(2,015

)

 

 

(1,037

)

Other, net

 

 

(47

)

 

 

45

 

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

 

 

 

 

 

 

Patient accounts receivable, net

 

 

(50,532

)

 

 

(17,138

)

Prepaid expenses and other current assets

 

 

2,491

 

 

 

(4,543

)

Accounts payable

 

 

4,981

 

 

 

(5,466

)

Accrued payroll expenses

 

 

(2,045

)

 

 

7,663

 

Operating lease liabilities

 

 

(9,608

)

 

 

(8,736

)

Other accrued expenses

 

 

2,778

 

 

 

1,967

 

Net cash used in operating activities

 

$

(21,838

)

 

$

(7,890

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,104

)

 

 

(7,729

)

Acquisitions of businesses, net of cash acquired

 

 

 

 

 

(19,820

)

Net cash used in investing activities

 

$

(5,104

)

 

$

(27,549

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Payments of long-term debt

 

 

(731

)

 

 

(586

)

Payments of contingent consideration

 

 

(1,700

)

 

 

(4,302

)

Net cash used in financing activities

 

$

(2,431

)

 

$

(4,888

)

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(29,373

)

 

 

(40,327

)

Cash and Cash Equivalents - Beginning of period

 

 

78,824

 

 

 

108,621

 

CASH AND CASH EQUIVALENTS – END OF PERIOD

 

$

49,451

 

 

$

68,294

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest, net

 

$

6,270

 

 

$

5,059

 

Cash paid for taxes, net of refunds

 

$

(252

)

 

$

(13

)

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND
   FINANCING ACTIVITIES

 

 

 

 

 

 

Contingent consideration incurred in acquisitions of businesses

 

$

 

 

$

1,985

 

Acquisition of property and equipment included in liabilities

 

$

3,104

 

 

$

8,297

 

 

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

5


 

LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(In thousands, except per share amounts)

NOTE 1 NATURE OF THE BUSINESS

Description of Business

LifeStance Health Group, Inc. ("LifeStance" or the "Company") operates as a provider of outpatient mental health services, spanning psychiatric evaluations and treatment, psychological and neuropsychological testing, and individual, family and group therapy.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's significant accounting policies are discussed in Note 2 "Summary of Significant Accounting Policies" in Item 15 of its Annual Report on Form 10-K for the year ended December 31, 2023. During the three months ended March 31, 2024, there have been no significant changes to these policies.

Basis of Presentation and Principles of Consolidation

The Company has prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the SEC regarding interim financial reporting, which include the accounts of LifeStance, its wholly-owned subsidiaries and variable interest entities ("VIEs") in which LifeStance has an interest and is the primary beneficiary. Pursuant to these rules and regulations, the Company has omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly state its consolidated financial condition, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s audited financial statements for the year ended December 31, 2023 in the Company's Annual Report on Form 10-K.

Use of Accounting Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Variable Interest Entities

The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a VIE. These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available information. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change.

The Company acquires and operates certain care centers which are deemed to be Friendly-Physician Entities (“FPEs”). As part of an FPE acquisition, the Company acquires 100% of the non-medical assets, however due to legal requirements the physician-owners must retain 100% of the equity interest. The Company’s agreements with FPEs generally consist of both a Management Service Agreement, which provides for various administrative and management services to be provided by the Company to the FPE, and Stock Transfer Restriction (“STR”) agreements with the physician-owners of the FPEs, which provide for the transition of ownership interests of the FPEs under certain conditions. The outstanding voting equity instruments of the FPEs are owned by the nominee shareholders appointed by the Company under the terms of the STR agreements. The Company has the right to receive income as an ongoing management fee, which effectively absorbs all of the residual interests and has also provided financial support through loans to the FPEs. The Company has exclusive responsibility for the provision of all nonmedical services including facilities, technology and intellectual property required for the day-to-day operation and management of each of the FPEs, and makes recommendations to the FPEs in establishing the guidelines for the employment and compensation of the physicians and other employees of the FPEs. In addition, the STR agreements provide that the Company has the right to designate an appropriately licensed person(s) to purchase the equity interest of the FPE for a nominal amount in the event of a succession event at the Company’s discretion. Based on the

6


 

provisions of these agreements, the Company determined that the FPEs are VIEs due to the equity holder having insufficient capital at risk, and the Company has a variable interest in the FPEs.

The contractual arrangements described above allow the Company to direct the activities that most significantly affect the economic performance of the FPEs. Accordingly, the Company is the primary beneficiary of the FPEs and consolidates the FPEs under the VIE model. Furthermore, as a direct result of nominal initial equity contributions by the physicians, the financial support the Company provides to the FPEs (e.g., loans) and the provisions of the contractual arrangements and nominee shareholder succession arrangements described above, the interests held by noncontrolling interest holders lack economic substance and do not provide them with the ability to participate in the residual profits or losses generated by the FPEs. Therefore, all income and expenses recognized by the FPEs are allocated to the Company. The Company does not hold interests in any VIEs for which the Company is not deemed to be the primary beneficiary.

As noted previously, the Company acquires 100% of the non-medical assets of the VIEs. The aggregate carrying values of the VIEs total assets and total liabilities not purchased by the Company but included on the consolidated balance sheets were not material at March 31, 2024 and December 31, 2023.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. ASU 2023-07 is effective for public companies for annual periods beginning on or after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 will apply retrospectively to all prior periods presented in the financial statements. The Company is in process of evaluating the impact of adoption of ASU 2023-07 on the Company's consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 will apply on a prospective basis and retrospective application is permitted. The Company is in process of evaluating the impact of adoption of ASU 2023-09 on the Company's consolidated financial statements and disclosures.

NOTE 3 TOTAL REVENUE

The Company’s total revenue is dependent on a series of contracts with third-party payors, which is typical for providers in the health care industry. The Company has determined that the nature, amount, timing and uncertainty of revenue and cash flows are affected by the payor mix with third-party payors, which have different reimbursement rates.

The payor mix of fee-for-service revenue from patients and third-party payors consists of the following:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

Amount

 

 

% of Total Revenue

 

 

Amount

 

 

% of Total Revenue

 

Commercial

 

$

273,766

 

 

 

91

%

 

$

228,919

 

 

 

91

%

Government

 

 

13,532

 

 

 

5

%

 

 

10,951

 

 

 

4

%

Self-pay

 

 

10,321

 

 

 

3

%

 

 

9,747

 

 

 

4

%

Total patient service revenue

 

 

297,619

 

 

 

99

%

 

 

249,617

 

 

 

99

%

Nonpatient service revenue

 

 

2,818

 

 

 

1

%

 

 

2,972

 

 

 

1

%

Total

 

$

300,437

 

 

 

100

%

 

$

252,589

 

 

 

100

%

Among the commercial payors, the table below represents insurance companies that individually represented 10% or more of revenue:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Payor A

 

 

17

%

 

 

19

%

Payor B

 

 

15

%

 

 

13

%

 

7


 

NOTE 4 PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

 

 

March 31, 2024

 

 

December 31, 2023

 

Leasehold improvements

 

$

171,629

 

 

$

170,212

 

Computers and peripherals

 

 

27,717

 

 

 

27,302

 

Internal-use software

 

 

6,999

 

 

 

7,197

 

Furniture, fixtures and equipment

 

 

42,991

 

 

 

42,316

 

Medical equipment

 

 

842

 

 

 

842

 

Construction in process

 

 

8,443

 

 

 

9,037

 

Total

 

$

258,621

 

 

$

256,906

 

Less: Accumulated depreciation

 

 

(76,193

)

 

 

(68,684

)

Total property and equipment, net

 

$

182,428

 

 

$

188,222

 

 

Depreciation expense consists of the following:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Depreciation expense

 

$

10,021

 

 

$

8,896

 

 

NOTE 5 LEASES

The Company leases its office facilities and office equipment which are accounted for as operating leases. Some leases contain clauses for renewal at the Company's option with renewal terms that generally extend the lease term from one to seven years.

The components of lease expense for the Company's operating leases in its unaudited consolidated statements of operations and comprehensive loss were as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating lease costs

 

$

13,682

 

 

$

14,308

 

Variable lease costs and short-term lease costs were not material.

The weighted-average remaining lease term and discount rate for operating lease liabilities included in the consolidated balance sheets are as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

Weighted-average remaining lease term (in years)

 

 

4.5

 

 

 

4.6

 

Weighted-average discount rate

 

 

7.22

%

 

 

7.11

%

Supplemental cash flow information related to operating leases was as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

16,029

 

 

$

15,339

 

Noncash lease activity

 

 

 

 

 

 

Right-of-use lease assets obtained in exchange for new operating lease liabilities

 

$

4,828

 

 

$

6,878

 

The future minimum lease payments under noncancellable operating leases as of March 31, 2024 are as follows:

Year Ended December 31,

 

Amount

 

Remainder of 2024

 

$

47,647

 

2025

 

 

63,170

 

2026

 

 

55,683

 

2027

 

 

42,088

 

2028

 

 

29,683

 

Thereafter

 

 

24,085

 

Total lease payments

 

$

262,356

 

Less: imputed interest

 

 

(39,372

)

Total lease liabilities

 

$

222,984

 

Related party lease transactions were not material as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023.

8


 

NOTE 6 GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill was $1,293,346 as of March 31, 2024 and December 31, 2023. There have been no changes to the goodwill carrying value during the period.

Intangible Assets

Intangible assets consist of the following:

March 31, 2024

 

Gross
Carrying Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying Amount

 

 

Weighted
Average Useful
Life (Years)

 

Regional trade names

 

$

36,694

 

 

$

(30,607

)

 

$

6,087

 

 

 

4.0

 

LifeStance trade names

 

 

235,500

 

 

 

(40,641

)

 

 

194,859

 

 

 

22.5

 

Non-competition agreements

 

 

94,535

 

 

 

(86,952

)

 

 

7,583

 

 

 

4.2

 

Total intangible assets

 

$

366,729

 

 

$

(158,200

)

 

$

208,529

 

 

 

 

 

December 31, 2023

 

Gross
Carrying Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying Amount

 

 

Weighted
Average Useful
Life (Years)

 

Regional trade names

 

$

36,694

 

 

$

(26,399

)

 

$

10,295

 

 

 

5.0

 

LifeStance trade names

 

 

235,500

 

 

 

(38,024

)

 

 

197,476

 

 

 

22.5

 

Non-competition agreements

 

 

94,535

 

 

 

(81,234

)

 

 

13,301

 

 

 

4.2

 

Total intangible assets

 

$

366,729

 

 

$

(145,657

)

 

$

221,072

 

 

 

 

Gross carrying amount is based on the fair value of the intangible assets determined at the acquisition date. Total intangible asset amortization expense consists of the following:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Amortization expense

 

$

12,543

 

 

$

10,173

 

 

NOTE 7 BUSINESS COMBINATIONS

During the three months ended March 31, 2023, the Company completed the acquisitions of 3 outpatient mental health practices. There were no completed acquisitions during the three months ended March 31, 2024. The Company accounted for the acquisitions as business combinations using the acquisition method of accounting. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the respective acquisition dates.

Total consideration transferred for these acquisitions consisted of the following:

 

 

Three Months Ended

 

 

 

March 31, 2023

 

Cash consideration

 

$

20,000

 

Contingent consideration, at initial fair value

 

 

1,985

 

Total consideration transferred

 

$

21,985

 

The results of the acquired businesses have been included in the Company’s consolidated financial statements beginning as of their acquisition dates. It is impracticable to provide historical supplemental pro forma financial information along with revenue and earnings subsequent to the acquisition dates for acquisitions during the period due to a variety of factors, including access to historical information and the operations of acquirees being integrated within the Company shortly after closing and not operating as discrete entities within the Company’s organizational structure.

9


 

Fair Values of Assets Acquired and Liabilities Assumed

The following table summarizes the fair values of assets acquired and liabilities assumed as of the dates of acquisition:

 

 

Three Months Ended

 

Allocation of Purchase Price

 

March 31, 2023

 

Cash

 

$

181

 

Patient accounts receivable

 

 

372

 

Prepaid expenses and other current assets

 

 

138

 

Property and equipment

 

 

221

 

Right-of-use assets

 

 

368

 

Other noncurrent assets

 

 

22

 

Intangible assets

 

 

843

 

Goodwill

 

 

20,733

 

Total assets acquired

 

 

22,878

 

Total liabilities assumed

 

 

893

 

Fair value of net assets

 

$

21,985

 

The majority of the tangible assets acquired and liabilities assumed were recorded at their carrying values as of the respective dates of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible assets acquired in these acquisitions were estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. The Company developed estimates for the expected future cash flows and discount rates used in the present value calculations.

The following table summarizes the fair values of acquired intangible assets as of the dates of acquisition:

 

 

Three Months Ended

 

 

 

March 31, 2023

 

Regional trade names (1)

 

$

435

 

Non-competition agreements (2)

 

 

408

 

Total

 

$

843

 

(1)
Useful lives for regional trade names are 5 years.
(2)
Useful lives for non-competition agreements are 5 years.

Contingent Consideration

Under the provisions of the acquisition agreements, the Company may pay additional cash consideration in the form of earnouts, contingent upon the acquirees achieving certain performance and operational targets (see Note 8).

The following table summarizes the maximum contingent consideration based on the acquisition agreements:

 

 

Three Months Ended

 

Contingent consideration

 

March 31, 2023

 

Maximum contingent consideration based on acquisition agreements

 

$

2,650

 

Goodwill

Goodwill is primarily attributable to the assembled workforce, customer and payor relationships and anticipated synergies and economies of scale expected from the integration of the businesses. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved as a result of the acquisition. All goodwill is deductible for tax purposes.

NOTE 8 FAIR VALUE MEASUREMENTS

Contingent Consideration

The Company measures its contingent consideration liability at fair value on a recurring basis using Level 3 inputs. The Company estimates the fair value of the contingent consideration liability based on the likelihood and timing of the contingent earn-out payments. The following is the summary of the significant assumptions used for the fair value measurement of the contingent consideration liability as of March 31, 2024 and December 31, 2023.

Valuation Technique

 

Range of Significant Assumptions

 

 

 

 

March 31, 2024

 

December 31, 2023

Probability-weighted analysis

 

Probability

 

0% - 100%

 

0% - 100%

 based earn-outs

 

Discount rate

 

9.7%

 

9.7%

 

10


 

As of March 31, 2024 and December 31, 2023, the Company adjusted the fair value of the contingent consideration liability due to remeasurement at the reporting date.

Hedging Activities

The Company uses derivative financial instruments, including an interest rate swap, for hedging and non-trading purposes to manage its exposure to changes in interest rates. The Company entered into a hedge transaction (interest rate swap) using a derivative financial instrument for the purpose of hedging the Company’s exposure to interest rate risks, which the contractual terms of the hedged instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. The objective of entering into the interest rate swap is to eliminate the variability of cash flows in the Secured Overnight Financing Rate ("SOFR") interest payments associated with the variable-rate loan over the life of the loan. In August 2022, the Company entered into an interest rate swap agreement to pay a fixed rate of 3.24% on a total notional value of $189,000 of debt. As a result of the interest rate swap, 94.5% of the term loan previously exposed to interest rate risk from changes in SOFR is now hedged against the interest rate swap at a fixed rate. The interest rate swap matures on September 30, 2025. As of March 31, 2024, the notional value was $186,165. As changes in interest rates impact the future cash flow of interest payments, the hedge provides a synthetic offset to interest rate movements.

The Company used the income approach to value the derivative for the interest rate swap using observable market data for all significant inputs and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. This derivative instrument (interest rate swap) is designated and qualifies as a cash flow hedge, with the entire gain or loss on the derivative reported as a component of other comprehensive income. Amounts recorded in accumulated other comprehensive income are released to earnings in the same period that the hedged transaction impacts consolidated earnings within interest expense, net. The cash flows from the derivative treated as a cash flow hedge is classified in the Company’s consolidated statements of cash flows in the same category as the item being hedged.

For the three months ended March 31, 2024 and 2023, the Company included immaterial gains on the hedged instrument (variable-rate borrowings) in the same line item (interest expense, net) as the offsetting gain on the related interest rate swap in the unaudited consolidated statements of operations and comprehensive loss.

The following table summarizes the location of the interest rate swap in the unaudited consolidated balance sheets:

 

 

Consolidated balance sheets location

 

March 31, 2024

 

 

December 31, 2023

 

Interest rate swap

 

Other noncurrent assets

 

$

3,913

 

 

$

2,931

 

The amount of estimated cash flow hedge unrealized gains and losses that are expected to be reclassified to earnings in the next twelve months is not material.

Fair Value Measured on a Recurring Basis

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis:

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets Measured at Fair Value

 

 

 

 

 

 

Money market funds

 

$

28,487

 

 

$

64,766

 

Level 1

 

$

28,487

 

 

$

64,766

 

Interest rate swap asset

 

$

3,913

 

 

$

2,931

 

Level 2

 

$

3,913

 

 

$

2,931

 

Total assets measured at fair value

 

$

32,400

 

 

$

67,697

 

 

 

 

 

 

 

 

Liabilities Measured at Fair Value

 

 

 

 

 

 

Contingent consideration liability:

 

 

 

 

 

 

Beginning balance

 

$

8,169

 

 

$

17,824

 

Additions related to acquisitions

 

 

 

 

 

1,985

 

Payments of contingent consideration

 

 

(1,700

)

 

 

(7,668

)

Gain on remeasurement

 

 

(2,015

)

 

 

(3,972

)

Ending balance

 

 

4,454

 

 

 

8,169

 

Level 3

 

$

4,454

 

 

$

8,169

 

Total liabilities measured at fair value

 

$

4,454

 

 

$

8,169

 

 

NOTE 9 LONG-TERM DEBT

On May 4, 2022, the Company entered into a credit agreement (the “2022 Credit Agreement”) among LifeStance Health Holdings, Inc., Lynnwood Intermediate Holdings, Inc., Capital One, National Association, and each lender party thereto. The 2022 Credit Agreement established commitments in respect of a term loan facility of $200,000, a revolving loan facility of up to $50,000 and a delayed draw term loan facility of up to $100,000. The commitments under the term loan facility and the revolving facility were

11


 

available to be drawn on May 16, 2022. The Company borrowed $200,000 in term loans on that date, with a maturity date of May 16, 2028. The remaining commitments under the delayed draw term loan facility are scheduled to terminate on the second anniversary of May 16, 2022. Once drawn upon, the delayed draw term loan facility has a maturity date of May 16, 2028. The loans under the term loan facility and the delayed draw term loan facility bear interest at a rate per annum equal to (x) adjusted term SOFR (which adjusted term SOFR is subject to a minimum of 0.75%) plus an applicable margin of 4.50% or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.50% above the federal funds effective rate and (iii) one-month adjusted term SOFR (which adjusted term SOFR is subject to a minimum of 0.75%) plus 1.00%) plus an applicable margin of 3.50%. The term loans are collateralized by substantially all of the assets of the Company. The revolving loan has interest only payments until the maturity date of May 16, 2027.

The 2022 Credit Agreement requires the Company to maintain compliance with certain restrictive financial covenants related to earnings, leverage ratios, and other financial metrics. The Company was in compliance with all debt covenants at March 31, 2024 and December 31, 2023.

Long-term debt consists of the following:

 

 

March 31, 2024

 

 

December 31, 2023

 

Term loans

 

$

197,000

 

 

$

197,500

 

Delayed Draw term loans

 

 

91,763

 

 

 

91,994

 

Total long-term debt

 

 

288,763

 

 

 

289,494

 

Less: Current portion of long-term debt

 

 

(2,925

)

 

 

(2,925

)

Less: Unamortized discount and debt issue costs (1)

 

 

(5,968

)

 

 

(6,284

)

Total Long-Term Debt, Net of Current Portion
   and Unamortized Discount and Debt Issue Costs

 

$

279,870

 

 

$

280,285

 

(1)
The unamortized debt issue costs related to long-term debt are presented as a reduction of the carrying amount of the corresponding liabilities on the unaudited consolidated balance sheets. Unamortized debt issue costs related to delayed draw term loan commitments and revolving loans are presented within other noncurrent assets on the unaudited consolidated balance sheets.

The current portion of long-term debt is included within other current liabilities on the unaudited consolidated balance sheets.

Interest expense, net consists of the following:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Interest expense, net

 

$

5,903

 

 

$

5,092

 

Future principal payments on long-term debt as of March 31, 2024 are as follows:

Year Ended December 31,

 

Amount

 

Remainder of 2024

 

$

2,194

 

2025

 

 

2,925

 

2026

 

 

2,925

 

2027

 

 

2,925

 

2028

 

 

277,794

 

Total

 

$

288,763

 

The fair value of long-term debt is based on the present value of future payments discounted by the market interest rates or the fixed rates based on current rates offered to the Company for debt with similar terms and maturities, which is a Level 2 fair value measurement. Long-term debt is presented at carrying value on the unaudited consolidated balance sheets. The fair value of long-term debt at March 31, 2024 and December 31, 2023 was $306,805 and $304,955, respectively.

Revolving Loan

Under the 2022 Credit Agreement, the Company has a revolving loan commitment from Capital One in the amount of $50,000. Any borrowing on the revolving loan under the 2022 Credit Agreement is due in full on May 16, 2027. The revolving loan bears interest at a rate per annum equal to (x) adjusted term SOFR plus an applicable margin of 3.25% or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.50% above the federal funds effective rate and (iii) one-month adjusted term SOFR plus 1.00%) plus an applicable margin of 2.25%. The unused revolving loan incurs a commitment fee of 0.50% per annum.

There are no amounts outstanding on the revolving loan as of March 31, 2024 and December 31, 2023.

12


 

NOTE 10 STOCK-BASED COMPENSATION

2021 Equity Incentive Plan

Effective June 9, 2021, the Company’s Board of Directors (the "Board") and its stockholders as of that date adopted and approved the LifeStance Health Group, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”). The 2021 Equity Incentive Plan permits the grant of awards or restricted or unrestricted common stock, stock options, stock appreciation rights, restricted stock units, performance awards, and other stock-based awards to employees and directors of, and consultants and advisors to, the Company and its affiliates. On January 1, 2024, the number of shares of common stock reserved and available for issuance under the 2021 Equity Incentive Plan increased by 18,936 shares.

Restricted Stock Awards ("RSA")

The following is a summary of RSA transactions as of and for the three months ended March 31, 2024:

 

 

Unvested Shares

 

 

Weighted-Average
Grant Date Fair Value

 

Unvested, December 31, 2023

 

 

5,479

 

 

$

11.98

 

Vested

 

 

(13

)

 

 

11.98

 

Forfeited

 

 

(2,307

)

 

 

11.98

 

Unvested, March 31, 2024

 

 

3,159

 

 

$

11.98

 

Restricted Stock Units ("RSU")

The following is a summary of RSU transactions as of and for the three months ended March 31, 2024:

 

 

Unvested Shares

 

 

Weighted-Average
Grant Date Fair Value

 

Outstanding, December 31, 2023

 

 

23,378

 

 

$

7.24

 

Granted

 

 

11,965

 

 

 

7.37

 

Vested

 

 

(5,687

)

 

 

6.66

 

Canceled and forfeited

 

 

(1,313

)

 

 

7.24

 

Outstanding, March 31, 2024

 

 

28,343

 

 

$

7.41

 

Stock Options

The following is a summary of stock option activity as of and for the three months ended March 31, 2024:

 

 

Number of Options

 

 

Weighted-Average
Exercise Price

 

 

Weighted-Average
Remaining Contractual Term (Years)

 

 

Aggregate Intrinsic Value

 

Outstanding, December 31, 2023

 

 

13,476

 

 

$

7.42

 

 

 

8.70

 

 

$

5,565

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Canceled and forfeited