10-Q 1 lfst-20220331.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, 2022

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 6000

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 4, 2022, the registrant had 374,323,422 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

3

 

Consolidated Statement of Changes in Stockholders' Equity and Consolidated Statement of Changes in Redeemable Units and Members' 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

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

Signatures

34

 

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 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 and our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the "SEC") on March 17, 2022, including, among other things:

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;
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
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, 2022

 

1


 

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED BALANCE SHEETS

AS OF March 31, 2022 AND December 31, 2021

(unaudited)

(In thousands, except for par value)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

113,990

 

 

$

148,029

 

Patient accounts receivable, net

 

 

94,991

 

 

 

76,078

 

Prepaid expenses and other current assets

 

 

54,316

 

 

 

42,413

 

Total current assets

 

 

263,297

 

 

 

266,520

 

NONCURRENT ASSETS

 

 

 

 

 

 

Property and equipment, net

 

 

170,927

 

 

 

152,242

 

Intangible assets, net

 

 

291,180

 

 

 

300,355

 

Goodwill

 

 

1,229,303

 

 

 

1,204,544

 

Deposits

 

 

3,679

 

 

 

3,448

 

Total noncurrent assets

 

 

1,695,089

 

 

 

1,660,589

 

Total assets

 

$

1,958,386

 

 

$

1,927,109

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

15,136

 

 

$

14,152

 

Accrued payroll expenses

 

 

73,207

 

 

 

60,002

 

Other accrued expenses

 

 

21,807

 

 

 

26,510

 

Current portion of contingent consideration

 

 

13,491

 

 

 

14,123

 

Other current liabilities

 

 

1,956

 

 

 

1,965

 

Total current liabilities

 

 

125,597

 

 

 

116,752

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

Long-term debt, net

 

 

177,380

 

 

 

157,416

 

Other noncurrent liabilities

 

 

57,487

 

 

 

50,325

 

Contingent consideration, net of current portion

 

 

1,123

 

 

 

3,307

 

Deferred tax liability, net

 

 

54,281

 

 

 

54,281

 

Total noncurrent liabilities

 

 

290,271

 

 

 

265,329

 

Total liabilities

 

$

415,868

 

 

$

382,081

 

COMMITMENT AND CONTINGENCIES (see Note 14)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock – par value $0.01 per share; 25,000 shares authorized as of
   March 31, 2022 and December 31, 2021;
0 shares issued and outstanding as of
   March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock – par value $0.01 per share; 800,000 shares authorized as of
   March 31, 2022 and December 31, 2021;
374,323 and 374,255 shares issued
   and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

3,744

 

 

 

3,743

 

Additional paid-in capital

 

 

1,958,174

 

 

 

1,898,357

 

Accumulated deficit

 

 

(419,400

)

 

 

(357,072

)

Total stockholders' equity

 

 

1,542,518

 

 

 

1,545,028

 

Total liabilities and stockholders’ equity

 

$

1,958,386

 

 

$

1,927,109

 

 

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

2


 

LIFESTANCE HEALTH GROUP, INC.

consolidated statements of operations

FOR THE three months ended March 31, 2022 and 2021

(unaudited)

(In thousands, except for Net Loss per Share)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

TOTAL REVENUE

 

$

203,095

 

 

$

143,132

 

OPERATING EXPENSES

 

 

 

 

 

 

Center costs, excluding depreciation and amortization shown
   separately below

 

 

148,893

 

 

 

99,134

 

General and administrative expenses

 

 

103,369

 

 

 

32,651

 

Depreciation and amortization

 

 

15,684

 

 

 

12,228

 

Total operating expenses

 

$

267,946

 

 

$

144,013

 

LOSS FROM OPERATIONS

 

$

(64,851

)

 

$

(881

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

Loss on remeasurement of contingent consideration

 

 

(434

)

 

 

(307

)

Transaction costs

 

 

(278

)

 

 

(1,534

)

Interest expense

 

 

(3,441

)

 

 

(8,632

)

Other expense

 

 

 

 

 

(89

)

Total other expense

 

$

(4,153

)

 

$

(10,562

)

LOSS BEFORE INCOME TAXES

 

 

(69,004

)

 

 

(11,443

)

INCOME TAX BENEFIT

 

 

6,676

 

 

 

2,761

 

NET LOSS

 

$

(62,328

)

 

$

(8,682

)

Accretion of Redeemable Class A units

 

 

 

 

 

(36,750

)

NET LOSS AVAILABLE TO COMMON
   STOCKHOLDERS/MEMBERS

 

$

(62,328

)

 

$

(45,432

)

NET LOSS PER SHARE, BASIC AND DILUTED

 

 

(0.18

)

 

 

(0.15

)

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

 

 

350,849

 

 

 

305,538

 

 

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

3


 

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE three months ended March 31, 2022 AND CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE UNITS AND MEMBERS’ EQUITY FOR THE three months ended March 31, 2021

(unaudited)

(In thousands)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

374,255

 

 

$

3,743

 

 

$

1,898,357

 

 

$

(357,072

)

 

$

1,545,028

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(62,328

)

 

 

(62,328

)

Issuance of common stock upon vesting of restricted
   stock units

 

 

96

 

 

 

1

 

 

 

(38

)

 

 

 

 

 

(37

)

Forfeitures

 

 

(28

)

 

 

 

 

 

(185

)

 

 

 

 

 

(185

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

60,040

 

 

 

 

 

 

60,040

 

Balances at March 31, 2022

 

 

374,323

 

 

$

3,744

 

 

$

1,958,174

 

 

$

(419,400

)

 

$

1,542,518

 

 

 

Class A Redeemable Units

 

 

 

Class A-1 Common Units

 

Class A-2 Common Units

 

Class B Common Units

 

Additional
Paid-in

 

Accumulated

 

Total Members'

 

 

Units

 

Amount

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Units

 

Amount

 

Capital

 

Deficit

 

Equity

 

Balances at December 31, 2020

 

35,000

 

$

35,000

 

 

 

 

959,563

 

$

959,563

 

 

49,946

 

$

49,946

 

 

 

$

 

$

1,452

 

$

(13,125

)

$

997,836

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,682

)

 

(8,682

)

Issuance of common units

 

 

 

 

 

 

 

 

 

 

 

962

 

 

1,000

 

 

 

 

 

 

 

 

 

 

1,000

 

Accretion of Redeemable Class
   A Units

 

 

 

36,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,750

)

 

(36,750

)

Unit-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

605

 

 

 

 

605

 

Balances at March 31, 2021

 

35,000

 

$

71,750

 

 

 

 

959,563

 

$

959,563

 

 

50,908

 

$

50,946

 

 

 

$

 

$

2,057

 

$

(58,557

)

$

954,009

 

 

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

 

4


 

LIFESTANCE HEALTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE three months ended March 31, 2022 and 2021

(unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(62,328

)

 

$

(8,682

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

15,684

 

 

 

12,228

 

Stock and unit-based compensation

 

 

59,855

 

 

 

605

 

Amortization of debt issue costs

 

 

295

 

 

 

403

 

Loss on remeasurement of contingent consideration

 

 

434

 

 

 

307

 

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

 

 

 

 

 

 

Patient accounts receivable, net

 

 

(18,121

)

 

 

(3,116

)

Prepaid expenses and other current assets

 

 

(12,065

)

 

 

(8,042

)

Accounts payable

 

 

1,852

 

 

 

3,014

 

Accrued payroll expenses

 

 

12,759

 

 

 

7,314

 

Other accrued expenses

 

 

4,943

 

 

 

5,878

 

Net cash provided by operating activities

 

 

3,308

 

 

 

9,909

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of property and equipment

 

 

(27,910

)

 

 

(11,081

)

Acquisitions of businesses, net of cash acquired

 

 

(22,945

)

 

 

(754

)

Net cash used in investing activities

 

 

(50,855

)

 

 

(11,835

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Payments of deferred offering costs

 

 

 

 

 

(323

)

Proceeds from long-term debt

 

 

20,000

 

 

 

26,200

 

Payments of debt issue costs

 

 

 

 

 

(955

)

Payments of long-term debt

 

 

(331

)

 

 

(785

)

Payments of contingent consideration

 

 

(5,720

)

 

 

(1,546

)

Taxes related to net share settlement of equity awards

 

 

(441

)

 

 

 

Net cash provided by financing activities

 

 

13,508

 

 

 

22,591

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(34,039

)

 

 

20,665

 

Cash and Cash Equivalents - Beginning of period

 

 

148,029

 

 

 

18,829

 

CASH AND CASH EQUIVALENTS – END OF PERIOD

 

$

113,990

 

 

$

39,494

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

3,091

 

 

$

6,806

 

Cash paid for taxes, net of refunds

 

$

(60

)

 

$

3

 

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND
   FINANCING ACTIVITIES

 

 

 

 

 

 

Unpaid deferred offering costs included in accounts payable and
   other accrued expenses

 

$

 

 

$

1,871

 

Equipment financed through capital leases

 

$

57

 

 

$

14

 

Contingent consideration incurred in acquisitions of businesses

 

$

2,470

 

 

$

808

 

Acquisition of property and equipment included in liabilities

 

$

12,320

 

 

$

7,498

 

 

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/unit amounts)

NOTE 1 NATURE OF THE BUSINESS

Description of Business

LifeStance Health Group, Inc. (“LifeStance Health Group”) was formed as a Delaware corporation on January 28, 2021 for the purpose of completing an initial public offering (“IPO”) and related transactions in order to carry on the business of LifeStance TopCo, L.P. (“LifeStance TopCo”) and subsidiaries. LifeStance Health Group is the sole equity holder of LifeStance TopCo and operates and controls all of the business and affairs. As a result, LifeStance Health Group consolidates the financial results of LifeStance TopCo, its wholly-owned subsidiaries and variable interest entities. LifeStance Health Group and LifeStance TopCo are collectively referred to herein as the “Company”, "LifeStance" or "LifeStance Health".

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.

Initial Public Offering

On June 14, 2021, the Company completed its IPO in which it issued and sold 32,800 shares of common stock and affiliates of TPG Inc. ("TPG"), affiliates of Silversmith Capital Partners ("Silversmith"), and affiliates of Summit Partners ("Summit") (collectively, the "Selling Shareholders") sold 7,200 shares of common stock at an offering price of $18.00 per share. The Selling Shareholders granted the underwriters an option to purchase an additional 6,000 shares of common stock. The underwriters exercised in full their option to purchase additional shares, and the sale of the option shares was completed on June 25, 2021. The Company received net proceeds of $548,905, after deducting underwriting discounts and commissions of $32,472 and deferred offering costs of $9,023. The Company did not receive any proceeds from the sale of shares by the Selling Stockholders, including the option shares. Deferred, direct offering costs were capitalized and consisted of fees and expenses incurred in connection with the sale of the Company’s common stock in the IPO, including legal, accounting, printing and other offering related costs. Upon completion of the IPO, these deferred offering costs were reclassified from current assets to stockholders’ equity and recorded against the net proceeds from the offering.

Prior to the IPO, each of the holders of partnership interests in LifeStance TopCo contributed its partnership interests to LifeStance Health Group in exchange for shares of common stock (including shares of common stock issued as restricted stock subject to vesting) of LifeStance Health Group (the "Organizational Transactions"). Following the contribution of partnership interests, LifeStance TopCo became wholly-owned by LifeStance Health Group. The number of shares of common stock that each such holder of partnership interests in LifeStance TopCo received was determined based on the value that such holder would have received under the distribution provisions of the limited partnership agreement of LifeStance TopCo, with shares of common stock valued by reference to the IPO price. All 1,046,196 of LifeStance TopCo’s outstanding redeemable and common Class A units and 152,620 Class B units (the "Class B Common Units", "Profits Interests Units" or "Profits Interests") were contributed in exchange for 310,083 shares of common stock of LifeStance Health Group plus 30,766 shares of common stock issued as restricted stock ("RSAs") subject to vesting.

In connection with the IPO, the Company established the LifeStance Health Foundation, a non-profit organization that focuses on youth mental health, and the mental health of underrepresented minority communities, the underemployed and the uninsured. Concurrently with the closing of the IPO, the Company endowed the LifeStance Health Foundation through a combination of $1,000 in cash and 500 shares of its common stock, representing aggregate cash and equity value of $10,000.

Following the effective date of the IPO, LifeStance Health Group consolidates the financial results of LifeStance TopCo, its wholly-owned subsidiaries and variable interest entities ("VIEs") and the financial statements for the periods prior to the IPO have been adjusted to combine the previously separate entities for presentation purposes. Prior to the IPO restructuring transactions, LifeStance Health Group had no operations.

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, 2021. During the three months ended March 31, 2022, there have been no significant changes to these policies other than the additions to the stock and unit-based compensation policy further described below.

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 Health Group, LifeStance TopCo, its wholly-owned subsidiaries and VIEs in which LifeStance TopCo has an interest and is the primary beneficiary. Pursuant to these rules and

 

6


LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(In thousands, except per share/unit amounts)

 

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, 2021 in the Company's Annual Report on Form 10-K.

On May 14, 2020, affiliates of TPG acquired the majority of the equity interests of LifeStance Health Holdings, Inc. through certain newly formed subsidiaries ("TPG Acquisition"). Periods subsequent to the acquisition and prior to the IPO and restructuring transactions reflect the financial statements of LifeStance TopCo. Periods subsequent to the IPO and restructuring transactions reflect the financial statements of LifeStance Health Group. All periods subsequent to the TPG Acquisition have been presented as the financial statements of LifeStance Health Group.

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 a 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 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 members. The Company does not hold interests in any VIEs for which the Company is not deemed to be the primary beneficiary.

 

7


LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(In thousands, except per share/unit amounts)

 

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, 2022 and December 31, 2021.

Stock and Unit-Based Compensation

Beginning in the first quarter of 2022, the Company's clinician restricted stock units ("RSUs") are granted subject to certain performance and service-based vesting conditions. The clinician RSUs are measured at fair value on their grant date. The related compensation expense is recognized on a straight line basis over the requisite service period for each separately vesting tranche of the award if and when the Company concludes that it is probable that the performance conditions will be achieved. At the end of each reporting period, the Company reevaluates the probability that the performance conditions will be achieved.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company's unaudited consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and also issued subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01, ASU 2020-02, and ASU 2020-05 (collectively, “ASC 842”). ASC 842 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. ASC 842 is effective for private entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, inclusive of a one year deferral provided by ASU 2020-05. ASC 842 must be adopted using a modified retrospective method and early adoption is permitted. The Company is in the process of determining the impact of the adoption of ASC 842 on the Company’s consolidated financial statements and disclosures. The Company has organized an implementation group to ensure the completeness of its lease information, analyze the appropriate classification of leases under the new standard, and develop new processes to execute, approve and classify leases on an ongoing basis. However, given the Company’s current operating lease portfolio (see Note 13 and Note 14) the Company expects the recognition of the right-of-use assets and lease liabilities to have a material impact on the Company’s consolidated balance sheets.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326)-Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. ASU 2016-13 is effective for private entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2016-03 will apply as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-13 on the Company’s consolidated financial statements and disclosures.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for private entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued and all other entities for periods for which financial statements have not yet been made available for issuance. The Company is in the process of evaluating the impact of the adoption of ASU 2019-12 on the Company’s consolidated financial statements and disclosures.

 

8


LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(In thousands, except per share/unit amounts)

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments issued in March 2020 provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020, through December 31, 2022. The Company is still evaluating the impact of adopting ASU 2020-04 on its consolidated financial statements and disclosures.

NOTE 3 ACQUISITIONS

During the three months ended March 31, 2022 and 2021, the Company completed the acquisitions of 2 and 1 outpatient mental health practices, respectively. 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,

 

 

 

2022

 

 

2021

 

Cash consideration

 

$

23,325

 

 

$

700

 

Contingent consideration, at initial fair value

 

 

2,470

 

 

 

808

 

Total consideration transferred

 

$

25,795

 

 

$

1,508

 

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.

Fair Values of Assets Acquired and Liabilities Assumed

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

 

 

Three Months Ended March 31,

 

Allocation of Purchase Price

 

2022

 

 

2021

 

Cash

 

$

421

 

 

$

40

 

Patient accounts receivable

 

 

486

 

 

 

284

 

Property and equipment

 

 

34

 

 

 

18

 

Prepaid expenses and other current assets

 

 

64

 

 

 

6

 

Deposits

 

 

3

 

 

 

5

 

Intangible assets

 

 

782

 

 

 

125

 

Goodwill

 

 

24,701

 

 

 

1,117

 

Total assets acquired

 

 

26,491

 

 

 

1,595

 

Total liabilities assumed

 

 

696

 

 

 

87

 

Fair value of net assets

 

$

25,795

 

 

$

1,508

 

The fair value of assets and liabilities other than intangible assets approximate the carrying amounts as of acquisition dates.

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

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Regional trade names (1)

 

$

342

 

 

$

77

 

Non-competition agreements (2)

 

 

440

 

 

 

48

 

Total

 

$

782

 

 

$

125

 

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

 

9


LIFESTANCE HEALTH GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(In thousands, except per share/unit amounts)

 

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 6).

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

 

 

Three Months Ended March 31,

 

Contingent consideration

 

2022

 

 

2021

 

Maximum contingent consideration based on acquisition agreements

 

$

3,000

 

 

$

1,000

 

Goodwill

Goodwill represents the excess of the purchase price over the net identifiable assets acquired and liabilities assumed. 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 4 INTANGIBLE ASSETS

Intangible assets consists of the following:

March 31, 2022

 

Gross
Carrying Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying Amount

 

 

Weighted
Average Useful
Life (Years)

 

Regional trade names

 

$

34,759

 

 

$

(11,359

)

 

$

23,400

 

 

 

5.0

 

LifeStance trade names

 

 

235,500

 

 

 

(19,707

)

 

 

215,793

 

 

 

22.5

 

Non-competition agreements

 

 

93,190

 

 

 

(41,203

)

 

 

51,987

 

 

 

4.2

 

Total intangible assets

 

$

363,449

 

 

$

(72,269

)

 

$

291,180

 

 

 

 

 

December 31, 2021

 

Gross
Carrying Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying Amount

 

 

Weighted
Average Useful
Life (Years)

 

Regional trade names

 

$

34,417

 

 

$

(9,633

)

 

$

24,784

 

 

 

5.0

 

LifeStance trade names

 

 

235,500

 

 

 

(17,090

)

 

 

218,410

 

 

 

22.5

 

Non-competition agreements

 

 

92,750

 

 

 

(35,589

)

 

 

57,161