LifeStance Health Group, Inc. (NASDAQ:LFST) Q4 2023 Earnings Call Transcript February 28, 2024
LifeStance Health Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the LifeStance Health Fourth Quarter 2023 Earnings Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Monica Prokocki, Vice President of Investor Relations.
Monica Prokocki: Thank you, operator. Good morning, everyone, and welcome to LifeStance Health’s fourth quarter 2023 earnings conference call. I’m Monica Prokocki, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer; Dave Bourdon, Chief Financial Officer; and Danish Qureshi, Chief Operating Officer. We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay of this conference call will be available following the call. Before turning the call over to management for their prepared remarks, please direct your attention to the disclaimers about forward-looking statements included in the earnings press release and SEC filings.
Today’s remarks contain forward-looking statements, including statements about our financial performance outlook, business model and strategy. Those statements involve risks, uncertainties and other factors, as noted in our periodic filings with the SEC that could cause actual results to differ materially. In addition, please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I’ll turn the call over to Ken Burdick, CEO of LifeStance.
Ken?
Ken Burdick: Thanks, Monica, and thank you all for joining us today. I’d like to begin by highlighting what we stand for here at LifeStance. Every day we are focused on three foundational pillars: the patient experience, clinical quality, and developing an inclusive, purpose driven culture. First, we are committed to putting the patient experience at the forefront of everything we do. Since the start of the pandemic, the country has experienced an alarming increase in the rates of anxiety and depression and as well as deaths resulting from overdose and suicide. More than 150 million people live in an area with a shortage of mental health professionals, and only 56% of psychiatrists accept commercial insurance. Tens of millions of Americans are unable to access mental health care treatment, with devastating effects on families and communities.
See also 17 Countries With Best Universities In Africa and 30 Least Educated Countries in the World.
Q&A Session
Follow Lifestance Health Group Inc.
Follow Lifestance Health Group Inc.
In 2023, LifeStance’s team of over 6600 clinicians helped address these access challenges by providing mental health services to over 880,000 patients who depend on our care. With our differentiated hybrid model of in-person and virtual visits, we meet patients where they are. By accepting insurance, we provide patients with affordable access to mental health care. Whereas much of the market is cash pay and therefore out of reach for the majority of Americans. The exceptional care provided by our clinicians is reflected in the feedback we receive from our patients. In 2023, LifeStance received a patient net promoter score of 82, and our average Google review score across all LifeStance centers stood at 4.5 out of five stars. As you will hear in our prepared remarks, we continue to focus on enhancing the end to end experience for our patients.
Second, we’re dedicated to clinical quality. LifeStance and our team of multi-disciplinary clinicians are committed to providing patients with personalized, high quality care with clinical integrity. We provide training programs for our clinicians and conduct clinical audits to conform with best practice guidelines, which also afford an opportunity for our clinical leaders to collaborate with and mentor our clinicians. Our focus is on delivering the most appropriate treatment for each patient’s individual needs based on informed clinical judgment. As we enhance our capabilities around clinical quality, I am excited to announce the appointment of Dr. Ujjwal Ramtekkar as Chief Medical Officer. He joined LifeStance in January and is off to a great start.
Ujjwal is Board certified in pediatric and adult psychiatry and has held multiple senior clinical leadership roles in our industry. Last but not least, we are evolving from an entrepreneurial company focused almost exclusively on growth to one that is more balanced and disciplined when it comes to prioritization and execution. While we continue to grow as a company, we are also growing up to ensure that as a company, we have the people, systems, processes and culture to deliver on our mission at scale. As a leadership team, we are committed to developing a sustainable, inclusive and purpose driven culture that keeps our organization aligned with our vision, mission and values. 2024 represents the second year of our two-year plan to invest in the business, fortify our foundation and standardize our operations.
At the one year mark, we’re beginning to see some tangible benefits. First, we beat on all guided metrics for the full year 2023. This quarter represents the fifth consecutive quarter that LifeStance has met or exceeded expectations across all financial metrics. Second, we are making solid progress on our three strategic investments. We remain on track to launch both our human resource information system and our new credentialing and clinician onboarding system by this summer. For the third initiative, the electronics health record, we completed the initial discovery process where we identified incremental opportunities for improvement with our existing platform. For 2024, we are focused on those improvements and enhancing related processes.
As a result, we will further evaluate our long term EHR solution in 2025. One example of the improvements we are making is a digital patient check-in tool that we believe will enhance the patient, clinician and front office staff experience while reducing our administrative costs. While it is still early, we have seen encouraging results in our initial launch. And third, we become much more strategic when it comes to our payer strategy. In 2023, we terminated roughly 30% of our 440 payer contracts. In 2024, we will continue to evaluate our payer relationships and focus on aligning with payer partners who share our vision of expanding access to mental healthcare. And finally, we continue to remain laser-focused on profitability while making the near-term investments needed for the long-term success of the business.
This was the first time in recent quarters where our revenue grew faster than our adjusted G&A. Going forward, we expect operating leverage and margin expansion to be the norm at LifeStance. This year, we will continue to strengthen our operational processes by streamlining, standardizing and automating end-to-end workflows. While we have made meaningful progress, there is plenty of work remaining to improve our operational and financial performance. Said differently, we have steadied the ship, but we have not yet come close to optimizing the potential of our business. With that, I’ll turn it over to Dave to provide additional commentary on our fourth quarter and full year financial performance, as well as our 2024 guide. Dave?
David Bourdon: Thanks, Ken. Like Ken, I’m pleased with the team’s operational and financial performance in 2023 exceeding our expectations for the full year. In the fourth quarter, we achieved strong top-line results with revenue of $281 million, representing growth of 22% year over year, with outperformance in the quarter driven primarily by positive visit volumes as our clinicians delivered more visits during the holiday season than expected. Visit volumes of 1.8 million increased 20% year over year, primarily driven by organic clinician growth and modest productivity improvements. Total revenue per visit increased by 2% year over year to $157, primarily driven by payer rate increases. For the full year, we delivered revenue of $1.56 billion, up 23% year over year.
Regarding profitability, the better than expected top-line results flowed through to center margin. Center margin of $83 million in quarter increased by 33% year-over-year. Full year center margin of $302 million grew 27% year-over-year. Adjusted EBITDA of $20 million in the quarter was strong and consistent with our expectations. Our fourth quarter adjusted EBITDA increased 99% year-over-year. For the full year, adjusted EBITDA was $59 million, representing 5.6% of revenue. Turning to liquidity. In the fourth quarter, we generated positive free cash flow of $5 million and $17 million in cash from operating activities. These improvements in cash flow were driven by higher collections with DSO improvement of eleven days from 52 in Q3 to 41 in Q4.
Each one of these days represents approximately $3 million in cash. As expected, DSO improved in Q4 as we released claims that we had intentionally held in Q3 due to positive updates from rate negotiations with several large payers. Free cash flow and cash from operating activities were negatively impacted in the quarter due to the shareholder litigation settlement. As disclosed in an 8-k filing earlier this month, we have now fulfilled our obligations related to this settlement, which we discussed in our last earnings call. This included intentionally accelerating into Q4 the final $25 million payment that was due in Q1. For the full year 2023, free cash flow was negative $57 million, which includes shareholder litigation expenses of approximately $50 million.
