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Operator: Good day, everyone, and thank you for standing by. My name is Arji, and I will be your conference operator today. At this time, I would like to welcome everyone to LifeStance Health First Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Monica Prokocki. Please go ahead.

Monica Prokocki: Thank you, operator. Good morning, everyone, and welcome to LifeStance Health’s First Quarter 2025 Earnings Conference Call. I’m Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer; and Ryan McGroarty, Chief Financial Officer. In addition, Ken Burdick, our Executive Chairman, is also with us. 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 Dave Bourdon, CEO of LifeStance.

Dave?

David Bourdon: Thanks, Monica, and thank you all for joining us today. I’m pleased to report a solid quarter to start the year. We exceeded each of our guided metrics and remain confident in delivering on the full year guidance ranges that we previously provided. I’d also like to officially welcome our new Chief Financial Officer, Ryan McGroarty. He’s been onboard for 2 months and has hit the ground running. His deep financial and healthcare expertise will be invaluable as we continue to build on LifeStance’s position as the leader in outpatient mental healthcare. I’d like to briefly address the macro environment in this time of uncertainty for the broader economy as it relates to tariffs and a potential recession. First, as a U.S.-based service business, we are not directly impacted by tariffs.

Second, regarding the impact of a potential recession, we believe that our model is resilient to economic cycles. In fact, depending on what transpires, there are factors which can potentially mitigate headwinds in a challenging environment and could even be a benefit to LifeStance. For example, in a period of economic uncertainty, when individuals experience greater stress and anxiety, they may benefit from mental healthcare and this could result in increased demand for services. In addition, as consumers tighten up on spending, we believe the impact may be disproportionately felt by clinicians and practices that operate in a cash pay environment. Our commercially insured model provides greater stability for clinicians and greater affordability for patients, which could drive both clinician growth and patient demand for LifeStance.

In regard to our long-term view of the industry, we continue to expect increasing demand for mental health services as well as a migration from cash pay to utilizing insurance. LifeStance is well positioned to benefit from both of these trends. Now turning to our quarterly results. We delivered solid performance on multiple fronts. First, double digit adjusted EBITDA margins of 10.4% exceeded our expectations. Additionally, we achieved positive net income for the first quarter in LifeStance’s history as a public company, enhancing our confidence in achieving full year positive net income in 2026. And we generated strong year-over-year improvement in free cash flow, driven by stronger-than-expected earnings and the dedicated efforts of our collections team.

Turning to operational execution. We continue to make progress in the first quarter towards streamlining and standardizing our operations and improving the underlying performance of the business. On the clinician front, our value proposition continues to resonate as our team grew by over 150 in the quarter to more than 7,500 clinicians. We continue to refine our value proposition to better align with clinician preferences and to create a sustainable economic model. We implemented a cash bonus incentive program for clinicians that’s based on quality and productivity. This program, which became effective in May, is better aligned with the feedback from our clinicians and places greater emphasis on quality and access for our patients. In conjunction, we sunset our stock-based clinician incentive program.

As for the patient experience, this is driven by the fantastic work of our clinicians who continue to demonstrate an unparalleled commitment to our patients. I’d like to briefly share an example of this. In the aftermath of the tragic wildfires in Los Angeles County, we saw increased demand for our services and our clinicians ensured that patients were able to quickly access the compassionate quality care for which LifeStance is known. Our LifeStance clinicians create a group therapy program for survivors of the fires and provided hybrid care to patients who had to relocate. The resilience and dedication of our LifeStance team during this crisis truly exemplifies our commitment to patients during the most challenging times in their lives. As for the operational and strategic initiatives, we made progress on several fronts.

For example, we have now completed the rollout of our digital patient check-in tool, which is driving higher patient satisfaction, operational efficiencies and significant improvements in patient collections. Additionally, we continue to advance our focus on clinical excellence. For example, we are working to increase access to additional services like TMS and Spravato for patients with treatment-resistant depression. In addition, to facilitate the comprehensive treatment of our patients, we have implemented an enhanced referral tool and process to improve access to these and other services. Finally, in 2023, we embarked on an EHR discovery process to evaluate options for enhancing our capabilities. We paused in 2024 to prioritize other initiatives, like the digital patient check-in tool and are now picking the EHR initiative back up.

We expect to complete our evaluation this year. In closing, since stepping into the CEO role in March, I have been conducting listening sessions throughout the organization. One thing that has stood out in these sessions has been the immense passion and dedication the team has for our mission. Their tireless commitment, along with their incredible capabilities make me more confident than ever that we have the right ingredients at LifeStance to continue expanding upon our existing leadership in delivering high-quality, affordable mental health services. With that, I’ll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan?

Ryan McGroarty: Thanks, Dave. I’m excited to participate in my first LifeStance earnings call. I joined the company because of its compelling mission, significant growth opportunities and unique market position. Since starting in March, I’ve been very impressed with the talent of the organization, the team’s strong execution, financial discipline and shared passion for our mission. I look forward to building on the track record of recent years of delivering on our commitments and feel that the company is well positioned for long-term success and industry leadership. Now turning to our first quarter performance. We delivered solid top line results with revenue of $333 million, representing growth of 11% year-over-year. The modest outperformance was driven by slightly better-than-expected clinician productivity and total revenue per visit.

Visit volumes of 2.1 million increased 10% year-over-year, driven primarily by clinician growth. On the clinician front, we grew our clinician base by 152 clinicians or 10% year-over-year, bringing our total to 7,535 clinicians. As part of our ongoing standardization efforts, we refined our clinician definition, resulting in a small downward adjustment to clinician count. We have provided the revised figures for each quarter of 2024 in our earnings presentation for comparison purposes. Relative to expectations, clinician productivity came in slightly ahead in the first quarter and was favorable to last year after normalizing for business days. Total revenue per visit increased 1% year-over-year to $159, primarily driven by modest payer rate increases.

This performance, which was slightly ahead of our expectations, includes the absorption of last year’s rate decreases related to a single outlier payer. It also includes the partial impact from the final rate decrease associated with this unique situation, which took effect on March 1st. Turning to profitability. Center margin of $110 million increased 16% year-over-year and was 33% as a percentage of revenue. The outperformance in the quarter was driven by the modest revenue beat as well as slightly lower spend. Adjusted EBITDA of $35 million in the quarter exceeded our expectations, increasing 25% year-over-year. Adjusted EBITDA as a percentage of revenue was 10.4%, making this the second consecutive quarter in which we achieved double digit margins.

The outperformance in the quarter was primarily attributable to favorable center margin and G&A spending. As Dave mentioned, we also achieved another milestone in the first quarter, finishing with net income of $700,000. This is the first quarter in our history as a public company that we achieved positive net income. We view this as a key profitability metric for our business and increases our confidence in delivering positive net income and earnings per share for the full year in 2026. Turning to liquidity. In the first quarter, free cash flow was negative $10 million, which was an improvement of $17 million from the first quarter last year. We exited the quarter with cash of $134 million and net long-term debt of $276 million. We had additional capacity from an undrawn revolver of $100 million.

DSO for the quarter was 38 days and we remain confident in our ability to generate meaningful positive free cash flow for the full year. Our leverage ratios continue to remain strong with net and gross leverage of 1.2x and 2.3x respectively. This represents a significant improvement from the 3.1 net and 3.8x gross leverage in Q1 of last year. We have sufficient financial flexibility to run the business and execute on our strategy, including potential acquisitions. In terms of our outlook for the full year, we are maintaining our guidance ranges of $1.4 billion to $1.44 billion for revenue, $440 million to $464 million for center margin and $130 million to $150 million for adjusted EBITDA. We feel good about the outperformance in the first quarter, but it is still early in the year and there’s a great deal of work in front of us to execute on our commitments.

For the second quarter, we expect revenue of $332 million to $352 million, center margin of $100 million to $114 million and adjusted EBITDA of $28 million to $34 million. As we previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volumes with total revenue per visit being roughly flat. The third and final rate decrease from a single outlier payer became effective in March. We had disclosed that this would result in downward pressure on rates in the first part of 2025. The second quarter is the first full quarter in which we will be absorbing this impact. We believe that sequentially, this will result in lower total revenue per visit as well as lower center and adjusted EBITDA margins as a percentage of revenue.

Consistent with our prior messaging, our guidance contemplates a revenue split of roughly 50-50 in the first and second half of the year with the second half slightly higher. We anticipate that in addition to modest rate improvements from other payers and continued growth in clinicians, we are also focused on better filling existing clinician calendars, which should result in improved productivity. The combination of these 3 drivers will lead to higher revenue in the back half of the year. Similar to revenue, we expect earnings to build in the back half of the year, driven by modest rate improvement along with higher visit and specialty revenue. We continue to expect stock-based compensation of approximately $70 million to $85 million in 2025.

As Dave mentioned, we are sunsetting our stock-based incentive program for clinicians and replacing it with a cash bonus incentive program. The annual grants provided in early 2025 were the last clinician grants for the program. As a result of this change, we expect our stock-based compensation to decrease roughly $10 million per year beginning in 2026 and continuing over the next 4 years as the existing tranches of clinician staff vest. These updates reflect our continued emphasis on profitable growth and disciplined capital deployment. With that, I’ll turn it back to Dave for his closing comments.

David Bourdon: Thanks, Ryan. To summarize, we’ve had a solid start to 2025 and feel well positioned to deliver on our full year commitments with work still to be done. The strength and dedication of the team gives us confidence in meeting these commitments while also setting the organization up for success in 2026 and beyond. Operator, we’ll now take questions.

Operator: [Operator Instructions] Your first question comes from the line of Craig Hettenbach of Morgan Stanley.

Craig Hettenbach: Great. And appreciate the commentary on the macro, Dave, to start. Can you just touch on just the backdrop for clinician recruitment and retention, kind of what you’re seeing in the marketplace and what your expectations are for this year?

David Bourdon: Yes. Thanks for the question. So first of all, from a macro perspective, it remains a very competitive environment for attracting and retaining clinicians. I mean, they have choices. At the same time, the LifeStance value prop continues to resonate and you see that in the continued clinician growth that we’ve been delivering in recent years. So specifically around turnover and retention continues to be stable. This is obviously a big focus for us. It’s been a big focus for the last couple of years. And obviously, we’d like to get retention to a higher level. And we referenced a few things in the call and they’re really driven by listening to our clinicians on the areas where we could improve the value prop for them.

And examples of that are we want to better balance the filling of our existing clinician calendars and the hiring of new clinicians. And then the second is what Ryan talked about is the cash-based quality and productivity program we just implemented. And again, both of those were in response to our clinician feedback.

Craig Hettenbach: Got it. And then just as a follow-up on the total revenue per visit expected — continue to expect to be flattish this year. As you cycle through that one payer rate reduction, can you talk about just the underlying trends at other payers and what your expectation would be kind of heading into next year from a rate perspective?

Ryan McGroarty: This is Ryan. I appreciate the question. So as stated on the call, I’ll do a run-through just in terms of our expectations as it relates to total revenue per visit. Overall, and you kind of hit it that we expect it to be sequentially lower in Q2 over Q1 due to the third and final rate decrease from the single outlier payer. In the back half, we expect rates to grow sequentially, which will be driven by additional rate increases from other payers and also from specialty services. So as you stated as well and we stated on our Q4 call, no changes because we expect TRPV to be roughly flat for the year. And then overall, to your last question, just in terms of what we’re expecting kind of in the future, we expect this is just temporary dislocation. As we cycle through 2026 and beyond, we expect to get back to low- to mid-single digits.

Operator: Your next question comes from the line of Jamie Perse of Goldman Sachs.

Jamie Perse: Dave, maybe I’ll start where you did just on the recession backdrop or potential for a slower growth environment. Can you remind us what your typical out-of-pocket expenses look like and how that compares to other platforms or independent clinicians? And then more broadly, just if you were to face pressure, how would you navigate that type of situation? Would you invest through it? Would you — are there cuts that you would make? Just high level, how would you plan to navigate through that type of environment?

David Bourdon: Yes, Jamie, sure. Appreciate the question. First of all, from an out-of-pocket perspective for the patient, we don’t view that typically as a barrier to care. It’s very comparable to what a patient would pay out-of-pocket at a primary care physician office. So you’re thinking of it as a minimal co-pay coinsurance. So that’s the first thing. In your second question around the economy or potential recession and how we would navigate that, I think the great thing about our model with the hybrid and being in the insurance environment rather than cash pay is that it gives us the flexibility to be able to navigate that environment and respond in a dynamic way. The example, I mentioned on the call is it could actually increase the demand for our services rather than decrease.

It could also result in patients and clinicians migrating from cash pay into the insurance environment, because of the affordability challenges. So again, we would just need to react to depending on what’s happening in the environment, but we feel really good about our model and being able to deal with whatever the economic environment is.

Jamie Perse: Okay. I guess, next on center costs and center costs per visit, they continue to be on a downward trajectory really over the last 7 quarters or so. I think I asked you about this last quarter and you said it was in the rearview mirror and wouldn’t really repeat in ’25. I hear your commentary on the payer update in 2Q and all that. But can you help us think through what’s been driving the leverage you’re getting at the center level, to what extent the underlying drivers would continue even with the payer headwind starting in 2Q? And just help think through fixed and variable costs there and that being a sustainable driver of the profitability improvement you’ve seen?

Ryan McGroarty: Yes, perfect. So this is Ryan again. So I appreciate the question. So just as it relates to center margin, some very similar themes to what Dave went through in the last call, just in terms of that at this point, we’re expecting what is typical a step-up in center costs due to the timing of clinician compensation. So as you think about Q2 as it relates to increases and expect it to carry forward to the remainder of the year. Additionally, and Dave mentioned this and I mentioned in the prepared comments, just in terms of we have put a clinician incentive plan in place as well that’s cash-based. So when you think about the progression of the center margin and you kind of hit this in one of your talk points just in terms of TRPV is going to be relatively flat this year.

So we expect this to put some pressure on center margin for the full year as a percentage of revenue. I mentioned that we expect Q2 to step up and you kind of run that trend through the balance of the year. And then you run the trend, but you get some improvement through the balance of the year. And then you get the improvement as it relates to in the back half of the year, higher rates in specialty services. And then to the other point that you went to is just continued, but to a less degree, operating leverage and center costs. And as I mentioned in the last response, once we get through the rate dynamics this year, we feel good about being able to continue to expand center margins in a meaningful way kind of going forward.

Operator: Your next question comes from the line of Ryan Daniels of William Blair.

Ryan Daniels: Obviously, a lot of progress rolling out different digital initiatives for both your providers and your patients. And I’m curious about the next phase. You mentioned the EHR is kind of back on after being put on the burner for a bit. Can you go into a little bit more detail about what the duration of that rollout might look like, what the cost might be? And then maybe most important, what are some of the key kind of clinical or operational benefits you think you can garner with a new EHR?

David Bourdon: Sure. Ryan, this is Dave. It’s really early days on the EHR. At a macro level, what we’re trying to achieve with that is we’re looking out 3 to 5 years and we need a platform that is going to allow us to continue to improve the clinician experience, the patient experience and generate operational efficiencies. So that’s really what we’re trying to achieve when we think about what we need in the future for the EHR. We’re in the early days of the discovery. So it’s just premature to be commenting on costs. And I think of those as net costs because while you could have an increased cost for the EHR, you’d also have operational efficiencies as well as timing of rollout and impacts and things like that. But we will come back to you as we get further down the path.

Ryan Daniels: Okay. Yes, I appreciate that it’s early. And then on the digital intake platforms, I’m curious you mentioned it’s helping with kind of patient collections. Is that really just credit card on file, so you’re getting co-pays? Is it co-pay at the point of care? Is it insurance verification? It’s probably a little bit of everything. But I’m just curious how big of a benefit that’s been? And then what are some of the key drivers that’s improving collections because of that system?

David Bourdon: Yes. Appreciate the question. In regards to the digital patient check-in tool, as a reminder, we have almost 70% of our visits are virtual today. And prior to the check-in tool, we didn’t have a automated way of collecting patient cost share insurance cards, things like that. So this has been a real game changer for us in regards to not just the collecting of co-pays or coinsurance, but also the necessary information we need to be able to do the billing. So that’s been the focus of one of the benefits of the digital patient check-in tool. You’re seeing that come through in DSO staying at for us as a public company historically low levels of 38 days. So that is a driver of — one of the primary drivers of the better DSO performance.

Operator: Your next question comes from the line of Brian Tanquilut of Jefferies.

Brian Tanquilut: And congrats on the quarter. So maybe my first question, as I think about just the changes that you’re making to the stock comp for clinicians, just curious how you’re thinking about what that does in terms of retention and even recruitment. I mean, obviously, historically, that was viewed as a differentiating factor in the recruitment process. So just curious how you’re thinking about that part?

David Bourdon: Yes, Brian, this is Dave. I’ll take that one. So first of all, it was a differentiator. But at the same time, it wasn’t as appreciated as you would think in regards to our clinicians. And as we talk to them about what they really want from a value proposition, they — what they came back to us with was they wanted it to be a annual cash-based incentive program based on quality and improving access to patients rather than a multiyear stock-based program. And so, that really drove the change that we made. Again, it was just listening to our clinicians and what they want. So we…

Brian Tanquilut: That makes a lot of sense.

David Bourdon: Yes, go ahead.

Brian Tanquilut: Yes. Got you. And then maybe, Dave, my follow-up, as I think about your comments on the macro environment, if we’re thinking that maybe as people get laid off and whatnot and they end up in exchange plans, just curious what your exposure is to exchange plans or if you have contracts with most of the exchange plans in your markets and if that will be one of the levers or the tools to kind of like protect you from the downside in the macro — in a declining macro environment?

David Bourdon: Sure. So first of all, think of it as we have contracts with pretty much every major payer in the country for the markets that we play in. And that would include the various lines of business, of which exchange would be one of those. So we do have coverage from that perspective. At the same time, I’d say, we have limited exposure today to exchange and managed Medicaid. It’s a total of about 5% to 10% of our total revenue.

Operator: Your next question comes from the line of Richard Close of Canaccord Genuity.

Richard Close: Yes, congratulations on the results. In terms of the specialty services, how are you thinking about rolling that out throughout the system? Maybe an update of where you are now? And what are the hurdles to rolling those programs out? And how do you think about the contribution going forward?

David Bourdon: Richard, it’s Dave. Thanks for the question. So first of all, from a specialty services perspective, we’re really excited about it as an opportunity, because it increases the services that we can provide to patients and that will result in improved care for them. We’re focusing primarily on neuropsych testing and treatment-resistant depression services, specifically there would be Spravato and TMS. Now we have these services today, but on a much smaller scale. Think of it as roughly about $50 million of our current revenue. What we’re doing is, is we’re rolling those out to new markets or expanding in the existing markets where we’re doing it today. And I would expect this, as you’re looking out the next 2 to 3 years to grow at a much higher rate than our — the core business. And over the long run, we’ll also have higher margins.

Operator: Your next question comes from the line of Kevin Caliendo of UBS.

Dylan Christopher: And congrats on the quarter. This is Dylan Finley on for Kevin. Just starting off with a housekeeping question. I know you mentioned 70% of visits are virtual today. Just wanted to clarify if that’s stable, any change on a year-over-year sequential basis? And then just confirm that reimbursement is largely the same between these types of visits?

David Bourdon: Yes, Dylan, this is Dave. I’ll take that. So first of all, the exact number for virtual is 71% in the first quarter. That is stable from the fourth quarter of last year, but is lower than the prior year same quarter. So the — it’s been — the in-person has been slowly increasing as a general statement quarter-to-quarter. But again, this first quarter, it was stable. Another thing to point out when we think about virtual versus in-person is that typically, the first appointment for a new patient is at a higher percentage. It’s typically about 8% to 10% higher in-person rate than our overall book of business. So that’s the first part of your question. The second part of your question around reimbursement. We generally have parity language in our contracts and we get reimbursed at the same rate regardless of whether it’s in-person or virtual.

Dylan Christopher: That’s helpful. And then just as a follow-up here, I know there’s no consideration in your guide for M&A, but perhaps just an update on what kind of assets you would consider? Are there any particular states that would be more or less appealing to you from a reimbursement standpoint or from a supply-demand standpoint? Anything around timing or that would be appreciated.

David Bourdon: Yes. This is Dave. I’ll take that one. So in regards to M&A, I mean, the first thing that I’d want to reinforce is that our primary growth driver is organic. I think of M&A as complementary. And we’ve mentioned on previous calls, we’re going to be very disciplined and it’s got to make sense financially. Now specific to the kinds of M&A that we would do, I think of them as 2 buckets. The first is a tuck-in practice. And part of your question, we would be using that from a geographic perspective to enter a market. That could be a city or that could be new states. Now I’m not going to comment on specific metros at this point, but we certainly have opportunities throughout the country. Again, in states we’re already in today, we’re in 33 states, but there are major cities in those states where we don’t have practices as well as there are some states of density that we do not have businesses in today.

So that’s the first bucket. And then the second bucket would be around capabilities. As we look out 3 to 5 years and the kinds of capabilities that we believe we’ll need, digital therapeutics, things like that or specialty services being another example, we will consider doing acquisitions if we feel that would further accelerate our strategy. And again, we’d be disciplined and the math has to work.

Operator: [Operator Instructions] Your next question comes from the line of Steven Dechert of KeyBanc Capital Markets.

Steven Dechert: Could you talk about how the expiration of virtually prescribing Schedule two through five or four controlled substances at the end of this year could benefit LifeStance? And then as a follow-up, with your plan to open 25 to 30 de novos this year, what’s the thought process in deciding where to open these geographically?

David Bourdon: Thanks for the question. This is Dave. Actually, there’s a couple of questions there. So let me hit the first one around the controlled substances. So as you mentioned, there’s the potential that the relaxation from the public health emergency that allowed the prescribing of controlled substances virtually that that may expire at the end of this year. The way we think about that is we actually welcome that change. We believe that that it is clinically best practice for a clinician to at least see a patient that’s getting controlled substances once a year in person. So that — so we welcome this change. Our business model lends itself — because it’s hybrid, it lends itself to pretty — us pretty easily navigating that change.

We are already seeing 70% to 80% of our current patients that are getting controlled substance in person once a year. So it’s not a major lift for us to make this change. And again, we’d welcome it. In regards to the de novo expansion, have you think about these new builds in 2 buckets. So the first is a replacement of an existing center. So as a reminder, we grew through 100 acquisitions and we have a lot of acquired centers that as they come up for renewal, don’t fit us for the purpose that we need for the future for LifeStance. And this just doesn’t fit our model. So as a result, we will replace those old centers or acquired centers with the LifeStance de novo model. So that’s the first bucket. And then the second bucket, which I think more where you were going is from a growth perspective and they could be a couple of flavors.

The first is it could be a new suburb, a new city where we’re establishing a presence, because we believe the ingredients are there from both patient demand as well as our ability to recruit. Or the second is it’s in an existing geography and what we’re doing is evaluating the usage of our existing centers. And as we look out 12, 24 months, we can see that we’re going to start being space-constrained. And so then we’ll add additional new centers.

Operator: That’s all for our Q&A session and we appreciate your participation. I will now turn the call back over to Dave Bourdon, CEO. Please go ahead.

David Bourdon: Thanks, operator. I’d like to thank our 10,000 mission-driven teammates who make sure that our patients get the quality care that they need and deserve. I continue to be inspired by the passion and the resilience that you all bring to work every day. This is a challenging time for many in our country. And in this environment, our services are needed more than ever and we look forward to furthering the positive impact that we can have on the millions of Americans, whose lives can be improved by the mental healthcare services that LifeStance provides. I want to thank you all for your time this morning and your interest in LifeStance. Operator, that will conclude the call.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.