LifeStance Health Group, Inc.

Good afternoon, everyone, and welcome to the LifeStands Health second quarter 2021 conference call. The earnings press release and accompanying presentation can be accessed on the investor section on the company's website, as will be the recording of today's call, which will be available for replay. Before sending the call over to management for their prepared remarks, please direct your attention to the disclosure on slide two of the presentation as well as the disclaimers about forward-looking statements, including the earnings press release and SEC filings. Today's remarks contain forward-looking statements, including statements about our 2021 financial performance outlook and exclude the possible future impact of COVID-19 pandemic on our business. Those statements involve risks, uncertainties, and other factors 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 prior and present performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. At this time, I'll turn the call over to Michael Lester, LifeStance Health CEO.

Thank you, Christian, and good afternoon, everyone. Please turn to slide three. Welcome to our inaugural earnings call to discuss our second quarter 2021 results. Before we begin, I want to thank all our 5,000 employees for helping Last Sense Health deliver our first quarter as a public company. Everyone is very proud of what we have built over the past four years and what we have achieved in being able to help people lead healthier, more fulfilling lives by improving access to trusted, affordable, and personalized mental health care. We're excited to have so many shareholders and analysts joining us today after our successful initial public offering. As you can see on slide four, we completed our IPO on June the 10th, offering 46 million shares on the NASDAQ Stock Exchange under the ticker LFST, with an upsized offering price of $18 per share, which resulted in net proceeds of approximately $550 million. Please turn to slide five. I'm joined today by Dhanush Qureshi, our Chief Growth Officer, and Mike Brough, our Chief Financial Officer, who together with other key leaders make up our highly experienced leadership team, a team that has deep knowledge in the healthcare and technology sectors as well as growth execution. Mike Brough will be providing a detailed review of Q2 results in a few minutes, but I wanted to provide some quick highlights on slide six. We delivered on strong growth in the quarter with revenue increasing over 90% year-over-year and adjusted EBITDA growing almost 40%. Our clinician base grew 94% year-over-year and was a key driver of our revenue performance. We ended the second quarter with a cash position of $276 million. Additionally, we also established the LifeStance Health Foundation with an additional endowment of $10 million. I'll touch more on the foundation's activities shortly. Please turn to slide seven. For those investors who may be less familiar with LifeStands, I'd like to provide some background on the company and the market we serve. Since our founding in 2017, our revenue and adjusted EBITDA have grown rapidly, driven by our strong hybrid business model and unique clinician value proposition, increase in demand for mental health care services, and the great care that our clinicians and team members provide to patients. Between 2018 and 2020, we grew revenue and adjusted EBITDA at categories of 94% and 179% respectively, doubling adjusted EBITDA margin rates to over 13% during that time. We also generated revenue of $524 million on a trading 12-month basis ending June 30, 2021. The market we serve is large, fragmented, and growing, and the demand for our services is robust. Today, we estimate that our addressable market is $116 billion, growing to $215 billion by 2025, representing a 14 percent CAGR. We built a platform of nearly 4,000 clinicians across 31 states, representing a formidable first mover advantage. A few other highlights about the company's differentiated approach. First, our platform is a hybrid model. Depending on the patient's needs and preferences, we can provide in-person care in over 450 of our centers nationally, or virtually via our telehealth platform as well as a combination of both. We support a consistent experience across channels with a unique and comprehensive suite of digital capabilities that allow clinicians to track outcomes and adjust treatment plans while freeing up administrative time to focus on patients. Second, we are improving patients' access by delivering services through an in-network, commercially insured model where we're partnered with over 200 commercial payers nationwide. Third, our clinicians are directly employed, not a network of independent contractors. This enables us to build a culture that centers around our clinicians. We have a six-point clinician value proposition which includes a mission-driven culture, a collegial work environment with cross-collaboration, a strong work-life balance, a heavy investment in digital tools, robust support services, and a competitive compensation package. And lastly, we recognize that primary care physician is the first line of help for patients seeking mental health care. It's difficult for patients to find a mental health clinician, let alone one that accepts their insurance and is within their local geography. This has led us to partner with over 2,000 primary care physicians, including co-locating some of our clinicians inside large primary care group practices. LifeStance Health provides the right mental health clinician in the right location with the right insurance platform, enabling greater accessibility to patients in need. In summary, our differentiated hybrid care model offers convenient, affordable, and high-quality care for patients and will continue to support our strong growth. I'm now on slide eight. LifeStance is a mission-driven company. Our mission is to help people lead healthier, more fulfilling lives by improving access to trusted, affordable, and personalized mental health. Turning to slide nine. Beyond being mission-driven, LifeStance is also committed to acting responsibly as a corporation. While the ESG framework is somewhat new to us, having been a private company up until recently, The concept of responsible environmental, social, and governance practices is not. As a healthcare company, the social component is highly relevant and a driver of our purpose. By expanding access to quality mental healthcare, we will deliver results to our investors. Looking at diversity and inclusion, nearly one-third of our board of directors and 50% of our executive leadership team is diverse by gender, race, or ethnicity. Additionally, the majority of our clinicians are female, and nearly a quarter of our employees identify as diverse by race or ethnicity. Our National Diversity, Equity, and Inclusion Committee is chaired by our chief medical officer and is organized with team members across the country in pursuit of our four pillars of DEI, representation, cultural intelligence, equity, and inclusion. Our commitment to diversity, equity, and inclusion supports our clinicians to build a strong therapeutic alliance with patients in addition to contributing to our workplace culture. As it relates to corporate stewardship and social responsibility, we recently established the LifeStance Health Foundation with a $10 million endowment funded by our shares and proceeds from our recent IPO. The foundation focuses on mental health in especially vulnerable populations, youth and adolescents, underrepresented minority communities, and the underemployed and uninsured. As you can see on slide 10, in July the LifeStance Health Foundation announced a partnership with the Mental Health Coalition to end the stigma around mental health conditions and support our shared vision of a truly healthy society. This partnership complements LifeStance's recently announced No Face campaign, which was developed to encourage candid conversations about mental health and reduce the stigma around seeking treatment. People can join the movement to destigmatize mental health by uploading a selfie on Instagram with the hashtag Not One Face. Additionally, after being inspired by multiple athletes bravely sharing their own personal struggles with mental health publicly, The foundation donated $30,000 to the U.S. Olympic and Paralympic Foundation in support of athletes demonstrated that mental health is physical health. I will now turn the call over to Danish to provide more on our growth strategy.

Thanks, Mike, and good afternoon, everyone. I also want to reiterate how proud we are of our over 5,000 mission-driven team members that helped build LifeSense Health over the last four years and who continue to reimagine how to improve access to quality mental health care and deliver on our unique value proposition. Please turn to slide 12, which highlights our growth strategy. Mike laid out our mission and the benefits of our hybrid business model. I'll spend some time in this section discussing our strategy to drive short and long-term sustainable growth. We take a disciplined approach to our strategy underpinned by three core pillars, each with its own ability to drive differentiated growth. The first pillar of our growth strategy continues to be geographic expansion into new markets, both organically and through acquisition. We take a focused approach to identifying attractive new markets based on patient demographics, care concentration, clinician coverage, and the prevalence of high-quality acquisition opportunities. In the second quarter, we expanded into five new states, bringing our total to 31 states with in-person clinics. I'll provide some additional detail on our footprint in a moment on the next slide. The second pillar of our growth strategy is to build out density in existing markets through, first, hiring new clinicians, second, opening de novo centers, and third, additional token acquisitions. As Mike discussed, clinicians are a critical part of our growth. Through our in-house recruiting team and acquisition efforts, which focused on attracting and retaining high quality clinicians, we added 674 clinicians in the second quarter, bringing our total clinician base to nearly 4,000, an increase of 94% year over year. Additionally, during the second quarter, we opened 35 de novos, a single quarter record, bringing our de novo total to 183 centers. Finally, We completed 10 acquisitions, bringing our total to 64 completed since company inception. The third pillar in our growth strategy is to deploy our digital services to reach the entire population of the states we operate in with a focus on speed, efficiency, and scale to profitably serve our clinicians and patients. Our unique hybrid model allows us to utilize digital tools for maximum engagement and efficiency for patients, clinicians, and life stance as an organization. The continued high utilization of our digital tools and our flexibility to deliver patient volume seamlessly between in-person and virtual care is a testament to not only the resilience of our business in the face of external environmental challenges, but also remains a key differentiator for life stance in the marketplace. We're proud of the rapid growth of our company using a very scalable process that is consistent, repeatable, and profitable, and we remain confident in our long-term growth prospects. Not only is our total addressable market expected to grow 14% through 2025, but we're also less than 1% penetrated as measured by both clinicians and patients, providing a long runway of opportunity. On slide 13, we provided a map which details our geographic presence by state. We currently operate in 31 states, cementing our position as the leading national provider of mental health services. Over the near term, we have a goal of expanding into 37 states, and longer term, we have a goal to be in all 50, providing either in-person or virtual care. In closing, let me provide an overview of the current market environment. We continue to experience strong patient demand, and LifeStamps remains the employer of choice for clinicians in our industry, as evidenced by the higher-than-expected growth of our clinician base year to date. In fact, our ongoing recruiting and acquisition momentum is projected to deliver higher-than-expected clinician growth for the full year. This is a testament to the value proposition LifeStamps delivers to our clinicians. However, as the COVID-19 pandemic continues to play out, there's been a recent increase in turnover across industries, and especially within healthcare. LifeStance is not immune to these industry dynamics, and we've experienced an increase in clinicians retiring or leaving for personal reasons. Regardless of these recent, broader industry developments, we expect the benefit of our higher clinician growth to offset the lower retention rates this year. and we remain focused on consistently executing against our core growth strategy to drive disciplined and differentiated growth. We're excited about the immense market opportunity in front of us and look forward to delivering both short and long-term value creations to all of our investors. With that, let me now turn it over to Mike Brock.

Thanks, Danish. As the newest member of the executive team, I'm incredibly proud to serve LifeStance Health, a purpose-driven company committed to expanding access to affordable, high-quality, and personalized mental health care. I'm focused on strengthening our financial operations and building a scalable infrastructure to support the company's growth and ensuring we invest capital strategically to deliver strong returns. Please turn to slide 16. where we have included quarterly trends reflecting our key operating metrics, highlighting our consistent growth over time. Over the past four quarters, clinician count, revenue, and center margin have all approximately doubled. For the second quarter, total revenue was $160.5 million, up 91% year over year, primarily driven by the 94% increase in clinicians achieved through both hiring and acquisitions. Center margin of 51.2 million doubled over the same period last year with margins expanding by 140 basis points to 31.9%, primarily driven by overall clinician growth and continued clinician ramp in the 2020 de novo vintage. Adjusted EBITDA was $14.5 million, up 39% year-over-year. Center margin performance powered the year-over-year dollar increase. However, investments in growth initiatives within our digital, marketing, and business development teams and in public company infrastructure resulted in adjusted EBITDA margin at 9.1% of revenues. down 330 basis points year over year. These ongoing investments will support and sustain our growth priorities and generate operating leverage over time. Moving to slide 17 and our balance sheet. As Mike mentioned, the company received net proceeds of approximately 550 million from our recent IPO. We used $303 million of the proceeds for debt repayment with the remaining proceeds of approximately $247 million retained for general corporate purposes. We used $7 million in operating cash in the six months ended June 30th, including an $8.8 million charge related to the voluntary prepayment of a portion of the outstanding debt. Capital expenditures including de novo center openings, was $31.8 million in the six months ended June 30th. Additionally, we deployed $39.1 million for capital acquisitions over the same period. We ended the quarter with cash and cash equivalents of $276.2 million and long-term debt of $158.7 million with no material payments coming due until 2026. From a capital allocation perspective, we continue to prioritize investing in organic and inorganic growth opportunities to grow share in our fragmented addressable market. Additionally, we will remain disciplined to ensure that we have the flexibility and capacity to be strategic and successfully navigate different business environments. And now turning to our outlook for the remainder of 2021, I'm on slide 18. Given we IPO'd mid-year, and in an effort to help you understand and model our business and performance, we will be providing quarterly and full year guidance for the remainder of 2021. When we announce our fourth quarter and full year results in early 2022, we will outline our formal guidance policy going forward. For the full year 2021, we expect total revenues of 668 million to 678 million. Center margin of 198 million to 208 million. Adjusted EBITDA of 47 million to 53 million. For the third quarter, we expect total revenues of 168 million to 173 million, center margin of 47 million to 52 million, and adjusted EBITDA of 8 million to 11 million. And for the fourth quarter, we expect total revenues of 196 million to 201 million, center margin of 56 million to 61 million, and adjusted EBITDA of 12 million to 15 million. Our outlook takes into consideration the following factors. First, our clinician value proposition remains strong as evidenced by the net addition of nearly 700 clinicians in the quarter, which is above company expectations. And while we are assuming a continuation of lower retention rates for the remainder of the year, our ongoing recruiting and acquisition momentum is expected to deliver a higher than expected clinician base for the full year. However, new clinician additions have lower productivity for the first four to six months and therefore will not immediately offset the impact from higher turnover, a dynamic we expect to negatively impact center margin and adjusted EBITDA by approximately seven to nine million. Second, We are increasing our investments in the back half of the year to support and sustain the higher than expected clinician growth. These investments will primarily focus on continuing to build the regional infrastructure as well as drive business process optimization and are expected to have an estimated impact on adjusted EBITDA of eight to 10 million. Given the growth momentum of our clinician base, we believe these investments are the right approach. We have growth drivers in place to take advantage of the immense market opportunity, and we are confident in our ability to achieve our long-term adjusted EBITDA margin target of 25%. It's important to note that our outlook does not assume any material changes in the current environment as it pertains to the COVID-19 pandemic and its impact on the current labor market conditions. With that, I'll turn it back to Mike for a few words before going to Q&A.

Thanks, Mike. On slide 19, thank you for joining us for our inaugural earnings call and for your interest in LifeStance. It's an exciting time at the company as we emerge from our IPO driven and focused on delivering growth while living our mission to help people lead healthier, more fulfilling lives by improving access to trusted, affordable, and personalized mental health care. We have an energized leadership team and a clear path to capture the large and expanding market opportunity, supported by solid cash generation and a strong acquisition pipeline. At the same time, we're focused on an operational execution to drive efficiencies and profitability. I want to close by once again thanking all LifeStance clinicians, team members, and partners for their support and dedication to our mission and growing our company. We're so fortunate to be on this journey together toward a truly healthier society. Thank you for your commitment to deliver trusted, affordable, and personalized mental health care. With that, let's move to Q&A. Christian?

Thank you, sir. Ladies and gentlemen, if you would like to ask a question this time, simply press star, then the number one key on your touchdown telephone. If you wish to withdraw your question, press the time key. Your first question is from Craig Hennenbach from Morgan Stanley. Your line is open.

Oh, yes, thanks. It's Craig on for Ricky. Appreciate the color on the impact to EBITDA in terms of the clinicians and investments Can you just take a step further on the clinician understanding the low productivity, if there's any other things you can do over time to kind of perhaps offset that or improve it? And then on the investments, maybe just talk through how you've been thinking about this as the year has progressed. Is it incremental growth opportunities are coming in and you're adjusting accordingly, or just how the investment planning has progressed through the years?

Yeah, thanks for the question. Sorry, Ricky couldn't be on the call. We were looking forward to talking to her as well. Maybe if you'll indulge me for a couple minutes here, let me give some expanded commentary around this. Hopefully this will be helpful. In our first quarter, we were in line with our growth expectations from a clinician and revenue perspective. And the second quarter is when we saw an uptick in the clinician growth momentum, and it's also where we saw the increase in turnover. And the turnover is relatively consistent with what was happening in the market. You know, for that quarter, I think it's just worth pointing out that we didn't really have any material impact from a financial perspective. So when we get into... Looking forward into the back half of this year, from a clinician perspective, we've got to remember that when a clinician leaves the company, that clinician has an immediate impact, downward impact on the financial performance as leaving clinicians are typically at full capacity. That gives us downward pressure on both revenue and center margin dollars in both the quarters in the back half of this year. Now, we are much higher than originally expected in terms of clinician growth. but that growth will more gradually offset the turnover as, you know, first with respect to hired clinicians. It typically takes those clinicians four to six months to ramp to that full capacity. And acquired clinicians, it takes about the same period for those clinicians to benefit from rate synergies that LifeSense provides. So that's why you're seeing a greater margin pressure in the third quarter with sequential improvement in the fourth quarter. So that's on kind of the top side of the P&L. And to answer your question around the investments, you know, it's because of this higher than expected clinician base for 2021 that we need to invest now to support and sustain that growth. So think about it in a couple ways. One is we need to be able to process this growth. We need to invest in our intake platform for more patients. We need to invest in clinician credentialing because there are now more clinicians. And we need to invest in billing to accommodate the expected increase in visits. So these investments are directly related to this growth, and we feel very confident that we'll be able to scale this over time, especially as our clinicians ramp. Now that counts for about half of the total investments. The other half, think about these investments as enabling growth, further growth, and driving leverage. So these are investments in digital tools, business process efficiencies, and this ensures that when we grow, we will grow on a solid foundation. And finally, what I call out is our referral channels and the patient need for our services remains robust. So therefore, we are not planning any incremental spend in marketing. I think that's an important distinction. So to sum it up, some of these costs here They are variable, but we believe that the clinician growth will drive considerable leverage as they move to full capacity. And the net here is this clinician growth momentum, we are very confident that it's the right time to invest.

Okay. I appreciate all the color on that. Just as a follow-up, I want to touch on telehealth. Clearly, the traction continues to be quite strong, particularly in mental health. Can you just talk about kind of your technology platform and where you think you differentiate and what type of traction you're seeing on the telehealth side of things?

So from a telehealth perspective, we continue to have the majority of our visits during this period delivered via telehealth. And you see the shift in mix between in-person and telemedicine go up and down in line with the movements in the pandemic. All that being said, You know, we are very committed to this hybrid model, both during the current period and over the long term, because we believe it's what delivers better health care and particularly better mental health care. So allowing that flexibility for patients to choose either in-person visits or visits online or a combination of both week to week is really key and a major differentiator for us against anyone else in the marketplace that is delivering exclusively one channel or the other.

And I would, this is Mike, I would add to that that, you know, because of this flexible hybrid model that we have, we expect no impact on our business, you know, even should the Delta variant, you know, start increasing and we go back to a little bit more of a shutdown than where we've been. Again, remember, we have negotiated rate parity in the vast majority of our contracts pre-COVID, so we're really agnostic as to the point of care.

Understood. Thanks. Your next question is from Ryan Daniels from William Blair. Your line is open.

Hey, Ryan. Hey, good evening. Thanks for taking the questions. I want to stick with the higher physician turnover. Can you go into a bit more detail? That's obviously going to be the clear investor question on what level of turnover you're seeing versus historically maybe the percentage increase, and then how certain are you that's industry versus, you know, not being company-specific, and if you're seeing it all regions or anywhere in specific in the country?

Yeah, so, you know, first off, we really believe that, you know, this increased level of turnover is very clearly tied to COVID and kind of the market dynamics that are going on currently. You know, it's both impacting multiple industries and particularly healthcare, and again, life stance is not immune to those sort of changes. Where we're seeing the uptick in turnover is really clinicians leaving for personal reasons like early retirement, family priorities, lifestyle changes, et cetera. And that, again, is very consistent with what the overall market is seeing. We make sure that we always take clinicians leaving very seriously, so we do exit interviews with every single clinician before they leave to be able to understand really what's going on and are there things that are controllable that we can affect to change those decisions. But ultimately, when we look at this, we believe that this is temporary in nature, and again, it's a point in time with this specific market. We don't want to predict when things will return to normal. Right now, we're just planning in terms of how we look at the rest of the year at it staying steady at its current pace. That being said, despite any of that, we expect that our end-of-year clinician base to be significantly above original expectations, which shows that our recruiting and our acquisition efforts continue to allow us to power through and kind of beat any of those numbers.

Is there anything you guys have considered doing in the near term? Maybe this wouldn't be prudent for the long term to introduce this to the model, but more retention bonuses or any investments in early warning systems internally to try to figure out if a clinician might be going through burnout if they suddenly start lowering their office hours, things like that that could be an early trigger point to help you intervene. Any thoughts on that?

Yeah, so we actually have a lot of those early warning signs or kind of triggers in place already to be able to monitor what's going on in our clinician base, including monthly touch points with all clinicians, so that we're having both a data-driven approach to seeing what's going on with turnover, but more importantly, the personal approach to understand what's going on in every single clinician's life to see what's impacting them. Ultimately, what we continue to hear is that our six-point clinician value proposition remains really strong and is resonating both with the clinicians in our group that are staying as well as continue to attract additional clinicians from the outside through hiring and through the acquisition efforts. So, you know, those sort of systems we have in place. But we'll continue to look at other ways to improve, and ultimately we don't have any concern around the ability to go through this and continue to overachieve on some of these kind of the growth of our clinician base as demonstrated by the numbers we've put up this quarter.

And then the last one, and I'll hop off. I guess the other question would be, frankly, don't you guys have the volumes to kind of more easily ramp new clinicians? I would assume that, you know, there's clearly relationships between a clinician and a patient, but that patient still needs help regardless of if it's the same clinician or not. So can't you kind of backfill that quicker than the four to six months by just taking that patient base and kind of plugging it into telehealth or plugging it into another therapist in the clinic and just say, hey, you know, your clinician retired, we've got another great clinician here, or are your clinicians, you know, the run rate base kind of at max capacity and the newer guys not ready to step up to that level so quickly? What's the delta rate?

Yeah, there's natural ramp no matter what. So, you know, the company since inception has always had patient demand that exceeds clinician supply. So that dynamic hasn't changed. But what you see with new clinicians is that when they're coming on board and they are establishing relationships with their patient base, even if those were patients that were previously being seen by another LifeSense Health clinician, the visit times are longer, right? So follow-up visits are shorter, quicker. Initial visits are longer and take more time. And so there's a natural ramp that has to happen as new clinicians get onboarded. In addition, there's a national ramp as credentialing plays out for new clinicians and we get them on panel with different payers in their region. So I would argue that the four- to six-month ramp is really best in class and better than what I would assume kind of the market average is.

Okay, that actually makes a lot of sense, and that's helpful comment, though, that clarifies it. All right, thank you, guys.

Your next question is from Lisa Gill from JP Morgan. Your line is open.

Hi, great, thanks very much. Just one last question around the clinicians, and then I do have a second follow-up. But when we think about the clinician impact of lower retention, you talked about that, and higher clinician growth, You didn't really talk, though, about compensation in the marketplace. So we know that there's a lot of competition in the marketplace right now. There's been a number of articles that have been written around that as mental health continues to grow and be so important. Can you maybe just discuss if there's anything in your EBITDA assumptions around paying clinicians higher rates than what you've seen historically? What would be my first question?

Yeah, so we don't expect any unusual wage inflation going on in our clinician base. I mean, regular course of business is for us to be able to monitor compensation by region and actually down to the MSA to make sure that we're always competitive. And so, again, we haven't witnessed any material change across the board that we would need to revise our planning expectations. And, you know, anytime we do see wage increases, we're also simultaneously seeing pay rate increases. So, again, that's why we don't have any changes in our kind of guidance around wage inflation that is different than our previous planning expectations.

Okay, that's helpful. And then... Secondly, you know, one of the things you called out was COVID-19, right, and that could there potentially be an incremental impact as we think about the back half of the year, the Delta variant. Obviously, you're in a good position with the parity and ability to move to virtual healthcare, but is there anything on the either positive or negative side that you can see as we continue to see growth in COVID and the Delta variant?

You know, we think that, you know, when COVID first started, this is Mike, when COVID first started, you know, I think we did a really good job of somewhat of a seamless transition between the delivery mediums of in-person care versus virtual. And I would also say that we continue to see an increase in demand from patients. You know, patient volume continues to tick up. I think some of that might be related to COVID. It's also a lot more related to the destigmatization of mental health care in general, I think. In the peak of the pandemic, you know, we were seeing 90-plus percent virtual care. We've seen that tick down over the first six months of this year. We're about 83 percent now. I could see it, depending on what happens with Delta, I could see it slightly ticking back up a little bit. But, again, we're agnostic, so we really don't care.

I agree.

I agree.

One other thing I'd add there as a point is, you know, because of our hybrid model and our ability to be so seamless and flexing from in-person to telemedicine, that allows us to avoid the whiplash that other single-channel groups may be experiencing as you have the ups and downs of the pandemic. We just power through it with no effect on the business, and it's the beauty of the model.

Okay, great. Thank you.

Your next question is from . Your line is open.

Thank you. Good afternoon, everyone. I want to come back to the same line of questioning on the clinicians and just make sure we're hearing you correctly. On the seven to nine million, is that value that you expect to recover as those new clinicians come on and ramp to capacity? So is it maybe stated another way, more of a second half phenomenon, which is why we're seeing it in the guidance, not really a multi-year reduction in the overall productivity assumptions?

Well, thanks for the question and welcome to our first call. Yeah, look, we are struggling to really take this out beyond 2021 right now because the increase in turnover that we saw midway through the second quarter I can only project out through this year the data that I have in front of me, and the data that we have in front of us. I don't know if it's going to continue beyond this year, or if it's going to be shorter than the projection that we have right now, which is through the end of this year, because as Dhanush mentioned, this is market driven. You know, our exit interviews are right in line with the market where we've seen an uptick. We haven't seen an uptick in anything related to life sands. So I don't know. how long this level of retention rate will continue. So we're only projecting out through the end of the year. And yes, it does have a different impact in the third quarter than it does in the fourth quarter because the downward pressure is relatively the same in both. But the upward momentum is driven by the significant increase in clinicians And as they ramp, there's going to be more contribution from those clinicians in the fourth quarter. You know, I think it's safe to say that we would continue to see that momentum carry beyond this year, you know, all other things being equal. But I just don't want to get out over my skis into 2022 yet.

Okay, that's fair. That's very helpful. And then I have the same question on the investment spend step up. Just curious if some of that investment spend would have been spending we would have seen in 22 or 23 that based on the growth and the momentum in the business you're pulling ahead, or is this incremental to the multi-year investment structure that you had in place?

That's a great question. You know, here's the way that I would phrase this. You know, as we expect the clinician growth momentum to carry forward into next year, so too will the infrastructure needed to support that higher base. So that said, we fully expect this expense level at this higher rate. We didn't expect to be at this level of clinician growth until sometime next year, which, yes, that expense is being pulled forward to some extent, but that also means that we're going to be at a higher clinician base next year and we're going to have to invest to support that base. So, you know, it's It's kind of hard to say, you know, was it baked in next year and not going to materialize. I think we're just on a different ramp of clinician growth, and therefore we need to catch up with our investments to support that growth. So I would expect these investments to carry forward into next year. But what I'd also say is that, you know, we're not just investing in variable growth. Yes, we are investing in intake and clinician credentialing and in billing. but we're also investing in business operations, operational excellence activities, and digital tools, which will help us be much more efficient and drive leverage out of these investments over time. So that's also a purposeful investment in our base to ensure that we've got a very strong foundation as we enter into this new vector of growth.

Thank you very much. Very helpful.

Your last question is from Jamie Piercy from Goldman Sachs. Your line is open.

Hey, good afternoon, guys. Welcome to the public markets. I wanted to ask another question on the clinician piece. You added roughly 675, all this talk about churn. That clearly implies that the gross ads was even better. And so I wanted to tease apart that. First, can you talk about how much came from acquisitions that 10 acquired and practices that you acquired during the quarter versus organic hiring? And then second, I'd love if you could tease out where you're seeing strength across psychiatry, psychology, and APN.

Yeah, so from a kind of mix of where the clinician growth has come from, on both the organic hiring and on the acquisition side, we have overachieved on the original targets. When you look at it on balance, it's right now majority weighted towards organically hired versus acquired. But again, on both, we have not only kind of hit our original targets, but exceeded. So feel good about them both being a continued driver of ads to our clinician base, both in the near term and over the long term. In terms of the breakdown of provider type, it remains consistent with what you know, the overall practice group has always been, and there hasn't really been any material shift towards a therapist or a psychiatrist. It's been about the same ratio of, you know, about a third on the psychiatric side, about two-thirds on the therapy side.

And the other part, Jimmy, maybe, yeah, sorry, I was just going to react to, you know, the increase in clinicians relative to the net impact on our guidance with the lower retention rate. The short answer is yes. This inflection in clinician growth is giving us significant opportunity on the top line It's unfortunate that we live in these COVID times. It's unfortunate that we have the variability out there. The good news for us is our model hasn't changed. Our model is exactly the same today as it was last year and the year before. Our value proposition for clinicians is exactly the same today. In spite of, you know, this increase in turnover in the market, which is impacting us, we're still able to grow our net clinician base significantly over what our expectation was this quarter. And we believe that will continue through the end of this year, even at, and again, I don't have any data in front of me that says otherwise. So we've modeled in that lower retention rate as well as this higher clinician growth. So, you know, I'll let you determine whether or not you want to, you know, forecast whether or not retention levels are going to change. But for us right now, we're just going to be pretty pragmatic about the data that we see in front of us.

Okay, great. Great comments. One on just the center-level margins, a nice step up from 1Q. I think your just rough math is you're at about eight clinicians per center. I think capacity there is closer to 12. Can you just talk about the margin impact as you fill these centers up and, you know, get closer to that 12 capacity number, the impact that would have on margins, center-level margins?

Well, I mean, it's, you know, clinician ramp is a key component of of the center margin rate, for sure. Clinicians ramp to maturity over a 12 month period. Our de novo centers, we build them to have, on average, 12 offices for clinicians. And that model, you know, the unit-level economics there haven't changed from what we have communicated before, which is, you know, when we get to that 18-month timeframe, we're earning about two times the invested capital at that point. And every quarter going forward, we're at that level. So, you know, taking that model, which is, as Dhanush said, it's very predictable and it's very repeatable. You know, these 700 clinicians are going right into that model if they're being hired. Now, if they're being acquired, you know, they're going through a different four- to six-month initial period, which is really... Okay, I apologize to everybody who was on the call. Apparently, we had some technical difficulties. And we will, I think the last call that was being addressed, or the last question that was being addressed was, in fact, the last question. So with that, that will conclude LifeStance Health's second quarter 2021 earnings call. Thank you for joining.

Ladies and gentlemen, this does conclude the Q&A and training call. Thank you for participating, and have a great day. You may now disconnect.