LifeStance Health Group, Inc.

Ladies and gentlemen, welcome to the LifeSense Health fourth quarter 2022 earnings call. Please note 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. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. At this time, I will turn the conference over to Monica Prokocki. VP of Investor Relations, you may begin.

Thank you. Good morning, everyone, and welcome to LifeSense Health's fourth quarter 2022 earnings conference call. I'm Monica Prokoczki, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer, Dave Borden, Chief Financial Officer, and Danish Koreshi, 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 prior 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 prior year comparative period. At this time, I'll turn the call over to Ken Burdick, CEO of LifeStamps. Ken?

Good morning. and thank you for joining us today. I would like to start by highlighting the tremendous opportunity ahead. LifeStance is leveraging our nationwide, market-leading outpatient platform of over 5,600 clinicians with the mission of increasing access to trusted, affordable, and personalized mental health care. Our diverse mix of clinicians offers a multidisciplinary approach that allows us to treat all types of mental health diagnoses through our hybrid model of virtual and in-person care. We remain focused on reinforcing the strategic advantages offered by our hybrid model, which gives both our providers and patients highly desired flexibility. Importantly, as the Public Health Emergency, or PHE, ends in May of this year, we are well-positioned to support patients by compliantly providing care both virtually and in our centers. We are continuing to expand access to affordable, high-quality care by providing mental health services through in-network commercial reimbursement. In 2022, our clinicians treated over 680,000 unique patients with approximately 5.7 million visits. Through the company's early years of tremendous growth, we've been in an all-out sprint. Now, we're focused on building scalable processes and systems, not only to support the level of growth we've already attained, but to prepare LifeStance for the huge opportunity in front of us. As previously shared, we are committed to enhancing our operational performance and sustainable growth. To that end, we continue to focus on execution, the blocking and tackling required to operate a growing business at scale. In our last earnings call, I highlighted several areas that will receive greater emphasis at LifeStance going forward. First, we will focus on long-term profitability, capital discipline, and generating free cash flow. For example, to improve our operating leverage and cash generation, we are in the process of evaluating LifeStance's over 600 physical centers to optimize our real estate spend. We expect to further moderate de novo growth and consolidate approximately 30 to 40 offices with minimal to no disruption to our clinicians or patients due to the close proximity of some of our offices. Second, We will make strategic investments in enterprise-level scalable infrastructure over the next few years, beginning this year. As a reminder, when we refer to scalable infrastructure, we mean strengthening our underlying platform through end-to-end process optimization, standardization, and automation to reduce manual processes. Third, As we focus on simplifying administrative complexity, our payer strategy will become more selective. As a reminder, the bottom 50% of our payer contracts represent less than 6% of our visit volume. By the end of this year, our goal is to reduce our number of payer contracts by approximately 25%. This will reduce administrative burden while allowing us to better align with payer partners who share and invest in our vision and mission of expanding access to high quality, affordable mental health care. Fourth, we continue to shift toward organic growth versus acquired growth. In 2022, over 80% of our gross clinician ads were hired rather than acquired. Acquisitions were absolutely crucial to building scale and life stances early years. But with a broad footprint now in place across 34 states, we are hyper-focused on the organic growth opportunity in this massive market. Finally, I'd like to highlight an encouraging data point that reflects initial progress in strengthening our operational performance. In the fourth quarter, we saw benefits to our free cash flow as a direct result of the investments we made in our revenue cycle management process. The eight-day improvement in Days Sales Outstanding, or DSO, brought this quarter's DSO to 40 days, down from last quarter's 48 days.