5/10/2023
From a planning perspective, we continue to expect consistent performance throughout the remainder of the year. That being said, for us, our focus is making sure that we have a phenomenal clinician experience, not just in how we attract our clinicians here, but how we deliver on that value proposition once they are here. That includes things like we've spoken about before. around frontline support in our administrative staff, additional attention on billing and the service that we're providing, not just to our clinicians, but to the patients and how they interact with our teams, et cetera. So, you know, a lot to still do there, but, you know, we feel good at where we're at today.
Has there been any change to the mix with in-person versus remote, just even in the last three months or six months. I know it was always a little bit higher than what was originally anticipated, and I'm wondering if it's just going to, the anticipation just maintains that level going forward. I think it was 75%, if I'm not mistaken.
Yeah, we continue to see a slow return to in-person as far as our overall mix. In Q1, it was 75% virtual, 25% in-person. That was about a two- to three-point shift back towards in-person versus the previous quarter, and that's been approximately the rate that we've seen it returning to in-person every quarter. So, you know, we fully expect that that trend will continue to We have seen patient demand for in-person increase, as well as, again, our clinicians returning more in-person over time.
Thanks, Ben.
Our next question comes from the line of Jamie Purge from Goldman Sachs. Jamie, please go ahead.
Hey, thank you. Good morning. question first on the center level margin. It seems like margin progression there has been a bit faster than expected. Can you just remind us the initiatives you have in place this year? I think there's some around real estate. How much of those are already starting to come through in the first quarter performance versus still ahead of us in the remaining portion of the year?
Yeah, good morning. Good morning, James. This is Dave. The center margin performance in the first quarter, I would think of being largely driven by the revenue beat and just getting some additional scale benefit. And we do expect center margins to improve modestly throughout the year. And certainly, the benefit of the real estate consolidation helps. Just to size that for you, we expect about roughly a million dollars of benefit from the real estate consolidation this year and about a $2 million run rate of those savings in the next year.
Okay, thanks. That's helpful. And then you guys mentioned the expiry of the public health emergency and the changes you're making or preparations you're making for that. Can you tie that to the broader landscape, if you think, the expiration of the public health emergency changes anything competitively, even in the short term in terms of where clinicians end up or just more broadly how you're thinking about any competitive changes from that? Thanks.
Yeah, this is Ken. I'll take that. So very recently there was an announcement that there's going to be some flexibility and essentially about a six-month extension of the PHE or public health emergency program accommodations. So I'll speak to the longer term. I think in the longer term, there's clearly an advantage of having a hybrid model that offers both patients and clinicians the choice and the flexibility of either a in-person visit or remote visit. So as it relates to patients that are receiving these controlled substances, On a go-forward basis, once the extension has expired, there's no choice, but they will have to visit with a clinician prescribing one of these controlled substances in person.
Hello, Jamie, are you still there?
Yeah, that was it for me. Thank you for the question.
Our next question comes from the line of Brian from Jefferies.
Brian, please go ahead.
Hey, good morning, guys. Congrats on the quarter. I guess just a couple of quick questions. As I think about payer rate improvement, how much runway do you guys see to drive that going forward?
Well, we think that there's a great deal of runway.
It's not going to be sort of a flip the switch, but as we continue to demonstrate the value of the services that our clinicians provide and with the increased understanding of the importance of mental health integrated with physical health, we think it's absolutely critical that the reimbursement follows the the value that's that's being being created now in the short term we are able to provide some limited data in terms of what the value means in terms of quality of life and absenteeism etc and Some of those pilots that we've referenced we hope will build a database that is statistically valid that can demonstrate a true reduction in inpatient visits and emergency room visits and total cost of care. But as I said right at the outset of the Q&A, we are still a ways away from that. But that's the goal. That's the intent, that we can demonstrate that there are meaningful improvements, obviously, in the quality of life, but it's also a more efficient way to utilize healthcare resources.
Gotcha. No, that makes sense. And then maybe, Dave, just a quick question. I don't know if I dismissed this, but in your revenue guidance, Ray, How much of that on the clinician ads, how much of that was from the addition of acquired clinicians versus just organic?
We didn't parse that out, Brian, but think of the clinician ads being roughly 80% organic, 20% from acquisition in the first quarter.
All right, got it. Awesome. Thank you, guys.
There are no further questions at this time. I turn the call back over to our presenters.
Well, I want to thank you for the questions, and I'd be remiss if I didn't take this opportunity to say that we really appreciate the tremendous work that's being done by the 8,000 employees across LifeStance. Danish and Dave and I have the privilege of being able to report these results, but they're created by the hard work, the collaboration, and the passion that these 8,000 individuals demonstrate each and every day. So my opportunity on behalf of Dave Donish and the executive leadership team to thank each and every one of them.
And that will conclude our call for this quarter.
This concludes today's conference call. You may now disconnect. Thank you. you Thank you. Thank you. Thank you. music music
Good day and welcome to the first quarter 2023 earnings call. 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 during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Monica Prokofsky to begin the conference. Monica, over to you.
Good morning, everyone, and welcome to LifeStance Health's first quarter 2023 earnings conference call. I'm Monica Prokofsky, Vice President of Investor Relations. Joining me today are Ken Burdick, Chief Executive Officer, Dave Borden, 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.livestance.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? Thanks, Monica, and thank you all for joining us today. We are in the early innings of executing on our strategy, and we are making progress on improving operational performance. While we focus on operational improvement, we also continue to grow our clinician base, now approaching 6,000 W2-employed clinicians who deliver on LifeStance's mission to provide access to trusted, affordable, and personalized mental health care. Our hybrid model provides tremendous flexibility to our patients and clinicians, and uniquely positions us to respond to changes in the industry. For example, with the Public Health Emergency, or PHE, ending tomorrow, May 11th, we are pleased to share that we've been preparing for this for months now, as we knew the PHE would eventually sunset. Our psychiatric clinicians have been working with our practice operations staff to ensure that all appropriate patients being prescribed a controlled substance are scheduled for an in-person visit. May is also Mental Health Awareness Month. To promote the importance of mental health, LifeStance launched our newest iteration of our Not One Face marketing campaign with a focus on real people sharing their experiences with anxiety. As leaders in the mental health care space, we have learned that mental health is non-discriminating. Mental health conditions may be associated with stereotypical images, but the truth is these conditions have no one face. There are literally tens of millions of faces. Reimagining mental health to help people lead healthier, more fulfilling lives is at the heart of everything we do here at LifeStance. As we've previously stated, we are committed to partnerships that support our vision of a truly healthy society where mental and physical health care are unified. In alignment with this vision, we are excited to announce that LifeStance has partnered with Genev, a unified women's healthcare subsidiary that utilizes a team of doctors and dieticians in all 50 states to offer a personalized care plan for women in menopause. Genev providers will work closely with LifeStance clinicians as a collaborative care team to provide comprehensive treatment
that takes a whole person approach to menopause.
Regarding operational execution, we're making progress on improving our performance. For example, we are following through on the real estate optimization strategy that we announced on our last earnings call. We remain on track to consolidate 30 to 40 centers and have detailed operational plans in place to do so with little or no disruption to our patients and clinicians. To date, we have streamlined our physical footprint with the consolidation of over 20 centers. We are also making progress on reducing administrative complexity by terminating our lower volume payer contracts. Consistent with the plan we discussed previously, we are in the process of sending termination notifications for approximately 140 payer contracts, with nearly half of the notifications sent earlier this month. This represents approximately 30% of our total payer contracts, slightly greater than the initial 25% target. Terminating these contracts will have an immaterial impact on visit volume, but will have a material impact on efficiency for our credentialing, intake, and revenue cycle management teams. Finally, we launched three strategic initiatives to build enterprise-level scalable infrastructure over the next few years. On this front, we have signed agreements with two vendors. One will implement a human resource information system, long overdue for a company with 8,000 employees. And the other will implement a technology platform that improves our credentialing and clinical onboarding processes. We have also begun an EHR discovery initiative with the goal of evaluating a range of options by the end of this year. Turning to our financial results in the first quarter, we produced revenue of $253 million, center margin of $70 million, adjusted EBITDA of $10 million, all of which exceeded our expectations. Although it is still early, we are encouraged by the first quarter results. Dave will provide more color on the outlook shortly, but we believe that our first quarter performance sets us up well for achieving our full year commitments. In closing, I remain confident about the tremendous opportunity in front of us. In the near term, I am proud of the team for remaining laser focused on our key objectives for 2023. I believe that we are taking the right actions to streamline and improve the operations of our business, to position LifeStance for long-term profitable and sustainable growth. While pleased with the progress we have made thus far, my team and I fully recognize that we still have a great deal of work to do. With that, I will turn it over to Dave to provide additional commentary on our financial performance and outlook. Dave?
Thank you, Ken. I would like to echo Ken's comments regarding the team's solid performance so far this year, both operationally and in our financial results. In the first quarter, we produced strong top-line results with revenue of $253 million, representing growth of 24% year over year. This outperformance was primarily driven by higher-than-expected clinician productivity. Visit volumes of 1,665,000 increased 20% year-over-year, primarily driven by higher net clinician count. Total revenue per visit increased 4% year-over-year to $152, primarily driven by payer rate improvements. the outperformance on revenue flowed through to center margin. Center margin of $70 million in the quarter increased by 28% year-over-year.
Adjusted EBITDA of $10 million was slightly above our expectations.
Turning to liquidity, in the first quarter, free cash flow was negative $16 million, a $9 million improvement year-over-year. and cash from operating activities was negative $8 million. Both were in line with our expectations. As we stated previously, cash flow in the first quarter was impacted by one, compensation costs such as higher payroll taxes and bonus payments, and two, temporarily higher DSO driven by an increase in patient responsibility as deductibles reset every year in January.
In the first quarter, DSO increased by two days sequentially to 42 days, in line with our expectations. We exited the quarter with cash of $68 million and net long-term debt of $225 million.
As of the end of Q1, we had additional debt capacity from a delayed draw term loan of $66 million, as well as a $50 million revolving debt facility, providing us with sufficient financial flexibility to run the business until we get to positive free cash flow in 2025. In terms of our outlook for 2023, we are raising the lower end and narrowing our full year revenue range to $990 million to $1,020,000,000. and raising the lower end and narrowing our full year center margin range to $274 to $290 million. We are reiterating our adjusted EBITDA guidance range of $50 to $62 million. While we are encouraged by early signs that the operational improvements we have been making to strengthen our performance are bearing fruit, we believe it's still too early to revise our assumptions for the remainder of the year. As a result, we are reflecting the higher Q1 revenue in our full-year guidance, but we believe that it is prudent to maintain our original assumptions for Q2 through Q4 until we have more evidence to support that higher productivity will persist, especially during the summer vacation season. For the second quarter, We expect revenue of $250 to $260 million, center margin of $69 to $76 million, and adjusted EBITDA of $10 to $16 million.