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spk16: Thank you for standing by. My name is Hermione, and I will be your conference operator today. At this time, I would like to welcome everyone to LiveStans Health Second Quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers 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'd like to withdraw your question, press star 1 again. I would now like to turn the call over to Monica Prakatsky.
spk17: Please go ahead.
spk11: Thank you, operator. Good morning, everyone, and welcome
spk13: to LiveStans Health Second Quarter 2024 earnings conference call. I'm Monica Prakatsky, vice president of investor relations. Joining me today are Ken Burdick, chief executive officer, and Dave Borden, chief financial officer. We issued the earnings release and presentation before the market opened this morning. Those are available on the investor relations section of our website, .lifestans.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 filing. Staged remarks contain forward-looking statements, including statements about our financial performance outlook, business model, and strategy. Those statements involve risks, uncertainties, and other factors, as noted in our periodic filings with the SEC that could cause actual results to differ materially. In addition, please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Ken Burdick, CEO of Lifescan. Ken?
spk05: Thanks, Monica. And thank you all for joining us today. We continued to execute on our plan in the second quarter. This is now our seventh consecutive quarter of meeting or exceeding expectations. The team delivered revenue growth of 20%, or $312 million, and adjusted EBITDA of $29 million. Based on the strength of the quarter, we are once again raising our full-year guidance for all financial metrics. Our value proposition and differentiated hybrid model of in-person and virtual care continues to resonate with both our clinicians and patients as we see increasing demand for in-person services. We are now approaching 7,000 employed clinicians, with -over-year growth of 14% and 118 net clinician ads in the quarter. For the past five quarters, this growth has been 100% organic. Additionally, our clinicians continue to provide excellent care to our patients, as reflected in our net promoter score of 86 and average Google reviews across Lifescan centers at 4.6 out of 5 stars. Regarding operational execution, we continue to make progress on initiatives to streamline the business and improve our performance. I'll share three tangible examples with you. First, we are finalizing the rollout of our digital matching tool for booking new patients by phone, improving efficiency and the user experience for our customer care specialists. Second, we continue to roll out our new digital patient check-in tool. We have successfully implemented the first six states and are actively implementing the tool in five additional states. While still in the early stages, we are seeing higher patient satisfaction, operational efficiencies, and improvements in patient collections where this tool has been deployed. Third, the redesign of the operating model was launched on July 1. This represents an investment in improved patient and clinician experience by standardizing the operational model across our 33 states. This includes enhancing the staffing levels of front office support and increasing the dedicated clinical leadership focused on coaching and supporting our clinicians. The quarter is straightforward with solid performance, including stronger than expected pre-cash flow. We expect this cash generation to remain strong for the remainder of the year as we continue to recover from the disruption of the change health care cyber attack. With that, I'll turn it over to Dave to provide additional commentary on our financial performance and outlook.
spk04: Dave? Thanks, Ken. Like Ken, I'm pleased with the team's operational and financial performance in the second quarter. We produced strong top line results with revenue of $312 million, representing growth of 20% year over year. The outperformance was driven by higher total revenue per visit and increased visit volume. Visit volumes of 2 million increased 15% year over year, primarily driven by clinician growth. In the second quarter, we added 118 net clinicians, which met our expectations. This brings our total clinician base to 6,984 clinicians, representing growth of 14% year over year. In addition, similar to last year, we expect our net clinician growth to seasonally step up in the third quarter. With regard to clinician productivity, it was slightly ahead of our expectations in the second quarter. Total revenue per visit increased 4% year over year to $159, primarily driven by pay rate increases. Regarding profitability, the better than expected top line results flowed through to center margin. Center margin of $98 million in the quarter increased by 34% year over year. The year over year improvement was primarily due to higher total revenue per visit and operating leverage in center costs, mainly driven by real estate optimization. Outperformance in the quarter was primarily driven by favorable spending and higher total revenue per visit. Adjusted EBITDA of $29 million in the quarter was strong and outperformed our expectations, increasing 103% year over year. Adjusted EBITDA as a percentage of revenue grew nearly four points year over year to 9.2%. The outperformance in the quarter is attributable to the improvement in center margin. Turning to liquidity, in the second quarter, we generated strong free cash flow of $39 million. We exited the quarter with $87 million in cash and net long term debt of $279 million. We are pleased to have finished the first half of 2024 free cash flow positive. In the third quarter, we will see a cash impact of approximately $18 million from the payment of the 401K match. We remain confident that we will finish the full year with positive free cash flow due to stronger year over year operating results, disciplined capital deployment, and resolution of collection issues with payers. As a result, we continue to have sufficient financial flexibility and have no intention of raising additional debt or equity. DSO improved four days sequentially to 49 days in the quarter. We are continuing to work through the impact from the change health care collections disruption. We still believe this is a timing issue that will be resolved by the end of the year. We continue to see improvement in our leverage ratios with net leverage improving sequentially over 90 basis points to 2.2 times. We are pleased with our current net leverage ratio and expected to continue to improve over the remainder of the year. In terms of our outlook for 2024, we are raising our full year revenue range by $6 million at the midpoint to $1 billion, $200 million to $1 billion, $242 million. We are also raising our full year center margin range by $10 million at the midpoint to $363 to $383 million in the full year adjusted EBITDA range by $2 million at the midpoint to $90 to $100 million. Based on the adjusted EBITDA outperformance in the first half of the year, we are giving ourselves flexibility through the back half of the year to make additional investments to better position us to achieve our 2025 objectives. For the third quarter, we expect revenue of $290 to $310 million, center margin of $83 to $95 million, and adjusted EBITDA of $15 to $21 million. Additionally, we now expect stock-based compensation to land towards the lower end of our originally guided range of approximately $80 to $95 million in 2024, compared with $99 million last year. As compared with our original expectations of opening no more than 20 De Novos in 2024, we now expect to open fewer than 10 by year end. These updates reflect our increased emphasis on profitable growth and disciplined capital deployment. With that, I'll turn it back to Ken for his closing
spk05: remarks. Thanks, Dave. In closing, I'm pleased with the progress made this quarter. We beat and raised on each of our guided financial metrics for the year, delivered another quarter of strong organic revenue growth and operating leverage, and achieved positive free cash flow for the first half of the year. The operational improvements and investments that we've been making in people, processes, and systems over the past two years are starting to give us greater consistency and visibility into the performance of the business, while also improving the experience for patients, clinicians, and team members.
spk01: Operator, we're now ready for questions.
spk14: Thank you.
spk16: The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue, and your first question comes from the line of Craig heading back with Morgan Stanley. Please go ahead.
spk07: Thanks. Ken, can you provide an update on pay rates, what you're seeing at large payers broadly, and then also any anecdotes you can share in instances where you're seeing rate increases, if you can touch on that.
spk05: Cooler. We are very pleased with the results of our payer negotiations. As we've said before, we just put this team in place in the early half of last year, and they are doing a tremendous job. We're trying to build a partnership mindset with our payers so that we're having ongoing conversations, not just about the rates, but also about the administrative terms, about delegated credentialing, and ultimately we hope to have meaningful discussions about value-based arrangements. So there is the one single exception that we spoke about at length last time, and that was a payer that was out of market in terms of the level of reimbursement and had substantial value. Other than that single exception, I would say our payer rates and payer contracting is going quite well.
spk07: Got it, and then just as a follow-up on clinician growth, Dave, you mentioned seasonal strength expected in Q3. Any update on just, I know there's plans you guys are trying to shift the mix more towards full-time clinicians, how that's working out, and what that could mean for capacity into next year.
spk05: Sure, Craig, I'll take that as well. The pipeline for clinician growth continues to be robust. Our value proposition resonates, as we did share last quarter. Second quarter tends to be sort of the low watermark, in part based on when new clinicians are graduating from school. But it continues to be an important component of our growth story, and while we are doing things, as you mentioned, like skewing toward more full-time employment and making sure that we are recruiting clinicians with the license type needed in a specific geographic market, even with that refined approach, as I say, we expect that clinician growth will be an ongoing part. Our recruiting engine is extremely strong, and our team is doing a
spk01: fantastic job. Got it, thanks for that.
spk17: Your next question comes from the line of Lisa Jill with JP Morgan.
spk10: Please go ahead. Okay, good morning. Thank you for the question, and congratulations on the results. I just want to follow up on what you just talked about with the clinician ads, and you talked about the value proposition. Has anything materially changed from a competitive standpoint in the marketplace? I know over the last several years, there were times where things have been slowed because clinicians were looking to be more virtual or working from different locations. Is there anything that's changed from a competitive standpoint, from your perspective, when we think about the clinician market?
spk05: I think there's been, from a competitive standpoint, some movement back toward in-person visits. We saw this quarter about a .5% bump toward in-person versus virtual. And in terms of the competitive environment, obviously there's still a great demand for mental health clinicians, but we will continue to work on both, bringing in the right clinicians through the front door and trying to mitigate the outflow in the back door. And to that point, our retention has stabilized. It's slightly better than where it was last year, but it's not where we want it to be, so we will continue to work on that.
spk10: And where were you in the quarter on virtual versus in-person?
spk05: Oh, let's see. Roughly, I'm gonna say 71% virtual, 29% in-person. And as I say, interestingly, during 23, we saw that kind of quarter over quarter change. And then for about three quarters, it had stabilized. It's only this past quarter that that trend seems to be continuing with about a 1.5 point bump, quarter over quarter.
spk10: That's helpful. And then just as a quick follow-up, Dave, you mentioned investments in the back half of the year. Can you give us an idea of what some of the investments are that you're making for 2025?
spk04: Yeah, good morning, Lisa. It's Dave. So we are giving ourselves some flexibility to make some additional investments in the back half of the year based on the strong performance through the first half. Really, the intent is to position ourselves even better for success in 2025 and beyond. So we're accelerating some things that we would have been doing next year, like for example, accelerating the hiring of some business development, boots on the street, individuals that go and sign up new referral sources for us with a local medical community, those kinds of things. But we're still working through the list. But I would say an emphasis on growth and achieving 2025 targets, as well as non-recurring spend where it makes sure that we're positioning ourselves for success around the delivery of our strategic initiatives and
spk01: things like that.
spk09: Great, thank you very much.
spk17: Your next question comes from the line of Ryan Daniels
spk16: with William Blair. Please go ahead.
spk19: Hey guys, this is Jax. I'm John for Ryan Daniels. Thanks for taking the question. This is similar to Lisa's last question there. But if we look at the midpoint of the third quarter guidance, even the margins look like they're contracting by about 300 basis points sequentially. So is this decrease in margins just largely related to the increased investments you mentioned? Or is there really anything additional to kind of call out on the margins? I'm sorry, it's in the margin contraction, thanks.
spk04: Hey, Jack, it's Dave. I'll take that one. So there's a few things going on in the third quarter. So first of all, I would start with revenue at the midpoint is down approximately $12 million quarter over quarter. And that's driven by two things. Lower visits, as you're aware with our model, we have to get into the vacation season and that impacts productivity as well as introduces a little bit more variability. So you have lower visits in Q3 versus Q2. And the other thing is what we talked about in the last quarter around the calendar performance of the TRPV and then it was gonna step down in the second half of the year. So those two things are driving the $12 million revenue step down quarter over quarter. And I would dimension that for you and roughly half-half, half TRPV, half visits. So you take that combined with the increase in GNA related to investments, then that's how you get to the
spk01: adjusted EBITDA step down quarter over quarter.
spk19: Okay, perfect, thank you. And if I can just ask one more, in your prepared marks, so you mentioned the redesign of the operating model that was launched in early July and it included the enhancing of the staffing levels and front office support. And I think you said too that this was only rolled out to a few states so far. So as we kind of look to the remainder of the year, how should we think about this maybe impacting the cadence of OPEX growth or just maybe the general impact to just operating expenses going forward, thanks.
spk05: Sure, I'll take that one, this is Ken. So we call this our one stance operating model and there were several things that we intended to accomplish and in large part, it was rolled out to call it July one, there will be some phasing but think of this really as a national initiative. So unlike our digital check-in tool where we're sort of going state by state, this one, we felt it was important to do it pretty much within a 60 or 90 day period and had spent more than six months of planning for it. So let me speak to, it is certainly a contributor to increased expenses in the back half of the year versus the first half of the year. But we're excited about it because what we're accomplishing here is a level of standardization across all of our markets so that people have the same job description, there's the same level of staffing, there are standardized processes. In addition, we made a very
spk01: conscious intentional move
spk05: to put more resources in the local market to support both our patients and our clinicians. And we are already starting to see some positive
spk01: impact from that change.
spk19: Okay, great, thank you and congrats again on the quarter.
spk01: Thank you.
spk17: Your next question comes from the line of Kevin Caliendo with UBS, please go ahead.
spk06: Thank you and congrats on the quarter. This is Dylan Finlay on for Kevin. As you guys look at your center footprint today, how do you feel about your relative capacity there to adults, do you think that footprint is something that you'll need to grow on in 2025 as you add jobs? Or do you think you still have a lot of leeway?
spk05: Yeah,
spk04: good morning guys, this is Dave, I'll take that one. So first of all, we feel good about the footprint that we have right now. As you are aware, we did some right sizing of that last year with the consolidation of centers. And as I mentioned in my prepared remarks, we're only gonna add less than 10 de novos this year. So we're pretty stable footprint this year. There is still a lot of capacity in our footprint when you look across the country. There are local geographies where we've been successful with recruiting, as well as have higher in-person patient utilization, those are the areas where we'll continue to need to grow de novos. So I would, again, I would expect that it'll be more of the same next year where we'll have a modest amount of de novo ads while we continue to grow into our footprint.
spk06: Thank you, that's helpful. And then for follow up, you talked to the explanation as to why ebda margin might be depressing a bit in the back half with those discrete investments. As we kind of look towards 2025, knowing that you haven't provided any outlook there, could we still look at that exit rate double digit margin at the end of 25 as achievable or do you think anything's changed maybe with regards to the investments that you wanna put into the business today and keep today?
spk05: Yeah, this is Ken, I wanna jump in on that. It's a really important point. I want to, on behalf of Dave, myself, and the entire organization, emphasize that we are absolutely committed to those three goals that we set last year, one of which was that we would exit 25 at double digit margins, one of which was that we would maintain a mid-teens growth trajectory. And the third was about positive cash flow. At that time, we committed to positive cash flow in 2025 for the full year. As you know from our prior quarter, we have moved that up and we are now committing to positive free cash
spk01: for the full year 2024. Thank you, appreciate it.
spk17: Your next question comes from the line of Brian Tancullet with Jefferies, please go ahead.
spk20: Hey, good morning, it's Jack Levin on for Brian. Congrats on the quarter. Similar question, but it may be asked a little bit differently in regards to the 2025 margins. The color so far has been helpful, I think, on how to think about that back half step down and appreciate the investments. But I guess maybe as we look at it, given some of the moves on the contracts, is the back half the right sort of starting point to bridge toward those 2025 goals, especially the exit rate on margin? And from the current standpoint, how do you think about the building blocks here to get to that margin level? Thanks.
spk01: Yeah, it's Dave, I'll take
spk20: that.
spk04: So
spk01: that half of
spk04: the year, if not for the investments, we just said we would have been round numbers around 7% adjusted EBITDA margin. And that's consistent with our initial guide for 2024. So we're feeling very good about where we're finishing the year from a margin perspective. And if you take a step back and remember, when we talked about 2024 and 2025, we said in 2024, we would see some margin expansion and the midpoint of our guide right now is 220 dips of margin expansion year over year, but that we would see even more margin expansion in 2025, where we're able to realize the benefits of all of the investments that we were making in 2023 and 2024. So we're finishing the year where we wanted to in the multi-year journey to exiting 2025 with double digit margins. If you step into 2025, it's the same building blocks that are getting us the margin expansion in 2024, just a little bit, but more enhanced, especially around operating leverage. So you'll see strong operating leverage in 2025. We'll continue to grow our specialty services, things like neuro psych testing that have the higher margin profiles. And then the third is even with the one outlier payer situation that we've discussed at length, we expect to achieve low single digit increase in TRPV next year. So we'll get some margin expansion from rates as well. So those building blocks will get us to exiting next year with the double digit margin. Again, all basically according to plan
spk01: and what we've laid out for you from a three year journey.
spk20: Got it, appreciate that. Really helpful and congrats again on the quarter. Thanks.
spk17: Your last question comes from the line of Stephanie Davis with Barclays, please go ahead.
spk08: Hey guys, congrats on the quarter and thanks for putting me in the queue. I was hoping to dig a little bit into your ramp and your credentialing platform and just how you're thinking about the timeline and then thinking about credentialing processes. It's often a clinician by clinician blocking and tackling process. Is there any re-credentialing process with a new platform that we should factor in to that timeline?
spk05: So Stephanie, we have certainly made improvements. We're migrating to a new platform. You're right, a lot of our credentialing right now is the re-credentialing of our existing clinician base. And one of the things that we're feeling quite positive about is the continued progress that we've had with our payers persuading them that if they delegate credentialing to us, we can dramatically increase the speed with which our clinicians can come online and see patients. So that has been probably a very positive development that perhaps we haven't spoken enough about. So thanks for the question.
spk08: And a follow-up, the other side of the competitive landscape question. Just we're seeing some of the DTC mental health solutions evolved from where they see for service insurance products. Given that uptick, how are you thinking about your -to-market for patients and maybe how you're advertising to them a little bit
spk05: different, right? Yeah, we have a very, very different model. We spend a de minimis amount of marketing in terms of patient acquisition. We are heavily reliant on the referrals that come from primary care and specialists, and that has served us well. And when we talk about business development, we have a team that's continuing to nurture and expand those relationships with primary care and specialists. And that really is a heart of sort of our mission and vision. We're looking to unify the mind and body treatment, especially of chronic conditions, because we think the kind of value that that's going to bring to the overall healthcare system is enormous. So we do that primarily because it's consistent with our overall strategy, but it does have the benefit of being far less expensive than having to pay significant amounts of
spk01: money for patient acquisition by the ones.
spk14: Awesome, thank you. That
spk17: concludes today's Q&A session. I will now turn the conference
spk16: back over to Ken Burdick, CEO, for closing remarks.
spk05: Thank you, operator. Just a few brief comments. Obviously, Dave and I report the numbers, and this was yet another really solid quarter with a beat and raise. It's our seventh quarter, but we don't lose sight of who's doing the work. And it's the nearly 9,500 employees across LifeStance who are working hard first and foremost to make sure that patients and our clients get the care that they deserve and that they need. But it takes a village. And the entire team is rallying. And I have great confidence and tremendous appreciation for the work that's being done by our associates across the company. So an opportunity to thank them for their great work and a great deal of excitement about the future. And I love being able to put up clean quarters like we've just done this morning. So thank everyone for your interest in LifeStance, for your time this morning. And with that, I hope you have a great day.
spk17: This concludes today's conference call. You may now disconnect.
spk00: It's peoples' turn. You You You You You You You You You You You You You You You You You You You You
spk16: You You You You You You You You You You You You Thank you for standing by. Thank you for joining us. I'm going to start the call over to conference operator today. At this time, I would like to welcome everyone to the second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. 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, press star one again. I would now like to turn the call over to Monica
spk17: Prakotsky. Please go ahead.
spk11: Thank you, operator. Good morning, everyone, and welcome to
spk13: LifeStamps Health's second quarter 2024 earnings conference call. I'm Monica Prakotsky, vice president of investor relations. Joining me today are Ken Burdick, chief executive officer, and Dave Borden, chief financial officer. We issued the earnings release and presentation before the market opened this morning. Those are available on the investor relations section of our website, .lifestamps.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 filing. The data remarks contain forward-looking statements, including statements about our financial performance outlook, business model, and strategy. Those statements involve risks, uncertainties, and other factors, as noted in our periodic filings with the SEC, that could cause actual results to differ materially. In addition, please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Ken Burdick, CEO of LifeGam.
spk05: Ken? Thanks, Monica, and thank you all for joining us today. We continued to execute on our plan in the second quarter. This is now our seventh consecutive quarter of meeting or exceeding expectations. The team delivered revenue growth of 20 percent, or $312 million, and adjusted EBITDA of $29 million. Based on the strength of the quarter, we are once again raising our full-year guidance for all financial metrics. Our value proposition and differentiated hybrid model of in-person and virtual care continues to resonate with both our clinicians and patients as we see increasing demand for in-person services. We are now approaching 7,000 employed clinicians with -over-year growth of 14 percent and 118 net clinician ads in the quarter. For the past five quarters, this growth has been 100 percent organic. Additionally, our clinicians continue to provide excellent care to our patients. As reflected in our net promoter score of 86, we have a total of in average Google reviews across LifeStan centers at 4.6 out of 5 stars. Regarding operational execution, we continue to make progress on initiatives to streamline the business and improve our performance. I'll share three tangible examples with you. First, we are finalizing the rollout of our digital matching tool for booking new patients by phone, improving efficiency and the user experience for our customer care specialist. Second, we continue to roll out our new digital patient check-in tool. We have successfully implemented the first six states and are actively implementing the tool in five additional states. While still in the early stages, we are seeing higher patient satisfaction, operational efficiencies and improvements in patient collections where this tool has been deployed. Third, the redesign of the operating model was launched on July 1st. This represents an investment in improved patient and clinician experience by standardizing the operational model across our 33 states. This includes enhancing the staffing levels of front office support and increasing the dedicated clinical leadership focused on coaching and supporting our clinicians. The quarter is straightforward with solid performance, including stronger than expected pre-cash flow. We expect this cash generation to remain strong for the remainder of the year as we continue to recover from the disruption of the change healthcare cyber attack. With that, I'll turn it over to Dave to provide additional commentary on our financial performance and outlook.
spk04: Dave? Thanks, Ken. Like Ken, I'm pleased with the team's operational and financial performance in the second quarter. We produce strong top-line results with revenue of $312 million, representing growth of 20% -over-year. The outperformance was driven by higher total revenue per visit and increased visit volumes. Visit volumes of 2 million increased 15% -over-year, primarily driven by clinician growth. In the second quarter, we added 118 net clinicians, which met our expectations. This brings our total clinician base to 6,984 clinicians, representing growth of 14% -over-year. In addition, similar to last year, we expect our net clinician growth to seasonally step up in the third quarter. With regard to clinician productivity, it was slightly ahead of our expectations in the second quarter. Total revenue per visit increased by 34% -over-year to $159, primarily driven by pay rate increases. Regarding profitability, the -than-expected top-line results flowed through to center margin. Center margin of $98 million in the quarter increased by 34% -over-year. The -over-year improvement was primarily due to higher total revenue per visit and operating leverage in center costs, mainly driven by real estate optimization. Outperformance in the quarter was primarily driven by favorable spending and higher total revenue per visit. Adjusted EBITDA of $29 million in the quarter was strong and outperformed our expectations, increasing 103% -over-year. Adjusted EBITDA as a percentage of revenue grew nearly 4 points -over-year to 9.2%. The outperformance in the quarter is attributable to the improvement
spk01: in
spk04: center margin. Turning to liquidity, in the second quarter we generated strong free cash flow of $39 million. We exited the quarter with $87 million in cash and net long-term debt of $279 million. We are pleased to have finished the first half of 2024 free cash flow positive. In the third quarter, we will see a cash impact of approximately $18 million from the payment of the 401K match. We remain confident that we will finish the full year with positive free cash flow due to stronger -over-year operating results, disciplined capital deployment, and resolution of collection issues with payers. As a result, we continue to have sufficient financial flexibility and have no intention of raising additional debt or equity. DSO improved four days sequentially to 49 days in the quarter. We are continuing to work through the impact from the change health care collections disruption. We still believe this is a timing issue that will be resolved by the end of the year. We continue to see improvement in our leverage ratios with net leverage improving sequentially over 90 basis points to 2.2 times. We are pleased with our current net leverage ratio and expect it to continue to improve over the remainder of the year. In terms of our outlook for 2024, we are raising our full year revenue range by $6 million at the midpoint to ,000,000 to ,000,000. We are also raising our full year center margin range by $10 million at the midpoint to $363 to $383 million. In the full year adjusted EBITDA range by $2 million at the midpoint to $90 to $100 million. Based on the adjusted EBITDA outperformance in the first half of the year, we are giving ourselves flexibility through the back half of the year to make additional investments to better position us to achieve our 2025 objectives. For the third quarter, we expect revenue of $290 to $310 million, center margin of $83 to $95 million, and adjusted EBITDA of $15 to $21 million. Additionally, we now expect stock-based compensation to land towards the lower end of our originally guided range of approximately $80 to $95 million in 2024, compared with $99 million last year. As compared with our original expectations of opening no more than 20 De Novos in 2024, we now expect to open fewer than 10 by year end. These updates reflect our increased emphasis on profitable growth and disciplined capital deployment. With that, I'll turn it back to Ken for his closing remarks.
spk05: Thanks, Dave. In closing, I'm pleased with the progress we've made this quarter. We beat and raised on each of our guided financial metrics for the year, delivered another quarter of strong organic revenue growth and operating leverage, and achieved positive free cash flow for the first half of the year. The operational improvements and investments that we've been making in people, processes, and systems over the past two years are starting to give us greater consistency and visibility into the performance of the business, while also improving the experience for patients, clinicians, and team members.
spk01: Operator, we're now ready for questions.
spk14: Thank you.
spk16: The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of Craig Head and Back with Morgan Sandeep. Please go ahead.
spk07: Thanks. Ken, can you provide an update on payer rates, what you're seeing at large payers broadly, and then also any anecdotes you can share in instances where you're seeing rate increases, if you can touch on that?
spk05: We are very pleased with the results of our payer negotiations. As we've said before, we just put this team in place in the early half of last year, and they are doing a tremendous job. We're trying to build a partnership mindset with our payers so that we're having ongoing conversations not just about the rates, but also about the administrative terms, about delegated credentialing, and ultimately we hope to have meaningful discussions about value-based arrangements. So there is the one single exception that we spoke about at length last time, and that was a payer that was out of market in terms of the level of reimbursement and had substantial volume. Other than that single exception, I would say our payer rates and payer contracting is going quite well.
spk07: Got it. And then just as a follow-up on clinician growth, Dave, you mentioned seasonal strength expected in Q3. Any update on just, I know there's plans you guys are trying to shift the mix more towards full-time clinicians, how that's working out, and what that could mean for capacity into next year?
spk05: Sure,
spk01: Craig. I'll take
spk05: that as well. The pipeline for clinician growth continues to be robust. Our value proposition resonates as we did share last quarter. Second quarter tends to be sort of a low watermark, in part based on when new clinicians are graduating from school. But it continues to be an important component of our growth story. And while we are doing things, as you mentioned, like skewing toward more full-time employment and making sure that we are recruiting clinicians with the license type needed in a specific geographic market, even with that refined approach, as I say, we expect that clinician growth will be an ongoing part. Our recruiting engine is extremely strong, and our team is doing a fantastic job.
spk01: Got it. Thanks for that.
spk17: Your next question comes from the line of Lisa Jill with JPMorgan.
spk10: Please go ahead. Great. Good morning. Thank you for the question, and congratulations on the results. Ken, I just want to follow up on what you just talked about with the clinician ads, and you talked about the value proposition. Has anything materially changed from a competitive standpoint in the marketplace? I know over the last several years, there were times where things ebbed and flowed because clinicians were looking to be more virtual or working from different locations. Is there anything that's changed from a competitive standpoint from your perspective when we think about the clinician market?
spk05: I think there's been, from a competitive standpoint, some movement back toward in-person visits. We saw this quarter about a .5% bump toward in-person versus virtual. In terms of the competitive environment, obviously, there's still a great demand for mental health clinicians. But we will continue to work on both bringing in the right clinicians through the front door and trying to mitigate the outflow in the back door. To that point, our retention has stabilized. It's slightly better than where it was last year, but it's not where we want it to be, so we will continue to work on that.
spk10: Where were you in the quarter on virtual versus in-person?
spk05: Roughly, I'm going to say 71% virtual, 29% in-person. As I say, interestingly, during 23, we saw that kind of -over-quarter change. Then for about three quarters, it had stabilized. It's only this past quarter that that trend seems to be continuing with about a -half-point bump -over-quarter.
spk10: That's helpful. Then just as a quick follow-up, Dave, you mentioned investments in the back half of the year. Can you give us an idea of what some of the investments are that you're making for 2025?
spk04: Good morning, Lisa. It's Dave. So we are giving ourselves some flexibility to make some additional investments in the back half of the year based on the strong performance through the first half. Really, the intent is to position ourselves even better for success in 2025 and beyond. So we're accelerating some things that we would have been doing next year, like, for example, accelerating the hiring of some business development, like, food on the street, individuals that go and sign up, you know, new referral sources for us with a local medical community. Those kinds of things. But we're still working through the list. But I'd say an emphasis on growth and achieving 2025 targets as well as non-recurring spend where it makes sure that we're positioning ourselves for success around the delivery of our strategic initiatives
spk01: and things like that.
spk09: Thank you very much.
spk17: Your next question comes from the line of Ryan
spk16: Daniels with William Blair. Please go ahead.
spk19: Hey, guys. This is Jax. I'm John for Ryan Daniels. Thanks for taking the question. This is similar to Lisa's last question there. But if we look at the midpoint of the third quarter guidance, even the margins look like they're contracting by about 300 basis points sequentially. So is this decrease in margins just largely related to the increased investments you mentioned? Or is there really anything additional to kind of call out on the margin contraction?
spk04: Thanks. Hey, Jax. It's Dave. I'll take that one. So there's a few things going on in the third quarter. So first of all, I would start with revenue at the midpoint is down approximately $12 million in the last quarter. And that's driven by two things. Lower visits. As you're aware, with our model, we have to get into the vacation season and that impacts productivity as well as introduces a little bit more variability. So you have lower visits in Q3 versus Q2. And the other thing is what we talked about in the last quarter around the calendar performance of the TRPV and then it was going to step down in the second half of the year. So those two things are driving the $12 million revenue step down quarter over quarter. And I would dimension that for you and roughly half-half. Half TRPV, half visits. So you take that combined with the increase in G&A related to investments, then that's how you get to
spk01: the adjusted EBITDA step down quarter over quarter.
spk19: Okay. Perfect. Thank you. And if I can just ask one more. In your prepared marks, too, you mentioned the redesign of the operating model that was launched in early July and it included the enhancing of the staffing levels and front office support. And I think you said, too, that this was only rolled out to a few states so far. So as we kind of look to the remainder of the year, how should we think about this maybe impacting the cadence of OPEX growth or just maybe the general impact, just operating expenses going forward? Thanks.
spk05: Sure. I'll take that one. This is Ken. So we call this our one stance operating model. And there were several things that we intended to accomplish. And in large part, it was rolled out July 1. There will be some phasing. But think of this really as a national initiative. So unlike our digital check-in tool where we're sort of going state by state, this one, we felt it was important to do it pretty much within a 60 or 90 day period and had spent more than six months planning for it. So let me speak to it is certainly a contributor to increased expenses in the back half of the year versus the first half of the year. But we're excited about it because what we're accomplishing here is a level of standardization across all of our markets so that people have the same job description, there's the same level of staffing, there are standardized processes. In addition, we made
spk01: a very conscious intentional move
spk05: to put more resources in the local market to support both our patients and our clinicians. And we are already starting to see some
spk01: positive impact from that change. Okay, great. Thank you and congrats again on the quarter. Thank you.
spk17: Your next question comes from the line of Kevin Cariendo with UBS. Please go ahead.
spk06: Thank you and congrats on the quarter. This is Gil and Leon for Kevin. As you guys look at your center footprint today, how do you feel about your relative capacity there to add dots? Do you think that footprint is something that you'll need to grow on in 2025 as you add dots? Or do you think you still have a lot of leeway?
spk04: Okay, good morning, guys. This is Dave. I'll take that one. So first of all, we feel good about the footprint that we have right now. As you are aware, we did some right sizing of that last year with the consolidation of centers. And as I mentioned in my prepared remarks, we're only going to add less than 10 de novos this year. So we're pretty stable footprint this year. There is still a lot of capacity in our footprint when you look across the country. There are local geographies that where we've been successful with recruiting as well as have higher in person patient utilization where, you know, those are the areas where we'll continue to need to grow de novos. So I would, you know, again, I would expect that it'll be more of the same next year where we'll have a modest amount of de novo ads while we continue to grow into our footprint.
spk06: Thank you. That's helpful. And then just for a follow up, you talked to the explanation as to why even the margin might be depressing a bit in the back half with those discrete investments. As we kind of look towards 2025, knowing that you haven't provided any outlook there, should we still look at that exit rate double digit margin at the end of 25 as achievable? Or do you think anything's changed maybe with regards to the investments that you want to put into the business today and keep today?
spk05: Yeah, I'm going to, this is Ken. I want to jump in on that. It's a really important point. I want to, on behalf of Dave, myself, and the entire organization emphasize that we are absolutely committed to those three goals that we set last year. One of which was that we would exit 2025 at double digit margins. One of which was that we would maintain a mid-teens growth trajectory. And the third was about positive cash flow. At that time, we committed to positive cash flow in 2025 for the full year. As you know from our prior quarter, we have moved that up and we are now committing to positive free cash
spk01: for the full year 2024. Thank you. Appreciate it.
spk17: Your next question comes from the line of Brian Tancullet with Jefferies. Please go ahead.
spk20: Hey, good morning. Jack's Lebanon for Brian. Congrats on the quarter. Similar question, but I'm going to maybe ask it a little bit differently in regards to 2025 margins. The color so far has been helpful I think on how to think about that back half step down and appreciate the investment that we've made. I mean, we've been making But I guess maybe as we look at it, given some of the moves on the contracts, is the back half the right sort of starting point to bridge towards those 2025 goals, especially the exit rate on margin? And from the current standpoint, how do you think about the building blocks here to get to that margin level? Thanks.
spk01: Yeah, it's Dave. I'll take that. So that half
spk04: of the year, if not for the investments, we would have been round numbers around 7% adjusted EBITDA margins. And that's consistent with our initial guide for 2024. So we're feeling very good about where we're finishing the year from a margin perspective. And if you take a step back and remember, when we talked about 2024 and 2025, we said in 2024, we would see some margin expansion. And the midpoint of our guide right now is 220 bips of margin expansion year over year, but that we would see even more margin expansion in 2025 where we're able to realize the benefits of all of the investments that we were making in 2023 and 2024. So we're finishing the year where we wanted to in our multi-year journey to exiting 2025 with double digit margins. If you step into 2025, it's the same building blocks that are getting us the margin expansion in 2024 just a little bit more enhanced, especially around operating leverage. So you'll see strong operating leverage in 2025. We'll continue to grow our specialty services, things like neuro-psych testing that have the higher margin profiles. And then the third is even with the one outlier payer situation that we've discussed at length, we expect to achieve low single digit increase in TRPV next year. So we'll get some margin expansion from rates as well. So those building blocks will get us to exiting next year with the double digit margin. Again, all basically according to plan and what we've
spk01: laid out for you from a three year journey.
spk20: Got it. I appreciate that. Really helpful and congrats again on the
spk01: quarter. Thanks.
spk17: Your last question comes from the line of Stephanie Davis with Barclays. Please go ahead.
spk08: Hey guys. Congrats on the floor and thanks for sending me in the queue. I was hoping to dig a little bit into your ramp and your credentialing platform and just how you're thinking about the timeline and then thinking about credentialing processes. It's often a clinician by clinician blocking and tackling process. Is there any re-credentialing process with a new platform that we should factor into that timeline?
spk05: So Stephanie, we have certainly made improvements. We're migrating to a new platform. You're right. A lot of our credentialing right now is the re-credentialing of our existing clinician base. One of the things that we're feeling quite positive about is the continued progress that we've had with our payers persuading them that if they delegate credentialing to us, we can dramatically increase the speed with which our clinicians can come online and see patients. So that has been probably a very positive development that perhaps we haven't spoken enough about. So thanks for the question.
spk08: And a follow up, the other side of the competitive landscape question. Just we're seeing some of the DTC mental health solutions evolve from where they a super service insurance product. Given that uptick, how are you thinking about your go to market for patients and maybe how you're prioritizing them a little bit
spk05: different. Yeah, we have a very, very different model. We spend a de minimis amount of marketing in terms of patient acquisition. We are heavily reliant on the referrals that come from primary care and specialists. And that has served us well. When we talk about business development, we have a team that's continuing to nurture and expand those relationships with primary care and specialists. And that really is a heart of sort of our mission and vision. We're looking to unify the mind and body treatment, especially of chronic conditions. Because we think the kind of value that that's going to bring to the overall health care system is enormous. So we do that primarily because it's consistent with our overall strategy, but it does have the benefit of being far less expensive than having to pay significant amounts of money
spk01: for patient acquisition by the ones.
spk14: Thank you.
spk17: That concludes today's Q&A session.
spk16: I
spk17: will now turn
spk16: the conference back over to Ken Burdick, CEO for closing remarks.
spk05: Thank you, Operator. Just a few brief comments. Obviously, Dave and I report the numbers, and this was yet another really solid quarter with a beat and raise. It's our seventh quarter, but we don't lose sight of who's doing the work. And it's the nearly 9,500 employees across LifeStance who are working hard, first and foremost, to make sure that patients and our clients get the care that they deserve and that they need. But it takes a village, and the entire team is rallying. And I have great confidence and tremendous appreciation for the work that's being done by our associates across the company. So an opportunity to thank them for their great work and a great deal of excitement about the future. And I love being able to put up clean quarters like we've just done this morning. So thank everyone for your interest in LifeStance, for your time this morning, and with that, I hope you have a great day.
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