Good day, and welcome to the LifeStance Health First Quarter 2022 Earnings Call. At this time, all participants are in listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star, then one on your touchtone telephone. We ask that you please limit yourself to one question and a follow-up. If anyone should require assistance during the call, please press Star then zero to reach an operator. As a reminder, this call may be recorded. I would now like to turn the call over to Monica Prokocki, Vice President, Investor Relations. You may begin.
Thank you. Good afternoon, everyone, and welcome to LifeStance Health First Quarter 2022 Earnings Conference Call. I'm Monica Prokocki, Vice President of Investor Relations. Joining me today are Mike Lester, Chief Executive Officer, Mike Bruff, Chief Financial Officer, and Danish Qureshi, Chief Growth Officer. We issued the earnings release and presentation after the market closed today. 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.
Those statements involve risks, uncertainties and other factors, including the possible future impact of the COVID-19 pandemic on our business 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 direct comparable GAAP measure is included in the earnings press release table 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 Mike Lester, CEO of LifeStance. Mike.
Thank you, Monica, and thanks to all of you for joining us today. To begin, I would like to emphasize the importance of our mission of improving access to trusted, affordable, and personalized mental health care. As you may know, May is Mental Health Awareness Month, the time when we as a country raise the awareness about the importance of our society's mental health. Now and always, LifeStance is committed to helping people lead healthier, more fulfilling lives as the country's largest outpatient provider of in-person and virtual mental health care. Turning to results. We are pleased with the team's disciplined execution of our strategy, which drove solid performance in the first quarter, even through the recent pandemic surge and ongoing labor market dynamics. We continue to see strong demand for our services and consistent execution by the team, which was reflected in our results.
Revenue for the first quarter was $203 million, representing growth of 42%, and Adjusted EBITDA was positive $12 million. As we've noted previously, revenue growth is primarily driven by our total clinician count. In the first quarter, we grew our net clinician base to 4,989, representing growth of 51% compared with the prior year and in line with our expectations. We believe that our first quarter performance positions us well for the balance of the year. As a result, we are reaffirming full year guidance for revenue in the range of $865 million-885 million, Center Margin of $240 million-255 million, and positive Adjusted EBITDA in the range of $63 million-67 million.
Mike Bruff will provide additional detail about our financial performance in his section of our prepared remarks. Before turning to execution, I would like to remind everyone about what differentiates LifeStance's business model from pure play telehealth companies in the market. Compared with virtual healthcare companies, our nearly 5,000 W-2 employed clinicians are able to deliver mental health care services in person or virtually, a source of sustainable competitive advantage for LifeStance and one of the key drivers of our momentum in the market. Independent third-party surveys continue to support LifeStance's approach to care. For example, according to a recent Blue Cross Blue Shield survey, nearly 70% of patients want to see the same clinician both in person and via telehealth.
It is clear that patients and clinicians want convenience, choice, and control over when and how to access or provide mental health services, and we are uniquely positioned to deliver on both patient and clinician preferences due to our flexible hybrid model. Furthermore, patient demand for our services has never been stronger. Not only are patients attracted to the hybrid model, but we also provide affordable access to care through coverage that is in-network with commercial insurers as opposed to cash pay or subscription-based online models. Additionally, because of our diverse mix of prescribers and therapists, patients can access personalized, comprehensive care to meet each individual's unique mental health care needs. As we have noted previously, our patient acquisition costs remain very low as the vast majority of our patients come directly from sticky primary care referrals, in-network payer relationships, and organic online self-referrals.
We are not, and never have been dependent on direct-to-consumer paid marketing. Turning to execution. In the first quarter, I'm pleased that we've been able to demonstrate consistent performance and are executing effectively on our profitable growth strategy. We are reimagining how patients receive easy access to affordable mental health care. To build around that goal, we continue to focus our growth strategy on three core pillars of expanding into new markets, building market density, and deploying our tech-enabled services. In terms of expanding into new markets, we entered into six new states in 2021 and are now deepening our presence in our existing 32 states, contributing to our mission of improving access. As for building market density, clinicians remain our primary growth driver, and in the first quarter, we grew our clinician base nationwide.
We added 199 net clinicians in the first quarter, bringing our total to 4,989, an increase of over 50% year-over-year. This strong growth, especially in the current labor market environment, demonstrates that our value proposition is resonating as we continue steady net clinician growth each quarter. Our growth in our clinician population is also an indication of our operational capability to onboard and ramp new clinicians within our organization, one of the largest W-2 employee groups of clinicians in the mental health care space. Our clinician growth was driven by our organic recruiting engine as well as our practice acquisition engine. In the first quarter, we opened 41 de novo centers to bolster our physical presence in addition to our virtual service offering, adding to our over 500 centers nationwide.
Additionally, we completed two new acquisitions in the first quarter, bringing the total since inception to 79. Both acquisitions were tuck-ins to platforms in existing states in which we operate, Michigan and Massachusetts. Growing our clinician base supports our mission of improving access to affordable, high-quality mental health care. In terms of deploying our tech-enabled services, we believe that our opportunities to implement digital tools to support patients' ability to navigate their mental health care experience is a significant competitive advantage for LifeStance. As we previously announced, we are rolling out a new improved Online Booking and Intake Experience, or OBIE for short, to better match our new patients with clinicians and to set them up for success in that first visit. We have continued to deploy OBIE across the country and are now live in seven states.
In these states, we have seen a significant reduction in the number of online cancellations because of improvements in the intake and booking process and an increase in levels of patient satisfaction. This enhancement will continue to be rolled out state by state throughout 2022 and into early 2023, as well as receive additional product improvements over time as we continue to invest in innovation around the booking experience for our patients. I have great confidence in our ability to continue to execute our strategy and take advantage of the considerable market opportunities in front of us. Finally, in the first quarter, we released a State of Youth Mental Health report, including the results of a survey of 2,000 American parents. We learned that 68% of parents have seen their children face significant mental and emotional challenges during the pandemic and are looking for solutions.
To further improve access for youth and support the destigmatization of mental health, we awarded grants through the LifeStance Health Foundation to several nonprofits that directly serve youth and adolescent populations, including the American Foundation for Suicide Prevention. We are committed to expanding access to mental health care among at-risk populations and directly addressing the alarming increase in young people struggling with their mental health. We're honored to partner with organizations that share our vision of a truly healthy society where mental and physical health care are unified to make lives better. In closing, we're starting 2022 with strong momentum for the first quarter of continued profitable growth as a public company. I am confident in our future and our ability to help people on their paths to better mental health.
Now I'll turn it over to Mike Bruff, Chief Financial Officer, to provide more detail on our financial performance and outlook. Mike?
Thanks, Mike. Today and going forward, I will frame my comments in the context of our long-term strategy, which includes balancing growth, profitability, and liquidity considerations. Let me start with growth. LifeStance continued to deliver solid growth in the first quarter with revenue of $203 million, up 42% year-over-year. We believe that first quarter revenue overachieved our expectations, primarily due to Omicron having less of an impact in February and March relative to our initial estimates. Turning to profitability. In the first quarter, center margin of $54 million increased 23% over the same period last year, driven by strong revenue growth. Adjusted EBITDA remained relatively flat year-over-year at $12 million, or 6.2% of revenue.
Adjusted EBITDA as a percentage of revenue declined due to the decrease in Center Margin as a percentage of revenue, partially offset by improved leverage in G&A expenses. First-quarter Adjusted EBITDA exceeded our initial expectations. Primarily due to the slight revenue favorability and delayed G&A expenses, which we expect will be utilized across the remainder of the year on planned investments. Turning to liquidity, LifeStance continues to be supported by a solid balance sheet. We exited the quarter with cash of $114 million and net debt of $177 million. In the first quarter, we generated positive $3 million of cash from operations. As we announced this afternoon with our earnings release, we entered into a new credit facility in early May.
This facility will be used to repay our existing net long-term debt at a more favorable cost of debt than the existing credit facility. At the close, we'll provide access to incremental capital to fund growth through up to $100 million in delayed draw loans and $50 million in revolving loans, both undrawn at close. Turning to guidance, as Mike mentioned, we are reaffirming our guidance for the full year. For the second quarter, we expect revenue of $209 million-214 million, center margin of $57 million-61 million, and Adjusted EBITDA of $12 million-15 million.
As we noted last quarter, we expect improvements in profitability in the second half of 2022 based on continued growth in our clinician base and leverage in the second half of the year, driven by our strategic decision to moderate our de novo center openings and scale our G&A. To summarize, we remain focused on delivering on our long-term strategy through balancing growth, profitability, and liquidity considerations. With that, I'll turn it back to Mike Lester for a few words before going to Q&A.
Thank you, Mike. Our financial performance, execution, and differentiated strategy create strong momentum going into the balance of 2022 and a clear path to achieve our goals. We have solidified our leadership role in the behavioral health delivery as a trusted partner to patients. As we build upon this trust, we will continue to drive meaningful improvements in the cost of care, access, and engagement across our flexible hybrid model. I would also like to take a moment to recognize the continued contribution of all of our colleagues at LifeStance, who've played a vital role during the pandemic and are now looking forward to continuing to build our best-in-class platform. We're proud of what they do every day in the lives of our patients. Mike, Danish, and I will now take your questions. Operator?
As a reminder, to ask a question, please press star then one. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. We also ask that you limit yourself to one question and a follow-up. Our first question comes from Ricky Goldwasser with Morgan Stanley. Your line is open.
Yeah, hi. Good evening. Just wanted to get a sense, how is, you know, retention, clinician retentions in the quarter, and sort of what are you seeing in terms of, wage inflation and hiring?
Yeah, I would say that our clinician retention has remained stable over the last couple of quarters, so we feel good about the value proposition that we have for clinicians and, you know, we haven't seen that change.
In terms of wage inflation and kind of like, hiring?
I'm sorry. Could you say that again, Ricky? Oh, wage inflation.
Yeah, wage inflation and just kind of like the overall kind of like, cost inflation.
Sure. Go ahead, Danish. You wanna answer that?
Sure, yeah, happy to. You know, we continue to see wages increase year over year as we always have. Our clinician type has always been in high demand, and we have always recognized that in the way that we set our compensation structure and build and plan for wage increases over time for all of our clinicians. Those sort of increases have always been well received by our clinicians, and they all remain within our planning assumptions. You know, we feel good about where we're at in the year and how things look.
Thank you.
Our next question comes from Lisa Gill with JP Morgan. Your line is open.
Thanks very much, and thanks for taking the question. I just wanna understand how we should think about the progression of the year, and I think, Mike, I heard you say that the clinicians coming in at 199 was in line with your expectation. If I look back, it's been averaging like 400 a quarter. As we think about the back half of the year, do you expect an acceleration in the number of clinicians that you bring in? You know, are there more things on the productivity side? I know you've talked to us about technology and some of the opportunities there. Also, as we think about the clinicians, you talked about the acquisitions that you made. Can you talk about those 10 acquisitions? Did you bring clinicians in with that?
You know, what level of productivity have you seen there?
Sure. Thank you, Lisa. I guess I would start off by reminding everybody that there are 650,000 clinicians in the country today, and we're still less than 1% of that. You know, we don't guide to specific clinician count, but expect to see a continued strong growth of our clinician base. And again, I think that reflects the value proposition and that continues to resonate in the market. Danish, would you like to add anything to that?
Sure, yeah. I mean, in terms of Q1, our clinician count was right on point with our internal expectations. We're gonna experience quarter-over-quarter fluctuations. As you pointed out, you know, last year in Q1, we also had approximately 200 net adds. From where we stand right now, we have a solid cadence on organic hiring. We continue to have a strong M&A pipeline that we feel good about, and retention remains stabilized.
If we just think about Danish, do you expect that the productivity gains to come, you know? I'm just looking at kind of first half, you just gave us the guidance for the second quarter, and you obviously reported the first quarter. As I think about that, you know, acceleration into the back half of the year, I'm just trying to understand, you know, what the key drivers are gonna be there since so much of the model is driven, you know, based on clinicians. Is it really that they become that much more productive, or do you think we're gonna see an acceleration of incremental clinicians in the second quarter that will be productive in the back half of the year? Just if you can help us to think that through in any way.
You know, we haven't guided on productivity. There are many variables to productivity. You know, timing of our M&A, there's a geo mix as we expand into newer states that's generally at a lower rate until we build out density and go renegotiate rates with payers. There's a variation in the number of business days in any given period. As we've reached sort of the scale that we're at today, we see that our performance is becoming more subject to seasonality based on business days. A good example of that being second half of the year has less business days just due to the number of holidays in Q4 alone. You know, we still feel good about the way we hire and recruit.
Mike, would you like to add to that?
I think, from a productivity perspective, Lisa, when we think about our, you know, individual clinician, we haven't made any material changes to our ramp assumptions, you know, onboarding, et cetera. The general productivity of a clinician is still within, you know, the range of expectations that we've had. As Mike said, if you look at the overall base, you know, on a quarter-to-quarter perspective, you'll see some fluctuation just dependent on, you know, again, the timing of certain things or where the timing of an M&A or where in the country we may hire depending on the rates there. You can see this in some of our history as well. At the individual clinician base there, certainly within, you know, the range of our expectations.
Our next question comes from Chris Neamonitis with Jefferies. Your line is open.
Great. Thanks, everyone, and congrats on a nice quarter. We recognize that in-person is always gonna be core to the offering. I don't think there's any dispute to the merits of the hybrid offering. The way you build the model out, at least with the KPIs you provide publicly, it all comes down to clinician count, right? At what point should we think about clinician growth maybe necessitating more real estate? How should we think about the leverage you can get out of your current physical footprint? Would you need to modify existing centers? If you don't need to modify your footprint, how does that change the long-term outlook for center margins?
You know, our guidance assumes a very intentional moderation of de novo openings. We've talked about this in the past. Pre-COVID, we were less than 5% of our visits were virtual. That spiked up into the high 90s and has tended to tick down about a point a month. I would say it stalled out a little bit in November, December, January because of Omicron, and has continued to tick down. We're about 79% in April, actually. We've spent quite a bit of time talking with payers, and we believe, as well as the payers believe, that in the mental health space, this is gonna shake out around 50/50. Does that take a year to get to 50/50? Does it take two years? We really don't know.
Again, we're really agnostic to that because we have negotiated rate parity in the vast majority of our contracts. We're just trying to be very, very prudent with our capital. Even at, let's call it 79% today, we have a long way to go to 50/50. If you believe 50/50 is the right answer, we can mathematically double the number of clinicians that we have today and not expand our physical footprint at all. We feel really good about that. We feel good about the leverage that gives us in the market.
Got it. I appreciate the commentary on the differentiation versus pure play telehealth. Can you talk a bit about how your model is different versus those offerings in terms of patient acquisition and prescribing practices? When you think about the visits that are driven off of referrals, what are you hearing from your referral base in terms of their preferences, in terms of where they redirect patients to? Thanks.
I can handle that. In terms of patient acquisition, our patient demand for our service has never been stronger. Our hybrid model and diverse mix of prescribers and therapists is very comprehensive, and, you know, we continue to believe differentiates us in the marketplace. Our patient acquisition costs remain very low because the majority of our patients come directly from three organic levers, one being sticky primary care referrals. These are established relationships with PCP networks across the country that remain very healthy. Our in-network relationships with payers that direct membership our way, as well as organic online self-referrals. If you look at it as in terms of the totality of spend, last year we spent less than 2% of revenue on marketing.
This year we're trending to less than 1%. You know, again, this is not an acquisition model that is heavily based on bidding on keywords or non-sustainable kinda referral patterns.
Our next question comes from Kevin Caliendo with UBS. Your line is open.
Thanks. I just wanna. You kind of alluded to this, but maybe I'm gonna ask it this way. Just wanna frame the 200 sort of net adds. Is this a good organic number right now in certain terms of how we should think about the business going forward, sort of is this a steady state? I'm asking in the context of the long-term planning for the business. Interest rates are higher, inflation's higher. It feels like the job market's a little bit steadier now than it was before. People, you know, people's net income or net worth is probably not as high as it was a year ago, broadly speaking, at least relative. Is it a fair way to frame your opportunity, or is this just sort of a one data point?
Well, I'll let Danish jump in here. I think it's kind of one data point. I mean, you know, in a kind of a perverted sense, inflation could be viewed as our friend, and that from a labor market dynamics, you know, I think people are gonna have to go to work, go back to work, that chose to sit out for a while when they were paying $8 a gallon for milk and gasoline. You know, historically, we, you know, we haven't guided to clinician counts for the year. You know, we still feel good about our ability to, you know, hire and retain clinicians. Danish, do you have anything to add?
No, I'd just add that, you know, our overall mix of net clinician adds continues to skew heavier and heavier towards organic over time. However, M&A is also. The pipeline that we have remains robust. We'll, you know, between those, we're gonna continue to see quarter-to-quarter fluctuations in the number of net adds. Again, I wouldn't read too much into a single data point of 199 adds and what that indicates. You know, again, we feel very confident in the ability on our organic recruiting engine to continue to increase the number of adds and for M&A to be a meaningful contributor as well.
If I can ask one follow-up. For your Center Margin targets, can you take me through sort of what are the pushes and pulls that get you to either side of the range? Like, what would matter the most in terms of a margin at the high end or low end of your range?
Okay. Kevin, are you asking that on the full year, I assume? The main driver on that is going to be revenue growth. We have already planned our fixed costs in terms of the number of de novo adds. Therein, with our centers, we have fixed costs of on-site admin very important administrative staff there. This really gets down to driving top line growth. With the unit economics of the clinician is driving that, those economic and the growth in those economics over those fixed costs, and that'll drive the high and the low end there. It's really about top line growth.
Our next question comes from Jamie Perse with Goldman Sachs. Your line is open.
Hey, good afternoon, guys. I wanted to follow up on the clinician productivity question from earlier. Are there any stats you can provide just in terms of what % of your clinicians are fully ramped and fully productive? Obviously, new clinicians are dilutive to that. Just trying to get a sense of where you are in clinicians ramping to productivity and how that might impact how we think about gross margins for the rest of the year.
Sure. This is Danish. I can cover that in terms of how this plays out at the individual clinician level. You know, again, there is a ramp period, as we've talked about in previous calls. There is a ramp period for clinicians, regardless of whether they're coming in through organic recruiting or through M&A. On the organic side, there's typically a four to six-month ramp from start to maturity, which is essentially at the point they have a full caseload. For M&A, it's more of a step function, but it is also a four to six-month time period from when we get them onto our platform, and you start to enjoy the full benefits of them being on our contracts and the revenue kind of uplift from that.
You see the same kind of time period on both. Then, you know, obviously, you can play through the fact that retentions remain stabilized at the same levels that we witnessed in previous quarters, and kind of the net effect there.
Okay. Thanks. Just maybe a follow-up on the contribution to growth from M&A. You guys previously guided the $50 million-70 million for the year. Looks like you did about $23 million or so in the first quarter, so a good chunk of that already done. Any change in sort of the cadence of M&A you expect this year? Or, you know, if that $50 million-70 million is still the right number, should we expect, you know, contribution from M&A to come down throughout the rest of the year?
No, we feel very comfortable with the 50-70 guidance that we've given out there. You know, that just ebbs and flows throughout the year. You know, it's a little bit harder to control. It's just not linear. We have a very robust pipeline, and that will be, we think that'll be really in our control on how we decide to modulate that. You know, we feel comfortable with the 50-70.
Our next question comes from Ryan Daniels with William Blair. Your line is open.
Hey, guys. New speaker on for Ryan. Thanks for taking my question. I guess kind of going on the inflationary front, I'm just wondering how able are you guys to pass off things like you know, wage inflation onto the payers? Is there any kind of like what's the amount of time that it would typically take to work that through contracts?
I'll let Danish talk about wage inflation from the clinician standpoint to begin with, but I'll start off by saying, you know, inflation has given us permission to pick up the phone and call every single one of the payers. You can rest assured that we are doing that. There's a lot of pressure on everybody from an inflation standpoint, and we will be using the market power that we have to have those discussions. Danish, do you have anything else to add?
No, that's exactly right. I mean, we continue to engage in consistent conversations with all of the payers that we're in network with about this exact topic. You know, they're very receptive and acknowledge the fact that this is something that everyone in healthcare needs to be focused on. Again, we've always planned for this, and we feel very comfortable that our planning assumptions take into account this year any expected wage inflation and that we've passed appropriate increases onto our clinicians and that we have an appropriate pipeline of increases coming from payers to keep us in a good spot.
Okay. Great. Then regarding your argument, kind of that those pressures are, you know, gonna push a couple of people back in the workforce, which I can definitely appreciate. I was just wondering, have you guys seen any providers that, you know, might have left LifeStance a year or so ago, you know, now reassessing where they're at and actually coming back to LifeStance? Basically, trying to think of, you know, are we just getting clinicians back in the workforce, or are we getting specifically former LifeStance clinicians back in?
Yeah, we really haven't seen that. There are lots of little anecdotes out there, but we haven't seen that in any significant way yet.
Our last question comes from Gary Taylor with Cowen. Your line is open.
Hey, good afternoon, good evening. Wanted to ask about DSO, which has been creeping up for about four quarters in a row, and just see what was driving that, what would help bring that back down. Just secondly, to put a finer point on Lisa's question, if you're doing $26 million EBITDA in the first half for your guidance, you've got to do $39 million in the second half to get to the midpoint of guidance, which means quarterly EBITDA has to move up towards almost $20 million a quarter. Just wanted to understand better what you thought the drivers of that were going to be.
A little bit of that is revenue, but it really does look like the margin estimates or expectations have to be a fair amount higher in the second half.
Hey, Gary, this is Mike Bruff. For the first question around DSO, accurate observation there. Our DSO has crept up and meaningfully so also in the first quarter. This has to do mostly with the increased pace of M&A that we saw toward the end of last year. When we bring in that M&A, and we work through integrations, we will, you know, at times intentionally hold claims until we work through the integration process and move that clinic and those clinicians onto our rates. If we don't do that, then we might be, you know, reprocessing a lot of claims. This is a little bit to do or actually quite a bit to do with the timing of some of our acquisitions.
It was a large driver of the increase in accounts receivable here in the first quarter. This is more to do about a timing of acquisitions, and we would expect, you know, relative to last year, this to be a little bit more tempered this year as, you know, our expectations is to acquire between $50 million and 70 million, or deploy $50 million-70 million in capital for acquisitions this year. The second question with respect to adjusted EBITDA significantly increasing half-over-half, it is really two things. One, as I said, the growth expectation in, you know, half-over-half in terms of revenue, and our decreasing or slowing the ramp, pardon me, slowing the pace of de novo center openings.
We will get a profitability boost by doing that in the back half of the year. As I mentioned already in the prepared statements, in the first quarter, we had leverage in our G&A expenses, which were about 150 basis points lower than the first quarter last year in terms of percentage of revenue. Those two things, driving increasing revenue over fixed center costs and slowing fixed center costs and then continuing to be maniacally focused on driving leverage in our operating expenses. That's what we believe will get us to our full year guidance range.
That's helpful. Thank you.
Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect. Everyone, have a great day.