'We're not realizing our full potential': LifeStance prioritizes execution and profitability to help mitigate growing pains

‘We’re not realizing our full potential’: LifeStance prioritizes execution and profitability to help mitigate growing pains

Behavioral health giant LifeStance Health Group Inc. (Nasdaq: LFST) is experiencing “growing pains” and “must evolve.”

That’s according to the company’s management, which detailed exactly what that development should look like during an earnings call Tuesday night discussing third-quarter financial results.

“It’s clear to me that we’re not living up to our full potential,” Ken Burdick, president and CEO of LifeStance, said on the call. “In taking over the leadership of LifeStance, I am focused on execution, profitability and operational excellence.”

Burdick’s comments come as the Scottsdale, Arizona-based company continues to struggle in the public market – a battle that has even sparked an upheaval from its C-suite team. Over the past year, the company has appointed a new CEO, COO and CFO, with the latter coming this week.

Overall, the new management now bases LifeStance’s future on four main pillars: refining its payments strategy, simplifying its administrative complexity, focusing on organic growth and prioritizing profitability and sustainability. Focusing on organic growth will also mean more strategic mergers and acquisitions, which likely means fewer deals in 2023.

“That will be our formula for creating long-term value,” Burdick continued.

On the payer front, LifeStance isn’t just focused on improving its contracting efforts; it is also focused on reducing fat more generally.

The company has more than 400 payer contracts, Burdick explained. This created a heavy administrative burden and made scaling up difficult.

“I wasn’t sure there were that many payers in the country,” Burdick said. “So the first thing that caught my attention was the administrative complexity that comes with managing all these contracts. This is an important consideration… [when] looking for every possible opportunity to streamline, standardize and simplify our business, so that we can manage it at scale. »

But there is also great variability in reimbursement rates between paying contracts. Burdick noted that some of the payers treat LifeStance as a “much smaller behavioral health entity,” not fully valuing the range of services it brings to the table.

Meanwhile, to reduce other administrative burdens and complexities, LifeStance is looking to invest in its enterprise platform to help reduce manual processes and “increase operating leverage.” It is also looking to use more digital tools to help streamline processes.

“We will continue to make digital investments such as a new virtual care platform, the continued rollout of our online booking and admissions experience,…and launch digital products to reinvent the entire patient care journey. , starting with finding the right clinician and continuing through the treatment plan,” Burdick said.

Although the company plans to expand its digital tools, LifeStance’s overall goal through 2023 will be to focus on long-term profitability and capital discipline.

In the third quarter, the company reported revenue of $217.6 million, a 25% year-over-year increase. This is at the low end of the company’s expectations.

Typically, revenue growth was tied to clinician hires. LifeStance added 205 net clinicians in the third quarter, bringing its total clinicians to 5,431, representing a 24% year-over-year increase.

Photo courtesy of LifeStance

“We are moving from a purely growth mindset to creating a balanced set of goals that includes operational excellence, profitable growth and disciplined deployment of capital,” said Burdick, who took his duties as CEO on September 7.

While this strategy will most likely result in slower growth in 2023 as the organization doubles down on its smart capital deployment, that doesn’t mean LifeStance will stop M&A activity altogether. Rather, the company will focus on acquisitions that are profitable businesses with density in key markets.

LifeStance executed three deals in the third quarter, bringing its total to 86 since inception.

“We are intentionally moderating mergers and acquisitions as we continue our transition to organic growth,” Burdick said. “Sequential clinician gains this quarter through organic starts and retention were offset by fewer additions through M&A. We may see fluctuations in this trend as the timing of acquisitions may be irregular. We will continue to put more effort toward growth through recruitment and incremental improvements in clinician retention, as key drivers and clinicians add.”

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