UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 3, 2023, the registrant had
Table of Contents
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PART I. |
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Item 1. |
1 |
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2 |
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Consolidated Statements of Operations and Comprehensive Loss |
3 |
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4 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
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Item 1. |
28 |
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Item 1A. |
28 |
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Item 2. |
28 |
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Item 3. |
28 |
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Item 4. |
28 |
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Item 5. |
28 |
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Item 6. |
29 |
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30 |
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i
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. For example, all statements we make relating to: our ability to grow our business, expand access to our patients and our payors and invest in our platform; our plan to partner with additional hospital systems, large primary care groups and other specialist groups; our expectation that we will continue to open de novo center and acquire new centers; our growth rates and financial results; our plans and objectives for future operations, growth or initiatives and strategies; and our expected market opportunity are forward-looking statements.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, factors and assumptions described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the "SEC") on March 9, 2023, including, among other things:
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise, except as required by law.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
LIFESTANCE HEALTH GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the quarterly period ended March 31, 2023
1
LIFESTANCE HEALTH GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except for par value)
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March 31, 2023 |
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December 31, 2022 |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Patient accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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NONCURRENT ASSETS |
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Property and equipment, net |
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Right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Other noncurrent assets |
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Total noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
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$ |
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Accrued payroll expenses |
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Other accrued expenses |
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Current portion of contingent consideration |
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Operating lease liabilities, current |
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Other current liabilities |
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Total current liabilities |
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NONCURRENT LIABILITIES |
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Long-term debt, net |
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Operating lease liabilities, noncurrent |
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Deferred tax liability, net |
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Other noncurrent liabilities |
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Total noncurrent liabilities |
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Total liabilities |
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$ |
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$ |
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STOCKHOLDERS’ EQUITY |
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Preferred stock – par value $ |
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Common stock – par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
2
LIFESTANCE HEALTH GROUP, INC.
consolidated statements of operations and comprehensive loss
(unaudited)
(In thousands, except for Net Loss per Share)
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Three Months Ended March 31, |
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2023 |
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2022 |
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TOTAL REVENUE |
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$ |
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$ |
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OPERATING EXPENSES |
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Center costs, excluding depreciation and amortization shown separately below |
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General and administrative expenses |
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Depreciation and amortization |
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Total operating expenses |
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$ |
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$ |
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LOSS FROM OPERATIONS |
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$ |
( |
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$ |
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OTHER INCOME (EXPENSE) |
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Gain (loss) on remeasurement of contingent consideration |
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( |
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Transaction costs |
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( |
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( |
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Interest expense, net |
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( |
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( |
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Other expense |
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( |
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Total other expense |
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$ |
( |
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$ |
( |
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LOSS BEFORE INCOME TAXES |
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( |
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( |
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INCOME TAX BENEFIT |
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NET LOSS |
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$ |
( |
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$ |
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NET LOSS PER SHARE, BASIC AND DILUTED |
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( |
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Weighted-average shares used to compute basic and diluted net loss per share |
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NET LOSS |
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$ |
( |
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$ |
( |
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OTHER COMPREHENSIVE LOSS |
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Unrealized losses on cash flow hedge, net of tax |
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( |
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COMPREHENSIVE LOSS |
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$ |
( |
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$ |
( |
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The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
3
LIFESTANCE HEALTH GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
(In thousands)
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Common Stock |
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Additional |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Equity |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Adoption of ASU 2016-13 |
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— |
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— |
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— |
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— |
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( |
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( |
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Issuance of common stock upon |
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( |
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— |
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— |
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— |
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Forfeitures |
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( |
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( |
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( |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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Balances at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Issuance of common stock upon |
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( |
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— |
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( |
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Forfeitures |
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( |
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— |
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( |
) |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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Balances at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
4
LIFESTANCE HEALTH GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
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Three Months Ended March 31, |
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2023 |
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2022 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash (used in) provided by operating |
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Depreciation and amortization |
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Non-cash operating lease costs |
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Stock-based compensation |
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Amortization of discount and debt issue costs |
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(Gain) loss on remeasurement of contingent consideration |
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( |
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Loss on disposal of assets |
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Change in operating assets and liabilities, net of businesses acquired: |
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Patient accounts receivable, net |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
) |
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( |
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Accounts payable |
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( |
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Accrued payroll expenses |
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Operating lease liabilities |
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( |
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Other accrued expenses |
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Net cash (used in) provided by operating activities |
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$ |
( |
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$ |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchases of property and equipment |
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( |
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( |
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Acquisitions of businesses, net of cash acquired |
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( |
) |
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( |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from long-term debt |
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Payments of long-term debt |
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( |
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( |
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Payments of contingent consideration |
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( |
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( |
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Taxes related to net share settlement of equity awards |
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( |
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Net cash (used in) provided by financing activities |
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$ |
( |
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$ |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
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( |
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( |
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Cash and Cash Equivalents - Beginning of period |
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CASH AND CASH EQUIVALENTS – END OF PERIOD |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for taxes, net of refunds |
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$ |
( |
) |
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$ |
( |
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SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND |
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Equipment financed through finance leases |
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$ |
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$ |
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Contingent consideration incurred in acquisitions of businesses |
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$ |
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$ |
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Acquisition of property and equipment included in liabilities |
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$ |
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$ |
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The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.
5
LIFESTANCE HEALTH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(In thousands, except per share amounts)
NOTE 1 NATURE OF THE BUSINESS
Description of Business
LifeStance Health Group, Inc. ("LifeStance" or the "Company") operates as a provider of outpatient mental health services, spanning psychiatric evaluations and treatment, psychological and neuropsychological testing, and individual, family and group therapy.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are discussed in Note 2 "Summary of Significant Accounting Policies" in Item 15 of its Annual Report on Form 10-K for the year ended December 31, 2022. During the three months ended March 31, 2023, there have been no significant changes to these policies other than the addition to the cash and cash equivalents policy further described below.
Basis of Presentation and Principles of Consolidation
The Company has prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the SEC regarding interim financial reporting, which include the accounts of LifeStance, its wholly-owned subsidiaries and variable interest entities ("VIEs") in which LifeStance has an interest and is the primary beneficiary. Pursuant to these rules and regulations, the Company has omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In management’s opinion, the Company has made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly state its consolidated financial condition, results of operations and cash flows. The Company’s interim period operating results do not necessarily indicate the results that may be expected for any other interim period or the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s audited financial statements for the year ended December 31, 2022 in the Company's Annual Report on Form 10-K.
Use of Accounting Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Variable Interest Entities
The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a VIE. These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available information. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change.
The Company acquires and operates certain care centers which are deemed to be Friendly-Physician Entities (“FPEs”). As part of an FPE acquisition, the Company acquires
6
provisions of these agreements, the Company determined that the FPEs are VIEs due to the equity holder having insufficient capital at risk, and the Company has a variable interest in the FPEs.
The contractual arrangements described above allow the Company to direct the activities that most significantly affect the economic performance of the FPEs. Accordingly, the Company is the primary beneficiary of the FPEs and consolidates the FPEs under the VIE model. Furthermore, as a direct result of nominal initial equity contributions by the physicians, the financial support the Company provides to the FPEs (e.g., loans) and the provisions of the contractual arrangements and nominee shareholder succession arrangements described above, the interests held by noncontrolling interest holders lack economic substance and do not provide them with the ability to participate in the residual profits or losses generated by the FPEs. Therefore, all income and expenses recognized by the FPEs are allocated to the Company. The Company does not hold interests in any VIEs for which the Company is not deemed to be the primary beneficiary.
As noted previously, the Company acquires 100% of the non-medical assets of the VIEs. The aggregate carrying values of the VIEs total assets and total liabilities not purchased by the Company but included on the consolidated balance sheets were not material at March 31, 2023 and December 31, 2022.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less at the time of purchase. Cash and cash equivalents consist of demand deposits held with financial institutions and investments in money market funds.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company's unaudited consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326)-Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The CECL model is expected to result in more timely recognition of credit losses. The Company adopted the standard on January 1, 2023 using the modified retrospective adoption method and did not have a material impact to the consolidated financial statements. The Company makes estimates of expected credit losses based on a combination of factors, including historical losses adjusted for current market conditions, the Company's customers' financial condition, delinquency trends, aging behaviors of receivables and credit and liquidity indicators, and future market and economic conditions and regularly reviews the adequacy of the allowance for credit losses. As of March 31, 2023, the allowance for credit losses was not material.
NOTE 3 TOTAL REVENUE
The Company’s total revenue is dependent on a series of contracts with third-party payors, which is typical for providers in the health care industry. The Company has determined that the nature, amount, timing and uncertainty of revenue and cash flows are affected by the payor mix with third-party payors, which have different reimbursement rates.
7
The payor mix of fee-for-service revenue from patients and third-party payors consists of the following:
|
|
Three Months Ended March 31, |
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2023 |
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|
2022 |
|
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|
Amount |
|
|
% of Total Revenue |
|
|
Amount |
|
|
% of Total Revenue |
|
||||
Commercial |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Government |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Self-pay |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total patient service revenue |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Nonpatient service revenue |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Among the commercial payors, the table below represents insurance companies that individually represented
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Payor A |
|
|
% |
|
|
% |
||
Payor B |
|
|
% |
|
|
% |
||
NOTE 4 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Leasehold improvements |
|
$ |
|
|
$ |
|
||
Computers and peripherals |
|
|
|
|
|
|
||
Internal-use software |
|
|
|
|
|
|
||
Furniture, fixtures and equipment |
|
|
|
|
|
|
||
Medical equipment |
|
|
|
|
|
|
||
Construction in process |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense consists of the following:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Depreciation expense |
|
$ |
|
|
$ |
|
||
NOTE 5 LEASES
The Company adopted ASC 842 on January 1, 2022 utilizing the private company effective date which did not require adoption of the new standard for any interim periods of the fiscal year in which it was adopted. As of December 31, 2022 and March 31, 2023 and for three months ended March 31, 2023, the Company accounts for its leases in accordance with ASC 842. For the comparative interim periods prior to 2023, the Company prepared its quarterly unaudited consolidated financial statements in accordance with ASC 840, which is a basis different from that of the current year. Accordingly, for the comparative three months ended March 31, 2022 leases are presented in accordance with ASC 840.
The Company leases its office facilities and office equipment which are accounted for as operating leases. Some leases contain clauses for renewal at the Company's option with renewal terms that generally extend the lease term from to
The Company incurred $
The weighted-average remaining lease term and discount rate for operating lease liabilities included in the consolidated balance sheets are as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Weighted-average remaining lease term (in years) |
|
|
|
|
|
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