10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40478

 

LifeStance Health Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-1832801

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4800 N. Scottsdale Road Suite 6000

Scottsdale, Arizona

85251

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (602) 767-2100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

LFST

 

The Nasdaq Stock Market LLC

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 No ☒

As of May 3, 2023, the registrant had 376,764,734 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1

Consolidated Balance Sheets

2

Consolidated Statements of Operations and Comprehensive Loss

3

 

Consolidated Statements of Changes in Stockholders' Equity

4

Consolidated Statements of Cash Flows

5

Notes to Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

30

 

 

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:

we may not grow at the rates we historically have achieved or at all, even if our key metrics may imply future growth, including if we are unable to successfully execute on our growth initiatives and business strategies;
if we fail to manage our growth effectively, our expenses could increase more than expected, our revenue may not increase proportionally or at all, and we may be unable to execute on our business strategy;
our ability to recruit new clinicians and retain existing clinicians;
if reimbursement rates paid by third-party payors are reduced or if third-party payors otherwise restrain our ability to obtain or deliver care to patients, our business could be harmed;
we conduct business in a heavily regulated industry and if we fail to comply with these laws and government regulations, we could incur penalties or be required to make significant changes to our operations or experience adverse publicity, which could have a material adverse effect on our business, results of operations and financial condition;
we are dependent on our relationships with affiliated practices, which we do not own, to provide health care services, and our business would be harmed if those relationships were disrupted or if our arrangements with these entities became subject to legal challenges;
we operate in a competitive industry, and if we are not able to compete effectively, our business, results of operations and financial condition would be harmed;
the impact of health care reform legislation and other changes in the healthcare industry and in health care spending on us is currently unknown, but may harm our business;
if our or our vendors’ security measures fail or are breached and unauthorized access to our employees’, patients’ or partners’ data is obtained, our systems may be perceived as insecure, we may incur significant liabilities, including through private litigation or regulatory action, our reputation may be harmed, and we could lose patients and partners;
our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems;
our existing indebtedness could adversely affect our business and growth prospects; and
the other factors set forth under “Risk Factors.”

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)

 

 

 

March 31, 2023

 

 

December 31, 2022

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

68,294

 

 

$

108,621

 

Patient accounts receivable, net

 

 

118,382

 

 

 

100,868

 

Prepaid expenses and other current assets

 

 

25,833

 

 

 

23,734

 

Total current assets

 

 

212,509

 

 

 

233,223

 

NONCURRENT ASSETS

 

 

 

 

 

 

Property and equipment, net

 

 

193,511

 

 

 

194,189

 

Right-of-use assets

 

 

196,193

 

 

 

199,431

 

Intangible assets, net

 

 

253,964

 

 

 

263,294

 

Goodwill

 

 

1,293,613

 

 

 

1,272,939

 

Other noncurrent assets

 

 

8,772

 

 

 

10,795

 

Total noncurrent assets

 

 

1,946,053

 

 

 

1,940,648

 

Total assets

 

$

2,158,562

 

 

$

2,173,871

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

7,709

 

 

$

12,285

 

Accrued payroll expenses

 

 

83,673

 

 

 

75,650

 

Other accrued expenses

 

 

32,022

 

 

 

30,428

 

Current portion of contingent consideration

 

 

13,257

 

 

 

15,876

 

Operating lease liabilities, current

 

 

41,647

 

 

 

38,824

 

Other current liabilities

 

 

2,833

 

 

 

2,936

 

Total current liabilities

 

 

181,141

 

 

 

175,999

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

Long-term debt, net

 

 

224,761

 

 

 

225,079

 

Operating lease liabilities, noncurrent

 

 

207,903

 

 

 

212,586

 

Deferred tax liability, net

 

 

37,569

 

 

 

38,701

 

Other noncurrent liabilities

 

 

2,059

 

 

 

2,783

 

Total noncurrent liabilities

 

 

472,292

 

 

 

479,149

 

Total liabilities

 

$

653,433

 

 

$

655,148

 

COMMITMENTS AND CONTINGENCIES (see Note 12)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Preferred stock – par value $0.01 per share; 25,000 shares authorized as of
   March 31, 2023 and December 31, 2022;
0 shares issued and outstanding as
   of March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock – par value $0.01 per share; 800,000 shares authorized as of
   March 31, 2023 and December 31, 2022;
376,537 and 375,964 shares
   issued and outstanding as of March 31, 2023 and December 31, 2022,
   respectively

 

 

3,767

 

 

 

3,761

 

Additional paid-in capital

 

 

2,108,184

 

 

 

2,084,324

 

Accumulated other comprehensive income

 

 

2,004

 

 

 

3,274

 

Accumulated deficit

 

 

(608,826

)

 

 

(572,636

)

Total stockholders' equity

 

 

1,505,129

 

 

 

1,518,723

 

Total liabilities and stockholders’ equity

 

$

2,158,562

 

 

$

2,173,871

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

TOTAL REVENUE

 

$

252,589

 

 

$

203,095

 

OPERATING EXPENSES

 

 

 

 

 

 

Center costs, excluding depreciation and amortization shown separately below

 

 

182,987

 

 

 

148,893

 

General and administrative expenses

 

 

84,626

 

 

 

103,369

 

Depreciation and amortization

 

 

19,069

 

 

 

15,684

 

Total operating expenses

 

$

286,682

 

 

$

267,946

 

LOSS FROM OPERATIONS

 

$

(34,093

)

 

$

(64,851

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

Gain (loss) on remeasurement of contingent consideration

 

 

1,037

 

 

 

(434

)

Transaction costs

 

 

(86

)

 

 

(278

)

Interest expense, net

 

 

(5,092

)

 

 

(3,441

)

Other expense

 

 

(45

)

 

 

 

Total other expense

 

$

(4,186

)

 

$

(4,153

)

LOSS BEFORE INCOME TAXES

 

 

(38,279

)

 

 

(69,004

)

INCOME TAX BENEFIT

 

 

4,037

 

 

 

6,676

 

NET LOSS

 

$

(34,242

)

 

$

(62,328

)

NET LOSS PER SHARE, BASIC AND DILUTED

 

 

(0.09

)

 

 

(0.18

)

Weighted-average shares used to compute basic and diluted net loss per share

 

 

360,902

 

 

 

350,849

 

 

 

 

 

 

 

 

NET LOSS

 

$

(34,242

)

 

$

(62,328

)

OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

Unrealized losses on cash flow hedge, net of tax

 

 

(1,270

)

 

 

 

COMPREHENSIVE LOSS

 

$

(35,512

)

 

$

(62,328

)

 

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)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

375,964

 

 

$

3,761

 

 

$

2,084,324

 

 

$

3,274

 

 

$

(572,636

)

 

$

1,518,723

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,242

)

 

 

(34,242

)

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,948

)

 

 

(1,948

)

Issuance of common stock upon
   vesting of restricted stock units

 

 

1,711

 

 

 

17

 

 

 

(17

)

 

 

 

 

 

 

 

 

 

Forfeitures

 

 

(1,138

)

 

 

(11

)

 

 

(3,354

)

 

 

 

 

 

 

 

 

(3,365

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(1,270

)

 

 

 

 

 

(1,270

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

27,231

 

 

 

 

 

 

 

 

 

27,231

 

Balances at March 31, 2023

 

 

376,537

 

 

$

3,767

 

 

$

2,108,184

 

 

$

2,004

 

 

$

(608,826

)

 

$

1,505,129

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

374,255

 

 

$

3,743

 

 

$

1,898,357

 

 

$

(357,072

)

 

$

1,545,028

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(62,328

)

 

 

(62,328

)

Issuance of common stock upon
   vesting of restricted stock units

 

 

96

 

 

 

1

 

 

 

(38

)

 

 

 

 

 

(37

)

Forfeitures

 

 

(28

)

 

 

 

 

 

(185

)

 

 

 

 

 

(185

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

60,040

 

 

 

 

 

 

60,040

 

Balances at March 31, 2022

 

 

374,323

 

 

$

3,744

 

 

$

1,958,174

 

 

$

(419,400

)

 

$

1,542,518

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(34,242

)

 

$

(62,328

)

Adjustments to reconcile net loss to net cash (used in) provided by operating
   activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

19,069

 

 

 

15,684

 

Non-cash operating lease costs

 

 

10,113

 

 

 

 

Stock-based compensation

 

 

23,866

 

 

 

59,855

 

Amortization of discount and debt issue costs

 

 

549

 

 

 

295

 

(Gain) loss on remeasurement of contingent consideration

 

 

(1,037

)

 

 

434

 

Loss on disposal of assets

 

 

45

 

 

 

 

Change in operating assets and liabilities, net of businesses acquired:

 

 

 

 

 

 

Patient accounts receivable, net

 

 

(17,138

)

 

 

(18,121

)

Prepaid expenses and other current assets

 

 

(4,543

)

 

 

(12,065

)

Accounts payable

 

 

(5,466

)

 

 

1,852

 

Accrued payroll expenses

 

 

7,663

 

 

 

12,759

 

Operating lease liabilities

 

 

(8,736

)

 

 

 

Other accrued expenses

 

 

1,967

 

 

 

4,943

 

Net cash (used in) provided by operating activities

 

$

(7,890

)

 

$

3,308

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of property and equipment

 

 

(7,729

)

 

 

(27,910

)

Acquisitions of businesses, net of cash acquired

 

 

(19,820

)

 

 

(22,945

)

Net cash used in investing activities

 

$

(27,549

)

 

$

(50,855

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from long-term debt

 

 

 

 

 

20,000

 

Payments of long-term debt

 

 

(586

)

 

 

(331

)

Payments of contingent consideration

 

 

(4,302

)

 

 

(5,720

)

Taxes related to net share settlement of equity awards

 

 

 

 

 

(441

)

Net cash (used in) provided by financing activities

 

$

(4,888

)

 

$

13,508

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(40,327

)

 

 

(34,039

)

Cash and Cash Equivalents - Beginning of period

 

 

108,621

 

 

 

148,029

 

CASH AND CASH EQUIVALENTS – END OF PERIOD

 

$

68,294

 

 

$

113,990

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

5,059

 

 

$

3,091

 

Cash paid for taxes, net of refunds

 

$

(13

)

 

$

(60

)

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND
   FINANCING ACTIVITIES

 

 

 

 

 

 

Equipment financed through finance leases

 

$

 

 

$

57

 

Contingent consideration incurred in acquisitions of businesses

 

$

1,985

 

 

$

2,470

 

Acquisition of property and equipment included in liabilities

 

$

8,297

 

 

$

12,320

 

 

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 100% of the non-medical assets, however due to legal requirements the physician-owners must retain 100% of the equity interest. The Company’s agreements with FPEs generally consist of both a Management Service Agreement, which provides for various administrative and management services to be provided by the Company to the FPE, and Stock Transfer Restriction (“STR”) agreements with the physician-owners of the FPEs, which provide for the transition of ownership interests of the FPEs under certain conditions. The outstanding voting equity instruments of the FPEs are owned by the nominee shareholders appointed by the Company under the terms of the STR agreements. The Company has the right to receive income as an ongoing management fee, which effectively absorbs all of the residual interests and has also provided financial support through loans to the FPEs. The Company has exclusive responsibility for the provision of all nonmedical services including facilities, technology and intellectual property required for the day-to-day operation and management of each of the FPEs, and makes recommendations to the FPEs in establishing the guidelines for the employment and compensation of the physicians and other employees of the FPEs. In addition, the STR agreements provide that the Company has the right to designate an appropriately licensed person(s) to purchase the equity interest of the FPE for a nominal amount in the event of a succession event at the Company’s discretion. Based on the

 

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,

 

 

 

2023

 

 

2022

 

 

 

Amount

 

 

% of Total Revenue

 

 

Amount

 

 

% of Total Revenue

 

Commercial

 

$

228,919

 

 

 

91

%

 

$

183,609

 

 

 

91

%

Government

 

 

10,951

 

 

 

4

%

 

 

8,833

 

 

 

4

%

Self-pay

 

 

9,747

 

 

 

4

%

 

 

8,375

 

 

 

4

%

Total patient service revenue

 

 

249,617

 

 

 

99

%

 

 

200,817

 

 

 

99

%

Nonpatient service revenue

 

 

2,972

 

 

 

1

%

 

 

2,278

 

 

 

1

%

Total

 

$

252,589

 

 

 

100

%

 

$

203,095

 

 

 

100

%

Among the commercial payors, the table below represents insurance companies that individually represented 10% or more of revenue:

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Payor A

 

 

19

%

 

 

19

%

Payor B

 

 

13

%

 

 

14

%

 

NOTE 4 PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

 

 

March 31, 2023

 

 

December 31, 2022

 

Leasehold improvements

 

$

154,912

 

 

$

148,249

 

Computers and peripherals

 

 

27,299

 

 

 

26,650

 

Internal-use software

 

 

8,206

 

 

 

7,894

 

Furniture, fixtures and equipment

 

 

38,026

 

 

 

36,437

 

Medical equipment

 

 

950

 

 

 

950

 

Construction in process

 

 

14,851

 

 

 

16,892

 

Total

 

$

244,244

 

 

$

237,072

 

Less: Accumulated depreciation

 

 

(50,733

)

 

 

(42,883

)

Total property and equipment, net

 

$

193,511

 

 

$

194,189

 

 

Depreciation expense consists of the following:

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Depreciation expense

 

$

8,896

 

 

$

5,727

 

 

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 one to seven years.

The Company incurred $14,308 in operating lease costs related to its operating leases in its unaudited consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023. Variable lease costs and short-term lease costs were not material.

The weighted-average remaining lease term and discount rate for operating lease liabilities included in the consolidated balance sheets are as follows: