LifeStance Health Group Inc.’s management has made it clear that it is not subject to the same sustainability woes as competitors in the telehealth-only or digital mental health space. 

Michael Lester, LifeStance Health CEO and co-founder, went even further, saying on the May 9 first-quarter earnings call the company has several advantages over the competition as well. 

The call with analysts largely centered around two: First, LifeStance management doubled down on its hybrid model — which allows patients to see the same provider in-person and via telehealth — being able to attract and retain both patients and clinicians. Second, LifeStance’s strategy of going all-in on in-network coverage and local primary care referral partnerships allows it to do an end-run around increasing digital marketing costs. 

“Compared with virtual health care companies, our nearly 5,000 W-2 employee 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,” Lester said during his prepared remarks. 

Lester said that 70% of patients would rather see the same clinician in both settings, citing data from a Blue Cross Blue Shield of Massachusetts survey.

“It’s clear that patients and clinicians want convenience, choice and control over when and how to access or provide mental health services,” Lester added. “And we’re uniquely positioned to deliver on both patient and clinician preferences due to our flexible hybrid model.”

LifeStance conducted about 79% of its sessions via telehealth in April, Lester said, adding that the company and its payer partners project that LifeStance’s telehealth and in-office utilization will eventually settle to 50/50.

“We’re really agnostic to that (changes in telehealth utilization) because we have negotiated rate parity in the majority of our contracts,” Lester said.

LifeStance added 199 net new clinicians in the first quarter, bringing its total clinician workforce to 4,989, a 51% increase from the same period last year, according to public earnings materials from the company. 

Lester and other executives with the company frequently couch growth, especially around revenue, in terms of the number of clinicians working for LifeStance. 

Jefferies Equity Research analysts wrote in a recent note that LifeStance has improved clinician retention rates over the last year or so as the pandemic forced many to leave LifeStance and leave the profession altogether. 

“With average retention rates near 80% and a base of 5k clinicians, LFST is required to recruit 1k new clinicians annually in order to hold its base constant,” the note reads “The company added ~200 net new clinicians in Q1 and recruiting efforts are on pace for the company’s largest year yet.”

Jeffries Equity Research also pegs revenue per clinician and speed in getting hired clinicians or clinicians that join the company via acquisition up to productivity standards as a key for success in the future.

LifeStance completed two tuck-in acquisitions in the first quarter, bringing the total number of acquisitions by the company to 79. It also opened 41 de novo centers, bringing its footprint to over 500 centers in 32 states. 

LifeStance by the numbers and its push to profitability

LifeStance increased revenue year-over-year by 42% to $203.1 million. That beats an average analyst estimate on Yahoo Finance of $199.06 million by about 2%. 

LifeStance’s net loss ballooned to $62.3 million, compared to a net loss of $8.7 million, a 616% increase. That translates to a loss of 18 cents per share, near the Yahoo Finance average estimate of a 17-cent per share loss. 

The net loss was largely tied to by stock-based compensation expense of $59.9 million. The company announced stock-based compensation as a clinician retention tool in late 2021.

Adjusted EBITDA was largely unchanged for the first quarter, standing at $12.5 million in 2022 and $12.6 million in 2021.

Managed affirmed LifeStance’s annual guidance of revenues landing between $865 million to $885 million and adjusted EBITDA of $63 million to $67 million. 

Analysts on the call questioned how the company would reach the EBITDA measures based on the company’s performance in the first quarter.

LifeStance will pull back on the number of new clinics it will open in the second half of 2022 and will scale up savings strategies in its LifeStance CFO Michael Bruff. These profitability improvements will pair with LifeStance’s growth in the number of physicians it has, the primary drive of revenue for the company and drive up adjusted EBITDA, Bruff said. 

The Jefferies note sees the affirmation of annual guidance as “evidence the company has gotten underneath its mid-2021 retention issues.”

“We expect the cadence to return to a beat & raise as the bands of potential outcomes further narrow (i.e. improved precision) with the 2021 class of recruits maturing to meet historical average clinician productivity,” the Jefferies note states.

No digital marketing woes like other public digital health companies

Lester and other LifeStance executives revealed how little the company relies on increasingly expensive marketing to pull in new customers. 

LifeStance Co-founder and Chief Growth Officer Danish Qureshi said during the Q&A portion of the call that marketing and advertising spending was less than 2% of revenue in 2021. 

LifeStance’s self-disclosed advertising expense totaled $11.7 million in 2021, according to the company’s annual financial report filed with the Securities and Exchange Commission. That’s about 1.8% of the company’s $667.5 million of annual revenue for the year. 

“This year, we’re trying to do less than 1%,” Qureshi said. “Again, this is not an acquisition model that is heavily based on bidding on keywords or non-sustainable kind of referral patterns.”

LifeStance relies on patients coming from “sticky primary care referrals, and network payer relationships, and organic online self-referrals,” Lester said in prepared remarks. 

“We are not and never have been dependent on direct-to-consumer paid marketing,” he added.

Jason Gorevic, the CEO of New York City-based virtual care provider Teladoc Health Inc. (NYSE: TDOC), has pegged disappointing results in its D2C behavioral health subsidiary, BetterHelp, on a slew of VC-back digital behavioral health startups driving up advertising costs, adding these companies were making “economically irrational decisions.”

New York City-based Talkspace Inc. (Nasdaq: TALK), a virtual-only mental health provider, has similarly struggled to pull in new customers. In 2021, the company spent about $101 million on sales and marketing.

Talkspace reduced marketing spending for its D2C business by 34% in the first quarter compared to the third quarter of 2021.