Behavioral health giant LifeStance Health Group Inc. (Nasdaq: LFST) is experiencing “growing pains” and “needs to evolve.”
That’s according to company leadership, which detailed exactly what that evolution should look like during a late Tuesday earnings call discussing third-quarter financial results.
“It is clear to me that we’re not performing to our full potential,” Ken Burdick, chairman and CEO of LifeStance, said during the call. “In taking on leadership of LifeStance, I am laser-focused on execution, profitability and operational excellence.”
Burdick’s comments come as the Scottsdale, Arizona-based company continues to struggle on the public market – a battle that even triggered a shake-up of its C-suite team. Over the last year, the company has named a new CEO, COO and CFO, the latter of which came just this week.
Broadly, the new leadership is now pinning LifeStance’s future on four main pillars: refining its payer strategy, simplifying its administrative complexity, focusing on organic growth, and prioritizing profitability and sustainability. Focusing on organic growth will likewise mean more strategic M&A, likely meaning fewer deals come 2023.
“This will be our formula for long-term value creation,” Burdick continued.
On the payer front, LifeStance isn’t just focused on improving its contracting efforts; it’s equally honed in on trimming the fat more globally.
The company has more than 400 payer contracts, Burdick explained. That has created ample administrative burden and made it difficult to scale.
“I wasn’t sure that there were that many payers in the country,” Burdick said. “So the No. 1 thing that caught my attention was the administrative complexity that comes with trying to manage all those contracts. That’s one important consideration … [when] looking for every opportunity we can to streamline, standardize and simplify our business, so that we can run it at scale.”
But there is also a lot of variability in reimbursement rates among the payer contracts. Burdick noted that some of the payers treat LifeStance like a “much smaller behavioral health entity,” not fully valuing the range of services it brings to the table.
Meanwhile, in order to cut down on other administrative burdens and complexities, LifeStance is looking to invest in its enterprise platform to help reduce manual processes and “drive operating leverage.” It is also looking to employ more digital tools to help streamline processes.
“We will continue to make digital investments such as a new virtual care platform, continued rollout of our online booking and intake experience, … and launch digital products to reinvent the entire patient care journey, beginning with finding the right clinician and continuing through the entire treatment plan,” Burdick said.
Although the company plans to grow its digital tools, the overall focus of LifeStance going into 2023 will be focusing on long-term profitability and capital discipline.
In the third quarter, the company reported $217.6 million in revenue, a 25% year-over-year increase. That comes in at the low-end of the company’s expectations.
Generally, the revenue growth was tied to clinician hires. LifeStance added 205 net clinicians in Q3, bringing its clinician total to 5,431 – good for a 24% year-over-year increase.
“We’re evolving from a purely growth mindset to creating a good balanced set of objectives that include operational excellence, profitable growth and disciplined capital deployment,” said Burdick, who took over the CEO role on Sept. 7.
While this strategy will most likely mean slower growth in 2023 as the organization doubles down on smart capital deployment, it doesn’t mean LifeStance will entirely stop M&A activity. Rather, the company will focus on acquisitions that are profitable businesses with density in key markets.
LifeStance executed three transactions in the third quarter, bringing its overall total to 86 since its inception.
“We are intentionally moderating M&A as we continue our shift toward organic growth,” Burdick said. “The sequential clinician gains this quarter from organic starts and retention were offset by fewer adds via M&A. We may see fluctuations in this trend as the timing of acquisitions can be lumpy. We will continue to direct greater effort toward growth via recruiting and incremental improvements to clinician retention as the primary drivers and clinician adds.”