LifeStance (Nasdaq: LFST) is pulling back from its expansion efforts as it refocuses its goal on long-term profitability.
The sizable behavioral health provider plans to do this by consolidating brick-and-mortar facilities, cutting payer contracts by 25% and pulling back on its M&A strategy, instead opting for more organic growth. The company has its sights set on being cash-flow positive by 2025.
“Through the company’s early years of tremendous growth, we’ve been in an all-out sprint,” Ken Burdick, CEO of LifeStance, said Wednesday during the company’s Q4 earnings call. “Now we’re focused on building scalable processes and systems not only to support the level of growth we’ve already attained but to prepare LifeStance for the huge opportunity in front of us.”
The company revealed that its revenue for Q4 increased year over year by 21% to $229.4 million. The company’s total revenue for the fiscal year 2022 was $859.5 million, a 29% year-over-year increase.
This new strategic focus comes after the Scottsdale, Arizona-based LifeStance continues to struggle on the public market and, as a result, has shaken up its C-suite team. Over the last year, the company has named a new CEO, COO and CFO.
Where LifeStance is pulling back
In 2023, LifeStance will consolidate about 30 to 40 offices. Still, Burdick said that this will have “minimal to no disruption” for patients and clinicians because of the proximity of some of their offices. The provider currently has over 600 locations in 34 states across the country.
Contextually, this comes when patients are looking to return to face-to-face visits.
“We are seeing increased demand and preference from our patients for in-person visits,” Burdick said. “So we’re going to be really careful to make sure that we find that right balance. Having convenience and accessibility to our patients is critical.”
The end of the national public health emergency (PHE) on May 11 also means that the provider must maintain in-person settings for patients requiring controlled substances.
“We expect this will further magnify the competitive differentiation of our hybrid offering,” Danish Qureshi, president and chief operating officer at LifeStance, said during the Q4 earnings call. “LifeStance can seamlessly provide services even as the PHE winds down and in-person requirements resume to avoid disruption of patient care. Our chief medical officer has set forth a plan that meets the in-person requirements for the prescribing of controlled substances.”
At the same time, the provider plans to taper its M&A efforts, instead focusing on organically growing its footprint and clinician network. This is something that the company already began last year.
“We continue to shift toward organic growth versus acquired growth. In 2022, over 80% of our gross clinician adds were hired rather than acquired,” Burdick said. “Acquisitions were absolutely crucial to building scale in LifeStance’s early years. But with a broad footprint now in place across 34 states, we are hyper focused on the organic growth opportunity in this massive market.”
Overall, the company completed four acquisitions in Q4 and 13 in 2022. Meanwhile, it opened nine de novos in Q4 and 90 in 2022.
Lastly, LifeStance plans to slash its number of payer contracts. On a previous earnings call, Burdick revealed that the company has more than 400 payer contracts, which created an administrative burden.
“Even though it’s a large percentage of the payer contracts, it’s a de minimis percentage of our visit volume,” Burdick said. “We can take 25% of our payer contracts out, and it represents less than 1% of our volume. So, therefore, it’s really not going to have much leverage on our rates. The leverage is in the administrative simplicity that it creates, and it’s going to help. It’ll be one of the things that will help contribute to running a more efficient business.”
The bulk of the payer-contract consolidation efforts will occur with the small local and regional payers, and Burdick noted national payers wouldn’t be impacted.
Areas of investment
While LifeStance is pulling back in some areas, it plans to focus its efforts on simplifying administrative burden.
Over the next 24 to 36 months, it will invest in implementing a human resources information system (HRIS) system to “effectively manage the entire lifecycle of our employees.” It will also build a technology platform to credential and onboard clinicians and enhance its electronic health record.
“We believe it’s imperative to make strategic investments in those areas, which will deliver significant long-term benefits that enable LifeStance to better serve our patients, clinicians, and team members while achieving operating leverage as we continue to grow,” David Bourdon, CFO of LifeStance, said.
The company is already touting the benefits of its investment in its revenue cycle management system. Specifically, the company saw an eight-day improvement in days sales outstanding (DSO) in Q4, from 48 to 40.
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