LifeStance Health (Nasdaq: LFST) has and will continue to see its administrative expenses remain relatively high as it invests in initiatives and systems, previously deprioritized during its rapid expansion through a flurry of mergers and acquisitions, which enabled it to become one of the largest providers of outpatient mental health services in the U.S.

Top executives at the company said Tuesday during a panel at the 46th Annual Goldman Sachs Healthcare Conference that, in recent months, it has had to revisit and make key investments in its infrastructure to ensure its operations are sustainable. These include typically early-stage investments for growing platform investment companies, such as standardizing its local operating model, unifying its electronic health records, developing a payer engagement team and routine digital tools such as online patient check-in.

“Today, we’re incredibly inefficient — we have very little use of technology, whether that’s AI or RPA or whatever the case may be,” LifeStance Health CEO Dave Bourdon said during the panel. “So, in recent years, we’ve thrown bodies at solving problems.

“Sure, we’re going to make other investments in the business in the future, but we’ll have that operating leverage, and we’re going to have some opportunities to get a lot more efficient.”

LifeStance Health operates over 550 locations in 33 states. It employs about 7,500 mental health clinicians. It added 152 new clinicians, roughly a 10% increase, in the first quarter of the year. It offers outpatient therapy and psychiatric services through a hybrid of in-person and telehealth sessions. About 70% of sessions are conducted via telehealth.

Before its IPO in 2021, LifeStance Health acquired 53 existing practices. Since then, it has shifted away from its aggressive M&A strategy to growing by de novo expansions and rationalizing its clinic footprint. Its more measured approach has been focused on operational efficiencies meant to push the company to profitability. And the company is showing signs of progress toward that goal.

LifeStance Health had its first-ever profitable quarter as a publicly traded company in the first quarter of this year. It posted about $709,000 in net income.

Key investments and milestones

During the panel, Bourdon noted that over the past 2.5 years, LifeStance Health has shifted from growth to profitability while also continuing to invest in infrastructure. That spending appears in the company’s general and administrative expense (G&A). So far, the company hasn’t focused on “leveraging G&A” to get to profitability, company CFO Ryan McGroarty said during the panel.

“That’s obviously a very deliberate strategy,” McGroarty said. “In terms of building the foundation to profitable growth.”

The company continues to spend on initiatives to unite and standardize Human Resources Information Systems, credentialing and other “building block practice management type investments,” McGroarty said.

The efficiencies from this kind of elevated spending won’t show up in 2025, he said.

“Then in ’26 and beyond, you’ll start to see the leveraging come through,” McGroarty said.

Bourdon repeatedly brought up the online check-in tool as an example of a key accomplishment from administrative spending. 

“We didn’t have a payer engagement team: engaging with the payers and getting rate increases is just core to a big provider practice, and yet we didn’t,” Bourdon said. “Again, we were so focused on just growth and acquisitions that we just didn’t have those kinds of things. 

“And then you get into the tools and investments, like the digital patient check-in tool, that’s a game changer for us. Those were, those were new capabilities that we didn’t have anything and it was just a gap.”

Shifting clinician retention

The key to success and a stubborn problem for the company has been improving the retention rates of its clinicians.

“That’s always going to be the primary growth driver,” Bourdon said of adding new clinicians.

Bourdon acknowledged that previous efforts to increase its retention rate had not succeeded.

“That’s a little bit frustrating for us because we have been making improvements to the value prop with the clinicians, and we haven’t seen it play through yet in improved retention,” Bourdon said. “We still believe that we will see that in the coming years.”

Previous changes meant to address retention include shifting clinician payments from monthly to twice monthly, shifting its equity incentive program to a cash-bonus incentive system and doing more to ensure that clinicians’ calendars are full of patient appointments. While LifeStance Health hires clinicians as staff, they pay them via a revenue share from each session, which matches the fee-for-service dynamic many therapists face in the outpatient mental health space. However, they don’t get paid their wages or productivity incentives unless they see patients.

How LifeStance Health has handled its payer compensation and new-clinician-ramp-up processes has previously landed the company in troubled legal waters. The provider retention issue is also a key for critics of the company’s business model.

Bourdon said he feels the company succeeds in attracting new clinicians. Its three profiles for likely new clinicians are early-career therapists, clinicians who have been in practice but have contractor engagements with practices but want benefits and stability, and staff therapists who want more flexibility in terms of scheduling and use of telehealth.