- LifeStance Health went public in June 2021, raising approximately $720 million in a U.S. IPO.
- The firm provides mental health services in most of the U.S. via telehealth and in-person centers.
- LFST has grown revenue but operating losses have ballooned, which has been heavily penalized in the current rising interest rate environment.
- Until management can make meaningful progress toward operating breakeven, I'm on Hold for LFST.
A Quick Take On LifeStance Health
LifeStance Health ( LFST ) went public in June 2021, raising approximately $720 million in gross proceeds from an IPO that priced at $18.00 per share.
The company provides mental health services in numerous U.S. states via telehealth and in-person centers.
Given the firm’s high operating losses, until management makes significant progress toward operating breakeven, it is difficult to see a meaningful upside catalyst to the stock.
Until we see material operating loss reductions, I’m on Hold for LFST.
LifeStance Health Overview
Scottsdale, Arizona-based LifeStance was founded to develop an in-person and online-enabled platform for providing mental health care services to persons in the U.S.
Management is headed by co-founder, Chairman and CEO Michael Lester, who has been with the firm since 2017 and was previously founder and CEO of Accelecare Wound Centers.
The company’s primary offerings include:
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Psychiatric evaluation
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Treatment
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Testing
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Individual, group and family therapy
The firm currently operates or is affiliated with physician groups in dozens of states and employs several thousand licensed mental health clinicians.
The firm seeks relationships with primary care providers either via directly employing them or affiliating with them in states that require independent affiliations.
LifeStance Health’s Market & Competition
According to a 2020 market research report by IBISWorld, the U.S market for mental health and substance abuse healthcare will reach an estimated $18.7 billion in 2021.
This represents a forecast CAGR of 2.9% from 2016 to 2021.
The main drivers for this expected growth are an increase in federal funding for mental healthcare resulting in growing demand and availability of relevant services.
Also, the COVID-19 pandemic and related effects has resulted in increased demand for mental health services over the short term.
Below is a chart showing the historical growth of the industry:
U.S Mental Healthcare Market (IBISWorld)
The mental health market is still highly fragmented and the firm faces competition from specialized providers, retailers, medical practices and digital health companies.
LifeStance Health’s Recent Financial Performance
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Total revenue by quarter has grown significantly over the past 5 quarters:
5 Quarter Total Revenue (Seeking Alpha)
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Gross profit by quarter has also grown in recent reporting periods:
5 Quarter Gross Profit (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter rose to a high of 98.5% and then subsequently dropped, as the chart shows below:
5 Quarter Selling, G&A % Of Revenue (Seeking Alpha)
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Operating losses have remained high although ameliorated somewhat recently:
5 Quarter Operating Income (Seeking Alpha)
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Earnings per share (Diluted) have remained heavily negative since its IPO:
5 Quarter Earnings Per Share (Seeking Alpha)
In the past 12 months, LFST’s stock price has fallen 74.4 percent vs. the U.S. S&P 500 index’s drop of around 8.2 percent, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Valuation Metrics For LifeStance Health
Below is a table of relevant capitalization and valuation figures for the company:
Measure | Amount |
Enterprise Value | $2,380,000,000 |
Market Capitalization | $2,320,000,000 |
Enterprise Value / Sales [TTM] | 3.27 |
Price / Sales [TTM] | 2.88 |
Revenue Growth Rate [TTM] | 62.66% |
Operating Cash Flow [TTM] | $2,820,000 |
Earnings Per Share (Fully Diluted) | -$1.06 |
(Source - Seeking Alpha)
Commentary On LifeStance Health
In its last earnings call (Source - Seeking Alpha ), covering Q1 2022’s results, management highlighted the growth in its clinician base to nearly 5,000, a 51% growth rate from a year ago.
The company expanded its services to six new states in 2021 and is now seeking to deepen its presence within that larger footprint to create market density as needed.
Notably, the firm does not rely on direct to consumer pay marketing, rather it receives ‘the vast majority’ of new patients from ‘primary care referral, network payer relationships and organic online self referrals.’
As to its financial results, total revenue grew 42% year-over-year.
GAAP operating losses moderated sequentially although they remain extremely high.
For the balance sheet, the company finished the quarter with cash of $114 million and generated $3 million in cash from operations but spent nearly $28 million in CapEx, so free cash flow continued to be materially negative.
LFST inked a new credit facility to repay its existing long-term debt at a lower cost.
Looking ahead, management reiterated its full year guidance for revenue and expects improved operating results due to reduced new center openings and optimizing its G&A expense structure.
Regarding valuation, at IPO in June 2021, the company was valued at an EV/Revenue multiple of more than 13x. The market has since quashed its EV/Revenue down to 2.9x.
The primary risks to the company’s outlook are the continued wage inflation with onboarding new clinicians as well as recessionary conditions which may reduce discretionary spending from clients.
Management continues to talk about managing the company for long-term results, which is a common talking point these days from loss-making company leadership.
Given the firm’s high operating losses, until management makes significant progress toward operating breakeven, it is difficult to see a meaningful upside catalyst to the stock.
Until we see material operating loss reductions, I’m on Hold for LFST.
For further details see:
LifeStance Health Reiterates Guidance Amid High Operating Losses