00:06 Good afternoon and thank you for standing by, and welcome to the LifeStance Health Third Quarter twenty twenty one Earnings Conference Call. At this time, your -- participant lines are in a listen-only mode. After the speakers presentation we will have a question-and-answer session. Please be advised, today's conference call is being recorded. . 00:33 It's now my pleasure to hand today's conference over to Vice President of Investor Relations, Monica Prokocki. Please go ahead, ma'am.

00:42 Thank you, Holly. Good afternoon, everyone, and welcome to LifeStance Health’s third quarter twenty twenty one earnings conference call. I'm Monica Prokocki, Vice President of Investor Relations. Joining me today are Mike Lester, Chairman, President and Chief Executive Officer; Mike Bruff, Chief Financial Officer; and Danish Qureshi, Chief Growth Officer. While this is my first earnings call with LifeStance, I have been a corporate finance and IR professional for nearly a decade with public healthcare companies. I am excited to be a member of LifeStance and look forward to working with all of you as we continue our journey as a recent public company. We issued the earnings release and presentation after the market close today. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay of this conference call will be available following the call. 01:34 Before turning the call over to management for their prepared remarks, please direct your attention to the disclosure about forward-looking statements included in the earnings press release and SEC filings. Today's remarks contain forward-looking statements, including statements about our financial performance outlook. Those statements involve risks uncertainties and other factors, including the possible future impact of the COVID-nineteen pandemic on our business that could cause actual results to differ materially. 02:02 In addition, please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of prior and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Also, unless otherwise noted, all results are compared to the prior year comparative period. 02:29 At this time, I'll turn the call over to Mike Lester, Chairman and CEO of LifeStance. Mike?

02:34 Thank you, Monica. Welcome back from maternity leave and congratulations on the birth of your son. Good afternoon, everyone. Thank you for joining us today to discuss our third quarter twenty twenty one results. 02:48 As society has navigated the pandemic over the past year and a half, we have seen demand for mental healthcare continue to grow. At the same time, we've continued to witness the challenges patients face as they try to get access to high quality, affordable mental healthcare. 03:04 Services we offer at LifeStance are needed more than ever, we're deeply committed to our mission to help people eat healthier, while fulfilling labs by improving access to trusted, affordable and personalized mental healthcare. Our team combines a vision for the future of mental healthcare delivery with a sharp focus on execution and a growth mindset, evidenced by our strong operational and financial results. 03:30 During the quarter, we added four hundred net clinicians, stabilized commission retention to eighty percent annualized aligned with our expectations, opened twenty nine de novo centers and completed six acquisitions. The team's solid execution brought our footprint to four thousand three hundred and seventy five clinicians and approximately five hundred centers across thirty one states, contributing to our strong growth and enabling us to deliver on our mission of increasing access. 04:03 Financially, we also delivered at the high end of our expectations, including revenue of one hundred and seventy three point eight million dollars up seventy percent year over year. Adjusted EBITDA of ten point seven million dollars and adjusted EBITDA margin of six point two percent. We continue to maintain a strong capital position with two hundred and twelve million dollars of cash on our balance sheet. 04:28 We've also added new talent to our organization, including the appointment…

11:41 Thanks, Mike. And good afternoon, everyone. First off, I wanted to reiterate what Mike said earlier about how proud we all are of the mission we're serving. Here at LifeStance, we are revolution how patients receive easy access to affordable mental healthcare. There are more than fifty million people in the United States with the mental health condition, many of whom are unable to find the care they need. 12:04 As we continue to deliver growth nationwide, serving those patients that are in desperate need of care is at the core of what drives us every day. We won't stop until every person in the United States is one click or call away from a LifeStance health clinician. 12:20 As we look to continue to transform the industry, our growth strategy remains focused on three core pillars, expanding into new markets, building market density and deploying our digital tools. In the second quarter, we expanded into five new states, growing our presence to thirty one states and making progress towards our long term mission of delivering care to all fifty states through either in person or virtual care. We continue to have a strong acquisition pipeline of new state entry points and look to become fully operational in approximately six more states in the near term. 12:55 In the third quarter, we focus our growth efforts on building market density in our five recently entered states, as well as continued density building in our legacy state. We build market density by first, executing on our playbook of hiring more clinicians; second, acquiring tuck-in practices; and third opening de novo centers. During the third quarter, we made excellent progress against each of these drivers. 13:22 On the first driver, we added four hundred net clinicians in the quarter, bringing our…

17:19 Thanks, Danish. And good afternoon, everyone. In the third quarter, we delivered revenue of one hundred and seventy three point eight million dollars up seventy percent year over year, primarily driven by robust net clinician growth of seventy two percent. Center margin of fifty two point one million dollars increased fifty seven percent over the same period last year, driven by strong revenue growth. Center margin as a percentage of revenue declined two sixty basis points year over year to twenty nine point nine percent as expected, as new clinicians ramp to maturity. 17:58 Adjusted EBITDA of ten point seven million dollars declined twenty nine percent and adjusted EBITDA margin of six point two percent was down from fourteen point seven percent in the same period last year, primarily driven by planned investments as we build out our growth initiatives and public company infrastructure. 18:19 Our balance sheet remains strong. We ended the quarter with two twelve million dollars of cash and cash equivalents and one hundred and fifty seven million dollars of net long term debt with no material payments due until twenty twenty six. 18:35 For the nine months ended September thirty twenty twenty one, we used twenty one million dollars of cash flow from operations, including twenty three million dollars for IPO related payments and nineteen million dollars in interest payments on long term debt. 18:52 Our capital allocation strategy remains disciplined as we continue to prioritize investing in our growth, both organically and via acquisitions, as well as an operating efficiency as we scale our clinician and support operations. As Mike said, the market remains robust and the need for mental healthcare has never been greater. 19:17 We are building LifeStance for the long run to deliver on our mission of increasing access to trusted,…

21:41 Thanks, Mike. As we look at the market and our environment, we see so much opportunity and room for growth in front of us in a market that is growing mid-double digits and a societal need for mental healthcare that continues to get more recognition and less standardization. 21:58 We know we must invest smartly and continue to build our highly differentiated hybrid platform. We also know we must continue executing on our clinician and geographic growth. We are confident in outlook for our company and that our strategy is working and will continue to allow us to build market share. 22:19 Delivering on our mission of affordable quality mental healthcare for all keeps our approximately six thousand purpose driven employees inspired to execute and make a tangible impact. 22:29 Let me close by thanking our team members and partners for their dedication and support this quarter. We are proud of the work and results that everyone at LifeStance has produced and the enthusiasm they bring each and every day to achieving our mission. 22:44 Now, operator, let's go to Q& A.

23:05 Our first question is going to come from the line of Ricky Goldwasser with Morgan Stanley.

23:14 Hi. Good evening and thank you for details. So my question is around productivity and retention. I mean, these were sort of the key headwinds that you highlighted in the second quarter. It sounds like attrition is stabilizing at the second quarter levels. Can you talk about clinicians productivity and how is it sort of progressing versus the key expectation that you laid out for us last quarter?

23:43 Sure. Thanks, Ricky. I appreciate the question. So our retention rate as we said was eighty percent annualized in Q3 and that was consistent with our expectations for the back half of the year. As you know, the labor market dynamics present a more difficult operating environment, we continue to be focused on doing everything that's in our control to drive results and really to be the employer of choice for our clinicians. So, overall, we remain very confident in our ability to grow. We continue to add to our clinician base with four hundred net-adds in the quarter, which is one of the best quarters that we've had since we started the company. 24:20 We continue to see -- we're listening a lot more to the clinicians. We're getting great feedback from them, we think that we've demonstrated this great place to work by the number of clinicians that we're hiring. But we do see this burn out. And you read about it, what is the, air of exhausted that New York Times talked about earlier this week and the great resignation. But we're engaging more, we're just a little bit concerned about clinicians wanting to take a little bit extra time off during this holidays, which actually makes a lot of sense to us and then come back completely recharged in January and ready to have a great twenty twenty two.

25:06 So just as a follow-up to that, if you think about your twenty twenty two sort of early, of low thirty revenue growth, which interpreting is sort of thirty percent to thirty two percent, what are you kind of like, what's the underlying assumptions that are included to get to that sort of growth if we think about organic versus M&A? And then, where do you see potential upside to that?

25:37 Mike Bruff, can you answer that?

25:39 Sure. Good afternoon, Ricky. You're correctly, in our comments around our outlook of low thirty, the biggest change in our model has been to now include the headwind through the full year of twenty twenty two of having retention at approximately eighty percent annualized rate. That's the biggest piece, we believe the labor market is uncertain as to whether or not this is a structural move or temporary and we believe that it's pragmatic for us to at least assume that at this point in our planning cycle. I think to get any more detailed on assumptions at this point is premature. The reason why this is a preliminary outlook as we're still in our planning cycle and we do want to monitor the market more before we move to finalize that plan. So we'll reserve more assumptions until we meet on the fourth quarter earnings call.

26:41 Thank you.

26:44 Our next question is going to come from the line of Lisa Gill with JP Morgan.

26:50 Good afternoon, and thanks for taking my question. Just really want to follow-up, in addition to the clinicians taking incremental time up, are there any incremental bonuses that you have to pay people today will be my first question? And then secondly, as we think about the competitive marketplace today, how do we think about paying for the clinicians and you talked about next year equity programs around brands and I agree with you around that ownership mindset, but what are some of the other things that you're taking into account as we think about incremental costs for twenty twenty two?

27:26 Yes, Ricky, this is Mike Lester – Lisa, this is Mike Lester. Thank you for the question. We're actually not seeing any unusual wage inflation in the sector above what we've already contemplated on our models and guidance. We don't see any changes to our prior planning expectations. Our clinician types have always been in high demand we recognize that the demand in a way that we set our compensation structure and how we build in wage increases for our clinicians. 27:54 The equity program that we rolled out, we think is going to be significant. It was planned for pre IPO and disclosed in our S-Form. So there's not an additional cost there. But it does -- we've gotten great feedback from the clinicians and it will -- it's structured in a way, invest in a way that is centered around their productivity. So, we think that's going to be a very positive impact at least as the feedback we've gotten from the clinicians going into next year.

28:24 That's very helpful. And then just a follow-up, can you disclose the six tuck-in acquisitions? What was the revenue contribution in the quarter from the acquisition and expected contribution in the fourth quarter?

28:38 Lisa, we don't disclose that.

28:41 Okay. Appreciate it. Thank you.

28:44 Thank you, Lisa.

28:46 And our next question is going to come from the line of Brian Daniels with William Blair.

28:51 Hey guys. Thanks so much for taking the question Mike, I want to dive deeper into that equity incentive compensation. I think that's an important data point, and it definitely has potential to engage and bring the workforce more. So can you speak a little bit more broadly to how broad that will be? Is it all existing clinicians and employees or just newer ones? Maybe help us understand how will that and what those productivity measures are that will drive that vesting or awards? And then I'd also be curious for anyone on the team could hit this one, it’s going to be used more in potential M&A activity going forward, just given physicians that are maybe owners or equity piece of LifeStance versus just pure cash M&A transaction fee?

29:36 Sure. Thanks, Ryan. So I'll answer the second half first. So in our history we have made seventy acquisitions to date. And depending on the size of acquisitions, we have used rollover equity as a tool in those acquisitions and that's turned out to worked out really well for us as well as the clinicians that have rolled over. As far as the twenty twenty two equity program, we're moving forward that as I mentioned before, it was planned pre IPO. It's designed to ensure that we can continue to obviously recruit and retain the most talented team members. And it's consistent -- the design is consistent with other public companies. I would say the one differences is that, the majority of our employees are clinicians. So, I think it's going to be a little bit unique and that we have so many clinicians that are able to participate in the equity of the company. 30:32 And you have to W2 to employee -- full time W2 employee to qualify for or to be eligible for the plan. And again, there's no incremental cost to add clinicians, we're simply moving forward with our original plan to include clinicians in our allocation which we think is the right thing to do to land with our mission.

30:54 Yes. It sounds like a good program. Thank you for that detail. And then the other one I'll ask is just on some of the technology investments you talked about more sophistication on personalized matching, some more rapid onboarding. I'm curious if that is fully rolled out or if that's something that's in progress? And if it's rolled out, what kind of benefits you started to see on the patient either in satisfaction or matching and retention side, if it's maybe too soon to update, just any early indicators there would be helpful? Thanks.

31:26 Sure. We continue to deploy a number of tech enabled services and it's really core pillar of our growth strategy. We continue to invest in our digital platform provide patients and clinicians focused and it is with a high -- with a unique high quality user experience regardless of how they engage with LifeStance. 31:46 Danish, could you add some color to that?

31:48 Sure, yes. So like we mentioned before, we're working on improving the overall booking and intake experience by creating a more streamlined process for our patients that reduces the burden on them and our clinicians, while also improving our patient clinician matching process. It's really important to make sure that it's a fit from both sides that not only are you getting the patients the right fit for them clinically, but also that you're getting the right types of patients for the clinicians to keep them motivated and focused on the diagnosis that they really like to treat or they're subspecialized in. The product is totally built in house and it's offering personalized experiences based on the workflows and the needs of our clinician and patient base. 32:35 As far as our continued investment in digital tools, we've put out a product innovation roadmap that's really been built for the end to end patient journey, with this being the first priority that we're executing against along that roadmap.

32:51 Okay, great. Thank you for the color. Appreciate it.

32:55 And our next question is going to come from the line of Kevin Caliendo with UBS.

33:02 Thanks. My first question is on the visibility into twenty twenty two. And I guess that means how much is M&A, how much visibility do you have on incremental recruitment? What's your pipeline look like relative to what it was six months ago? If you can give us some color around the visibility into the revenue number? That's my first question.

33:27 Mike Bruff.

33:28 Yes. Good afternoon, Kevin. At this point in our cycle, we are looking at all of the underlying growth drivers to determine to what level we're going to -- what level of assumptions that we're going to use for each. I think we've been fairly consistently been able to drive growth in our clinician base this past year. I would expect us to continue to drive clinician based growth next year. 34:05 The wonderful thing about our business model is that, we've got multiple levers to pull to drive that growth. We've got optionality to look at organic or inorganic when they make sense. And those are things that we're working through right now. With respect to the broader market and the dynamics that we are operating in today, I think the jury is still out as to whether or not some of these things again are structural or if they're temporary and allowing us to have more time to understand that and then to finalize our assumptions is the prudent thing, and I think we'd be getting ahead of ourselves to try to give you a deeper set of assumptions at this point. 34:54 I think the only thing that has changed from our modeling is that, we are taking the eighty percent annualized retention through next year.

35:04 Okay. Fair enough. And I guess when we just look at your sort of guidance, if I just take the EBITDA number forward as well. The margin would have been a little bit lower than what we would have expected given the revenue guidance that you had. And I'm guessing there's some additional spend there that goes above and beyond. Is it marketing spend? Is it retention spend? Is there anything different from original plan? And if you can maybe not have to quantify it, but if you can just talk to what might be different form just growth opportunity spends?

35:41 Yeah. Sure, Kevin. Obviously, the first emerging item is fully baking -- at least from our modeling is baking in the eighty percent retention rate. Second is the ongoing investments that we made in the second half of twenty twenty one will carry forward into twenty twenty two. And then we plan to move forward with those expected twenty twenty two investments because we have a tremendous growth opportunity ahead of us. We have a huge TAM to attack. So, I don't think there's anything out of -- that you would think of surprises in terms of the broad categories of investment in which we're looking at. I think thinking about the digital and tech enabled services, those continue to differentiate LifeStance. It builds out our hybrid model and then I think just the general public company and other investments in talent that we need to support that growth. 36:44 So I won't get too more detailed underneath that, simply because we haven't finalized the levels of investment or the allocation amongst those priorities. But I would suggest that there's not going to be anything that's a big surprise.

37:03 Appreciate that. Thank you so much.

37:05 You. Got it.

37:07 Thank. Our next question is going to come from the line of Steph With Jefferies.

37:14 Thank you. Good afternoon, everyone. We have two questions related. The first is on the eighty percent annualized retention figure. I'm wondering if you can help us contextualize that? What it was maybe pre pandemic? How you expect that to trend, I know in the twenty two guidance you're mentioning is holds, but how could that trend over time? What has the peak been in the past? 37:36 And then I want to ask a related question on the fiscal twenty twenty two framework. What are you assuming in terms of the productivity measures per clinician as you roll out into the forward year? Are you assuming that the bookings per clinician or the appointments per clinician is similar in the fourth quarter as it would be for the full year? Or is there some sort of seasonality handicap that's already built in normally to your fourth quarter and your adding in an additional handicap for additional time off to recover? Thank you.

38:08 Sure, Steph. Thanks for the questions. As far as retention rates, so as we said in our roadshow show in twenty twenty, we saw an eighty seven percent retention rate. And due to COVID, we had indicated that we saw -- we had more clinicians leaving than we had seen historically in twenty twenty. And so, we felt like that was going to shake out around eighty percent. We in fact have stabilized that around eighty percent and feel good with that number on a go forward basis.

38:41 And when think about -- Steph, this is Mike – Mike Bruff, sorry. I forgot I have to differentiate myself. With respect to clinician productivity for the fourth quarter or said differently, for the back half of the year, we had productivity assumptions and we are pretty spot on with those assumptions, especially through the third quarter. 39:06 Our results came in within our expectations maybe slightly better than. And for the fourth quarter, we -- at this point, we're not expecting any material change in productivity other than the feedback that we've gotten related to the holidays that clinicians would like to take a couple to few more days of time off than normal. 39:32 Beyond that, we don't have any indication that productivity would change. But I do think the reason why we're not calling it is that, there is I think a broader macro debate about what's going to happen with the labor force. So, right now, as we think about twenty twenty two, we are baking in at least at this preliminary outlook that retention stays at eighty percent, but we have not factored in any shift in productivity one way or the other.

40:08 Thank you. Very helpful.

40:12 Thank you. And with that, we will conclude today's conference call. Thank you for participating in the LifeStance Health Third Quarter twenty twenty one earnings conference call. We appreciate your participation. You may now disconnect.