LifeStance Health Group (LFST)

Behavioral health company LifeStance Health (NASDAQ:LFST) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 10.8% year on year to $333 million. On the other hand, next quarter’s revenue guidance of $342 million was less impressive, coming in 2.7% below analysts’ estimates. Its GAAP loss of $0 per share was significantly above analysts’ consensus estimates.

Company Overview

With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ:LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.

The outpatient and specialty care industry delivers targeted medical services in non-hospital settings that are often cost-effective compared to inpatient alternatives. This means that they are more desired as rising healthcare costs and ways to combat them become more and more top-of-mind. Outpatient and specialty care providers boast revenue streams that are stable due to the recurring nature of treatment for chronic conditions and long-term patient relationships. However, their reliance on government reimbursement programs like Medicare means stroke-of-the-pen risk. Additionally, scaling a network of facilities can be capital-intensive with uneven return profiles amid competition from integrated healthcare systems. Looking ahead, the industry is positioned to grow as demand for outpatient services expands, driven by aging populations, a rising prevalence of chronic diseases, and a shift toward value-based care models. Tailwinds include advancements in medical technology that support more complex procedures in outpatient settings and the increasing focus on preventive care, which can be aided by data and AI. However, headwinds such as reimbursement rate cuts, labor shortages, and the financial strain of digitization may temper growth.

LifeStance Health competes with other outpatient mental health providers including Talkspace (NASDAQ: TALK), Acadia Healthcare (NASDAQ: ACHC), and Universal Health Services (NYSE: UHS), as well as private companies like Lyra Health and Headspace Health, and traditional private practice networks.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.28 billion in revenue over the past 12 months, LifeStance Health Group is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, LifeStance Health Group’s 39.2% annualized revenue growth over the last five years was incredible. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. LifeStance Health Group’s annualized revenue growth of 18.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

LifeStance Health Group also reports its number of clinicians, which reached 7,535 in the latest quarter. Over the last two years, LifeStance Health Group’s clinicians averaged 14.7% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, LifeStance Health Group’s year-on-year revenue growth was 10.8%, and its $333 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 9.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 14.5% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is noteworthy and implies the market sees success for its products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Although LifeStance Health Group broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 14.3% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, LifeStance Health Group’s operating margin decreased by 2.6 percentage points over the last five years, but it rose by 18.7 percentage points on a two-year basis. Still, shareholders will want to see LifeStance Health Group become more profitable in the future.

This quarter, LifeStance Health Group’s breakeven margin was up 6.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although LifeStance Health Group’s full-year earnings are still negative, it reduced its losses and improved its EPS by 30% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, LifeStance Health Group reported EPS at $0, up from negative $0.06 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast LifeStance Health Group’s full-year EPS of negative $0.10 will reach break even.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

LifeStance Health Group’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 2.7%. This means it lit $2.71 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that LifeStance Health Group’s margin expanded by 17.3 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise.

LifeStance Health Group burned through $10.26 million of cash in Q1, equivalent to a negative 3.1% margin. The company’s cash burn was similar to its $26.94 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

LifeStance Health Group’s five-year average ROIC was negative 10.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, LifeStance Health Group’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

LifeStance Health Group reported $134.3 million of cash and $473 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $126.8 million of EBITDA over the last 12 months, we view LifeStance Health Group’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $23.71 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly LifeStance Health Group blew past analysts’ EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed significantly and its EBITDA guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $6.49 immediately following the results.

Updated: May 22, 2025 at 11:54 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in LifeStance Health Group.

LifeStance Health Group doesn’t top our investment wishlist, but we understand that it’s not a bad business. To kick things off, its revenue growth was exceptional over the last five years. And while LifeStance Health Group’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its rising cash profitability gives it more optionality.

LifeStance Health Group’s P/E ratio based on the next 12 months is 74x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $8.86 on the company (compared to the current share price of $5.68).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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