Hi friends,

Lifestance have an interesting story.

Started by Michael Lester in 2015, they have quickly become one of the biggest outpatient providers of mental health services in the US.

If you want the full story on how they did this, I wrote all about it last year.

Today, they are publicly traded, employ over 7,500 clinicians and will do well over $1B in revenue in 2025.

Last week, they announced their Q1 results. So, as always, I decided to dive in.

When listening to the earnings call and analysing the numbers, there were a few interesting things that stood out to me.

In today’s article, that’s exactly what I share with you.

I tell you what you need to know from Lifestance’s Q1 earnings and share the five things that stood out to me that are relevant to the broader industry.

Let’s get into it.

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The Highlights

Let’s start with what you need to know about Lifestance’s Q1 performance.

Revenue and profitability highlights:

• Revenue was $333M (+11% YoY)

• Gross Profit (aka Center Margin) was $109.8M (33% gross margin, up 1.5pp YoY but down 0.6pp from Q4 2024)

• Adjusted EBITDA was $34.6M (10.4% Adj. EBITDA margin, up 1.2pp YoY and 0.3pp from Q4 2024)

• Operating profit was $1.6M (13.5% operating profit margin)

• Net income was $0.7M (the first quarter of positive net income in the public history of Lifestance)

  

  Lifestance Q1 2025 Earnings

Cashflow and balance sheet highlights:

• They reported negative operating cash flow of $3.1 million and a total cash burn of $20.2 million, inclusive of investing and financing activities.

• At the end of the quarter, they had $134M of cash & cash equivalents on their books

Operational highlights:

• Session numbers grew by 10% YoY to 2.1 million

• Clinician numbers grew by 10% YoY to 7,535

• They stopped stock-based bonuses for clinicians and replaced them with cash bonuses (which apparently clinicians preferred)

• They have over 550 physical centers in 33 states

This all looks pretty good, right? They even outperformed their guidance.

And yet, the share price was down 16% on the announcement…

So why didn’t the market like these results?

I think there are two main reasons…

First, pricing pressure

In Q1 2025, Lifestance’s revenue per visit was $158.7.

This is up only 1% YoY and is actually down 1% from Q4 2024 (when it was $160.1).

Despite being able to drive good price increases in mid 2023, they have been under much more pricing pressure in recent quarters.

In my 2024 earnings breakdown, I pointed out how Lifestance were already struggling to increase prices in line with inflation. But to see an actual quarter-on-quarter decline is an obvious worry, especially for a business with a hard floor on its cost base.

When asked about this, the Lifestance team said it was primarily driven by rate cuts from one major payor that was agreed last year and is still coming into full effect. They were very eager to reassure investors that this is a “unique” situation with one payer.

But my hunch is that investors are concerned this downward pricing pressure is more pervasive.

I’ve been concerned about pricing pressure in this market for some time.

Payers’ behavioural health costs have increased significantly in the past five years. Alongside this, the supply side of the marketplace has also increased significantly, and many large players are hungry for contracts to fuel growth. The product (therapy) is largely commoditised, with providers struggling to differentiate on quality or outcomes. Under cost pressure, payers are realising they can use their negotiation power to drive down prices with providers.

Lifestance expect their prices to fall even further in Q2 as the final effects of their payer cut run through. In H2, they say that prices will then increase again as other payer deals come into effect and additional revenue from specialty services start to hit the books (more on that later).

They describe their pricing challenges as a "temporary dislocation" and expect to get back to “low-to-mid single-digit YoY price growth” in the medium to long term.

And then, Mr. Macro

The clouds from which pricing pressure falls are the broader macroeconomic conditions.

There are real concerns about a recession in the US, and both the statements from Lifestance leadership and the questions from analysts focused on this area.

In the short term, however, Lifestance expect a more challenging macro environment to actually be supportive of their business as patients (and clinicians) shift away from cash pay to in-network treatment options. I think this is true (at least for patients) as we have already seen evidence of this in BetterHelp’s recent decline and Teladoc’s strategic shift to an in-network model (signalled most recently by their acquisition of UpLIft).

Lifestance also said that a troubled economy may lead to higher demand for mental health services across the board. Although this may be true, it’s very concerning.

But even if there are some short-term positive impacts for Lifestance, I struggle to see how a bad macro environment can be good for Lifestance in the medium to long term. Their payers will surely feel the impacts of a harsher economic environment and won’t hesitate to pass that on to provider organisations like Lifestance.

These were two of the interesting and related trends I picked up from the earnings release. And combined, I think they are responsible for Lifestance’s share price decline.

But what else jumped out at me from this release?

Brick and mortar is back, baby!

Last year, I wrote an article asking if brick-and-mortar clinics were about to make a comeback in mental health.

At the time, Brightline had announced its pivot away from virtual-only services and towards a hybrid model structured around physical clinics (last month, they actually opened their first clinic in Brooklyn). I was also seeing a continued post-COVID desire for more IRL experiences and services.

Data from Lifestance’s recent earnings call suggests this shift is real.

In Q2 2024, 79% of all their sessions were virtual. In Q1 2025 (just 3 quarters later), this number was 71%.

Considering they have over 2 million sessions a quarter, that’s a pretty significant dataset.

Interestingly, they also reported that first visits for patients have an even higher share of in-person visits, about 37%-39% of all first visits being in-person.

Lifestance benefit from this consumer demand for in-person sessions. Not only in revenue growth but also through lower acquisition costs due to easier provider referrals through their physical locations.

I don’t know exactly where this goes from here, but I’m excited to see how these hybrid models play out.

Especially as more businesses expand into speciality services…

Would you like some specialty services with that, sir?

A big takeaway from Lifestance’s earnings call was that they plan to expand their range of treatment options for patients. They hope that this will improve outcomes for patients but also provide growth and higher margin revenue.

Specifically, they referred to expanding their services for treatment-resistant depression by adding more clinics with TMS and Spravato (the esketamine nasal spray, which has to be administered in clinics).

They have the payer relationships, provider network and clinic footprint to execute this, so I think it’s a pretty interesting move. They also made a loose reference to potentially adding more digital therapeutics services in future. Many players will be eager to hear of a potential acquirer like this.

I’ve long thought that we need to do a better job of combining treatment options and making them more easily available and navigable (is that a word) to patients. If Lifestance can do this thoughtfully, ensuring they are led by patients’ needs, this could be an interesting development to follow.

A surprisingly robust business

Despite concerns around pricing pressure and the macro environment, I came away from my analysis feeling that Lifestance is quite a robust business.

Their clinic footprint is a strong and defensible asset. They have significant differentiation across geographies and payers. Their core product (therapist and prescriber sessions) is core to the mental healthcare system and at low risk of being replaced (unlike some digital interventions, for example).

Of course, this doesn’t mean that they can’t f**k things up. Mental health organisations seem to be great at that…

Yes, their growth is slow and profitability remains an uphill battle, but in the last two years, they seem to have created a robust and predictable business at the core of their operation.

Unchanged Guidance

So what about the rest of the year? Despite some of the challenges that they themselves highlighted, they did hit their Q1 numbers and expect to do so for the remainder of 2025, reaffirming their guidance of over $1.4B in revenue and Adjusted Ebitda of $130M - $150M.

As always, I’ll be keeping a close eye on the Lifestance story and sharing what I learn with you all.

That’s all for this week.

Like this? Let me know,

Or even better, share it with someone.

Keep fighting the good fight!

Steve

Founder of The Hemingway Group

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