LifeStance Health Group Inc Stock

All right. Great. Good morning, everyone. I'm Craig Hettenbach, lead coverage of health care technology and providers. Very pleased to have with us LifeStance today, CEO, Dave Bourdon.

Just as a heads up before we get started for disclosures, you can find them on the Morgan Stanley website, www.morganstanley.com/researchdisclosures.

So Dave, with that out of the way, I thought we'd just kind of set the tone on just the overall outpatient mental health market, still very fragmented. Just kind of your positioning in this market just as a starting point.

Yes. First of all, thanks for having us, Craig. It's always great to be here with you. Outpatient mental health industry is unlike anything else in the health care ecosystem, as you know it today. So highly, highly fragmented industry, the majority of practitioners are 1099 and they're in small practices or even individual practices. You still have a good percentage of them that don't even accept insurance. So there's still cash pay only. And I think you read about that. You hear that in the news of people having trouble getting access to affordable care, which means you're not able to use your health benefits. So that's the industry.

Obviously, you have the increasing demand for services that we all hear about. The social stigma is reducing, which again only puts pressure on this fragmented industry. And then you step into where LifeStance is. So we're the leader by far, the largest national practice of outpatient mental health care. We have about 8,500 W-2 clinicians, about 600 centers spread across 34 states. We just added a state last week, Iowa, with an acquisition. So we have a big footprint, still a lot of opportunity, which I'm sure Craig will ask me about from a geographic perspective. But we are by far the leader in the outpatient space.

Great. And one of the things we've seen kind of accelerate kind of through COVID and coming out is this imbalance, right, of supply and demand between clinicians and people that need care. What are some things you've been able to do in terms of whether it's on the clinician front, hiring and just kind of helping payers out because this continues to come up.

Yes, yes. It's -- so there's an interesting dynamic in outpatient mental health where it's acknowledged that there's this supply-demand imbalance, the supply of clinicians with the -- versus the patient demand, and there's an imbalance, and it's only getting worse. At the same time, outpatient -- because of this highly fragmented industry, it's really hard for patients to find care. So we have this imbalance, but yet every week, LifeStance has thousands of open slots that new patients could use that go unused. It's like an airplane taking off with empty seats. And that's common in the industry.

So while we have the imbalance, it's a very inefficient model. The -- specific to LifeStance, so we continue to grow our clinician base near double digits every year organically, and that's helping to improve access for the payers. The other big thing that we do is that with our 600 centers, we're also increasing access to in-person care. And that's very important to the payers because a lot of the new entrants in the industry are really virtual only, especially since COVID. And so having that in-person dynamic is really important for the payers.

And then the last thing I'll mention is while the payers are very focused on access, they're starting to pivot towards quality, and we welcome that. This year in both our first and second quarter calls, we referenced white papers that we've put out around the high-quality results we've been achieving for our patients with depression and anxiety as an example. And you should expect more white papers coming. I think the next wave will be around some of the specialty services like TMS and Spravato. So we're very focused on quality and that we welcome that conversation with the payers.

Got it. The point on empty seats, I think, is a great segue. I did want to talk about productivity. You could see in the numbers today, that's one thing in terms of it's been an important driver of growth, full clinician schedules, but I know there's a lot of work that went behind that. So maybe take us back in terms of what you saw in the business, how you tried to hear it to position yourselves for full...

Yes, yes. I mean it's been a journey. As you know, we started out a couple of years ago wanting to increase the capacity or the time that clinicians give us on their calendars because capacity and then how well we utilize it, that's what drives productivity. And so we were very successful in driving -- getting additional hours from clinicians. They wanted more work. Last year, we then focused on how do we better utilize that time they're giving us. And there were really 2 angles to it. The first was that we want to drive more patients in the door, new patients in the door.

And we did some things, for example, we put some technology AI tools in support of our phone new patient intake team, hundreds of people answering the phones. That's actually how the majority of new patients book appointments with us still. But we had some AI tools that supported them. And as a result, we increased the conversion of patients seeking care to booking an appointment by about 5%, which was really meaningful for us. So part of it was getting new patients in the door. And then the other aspect of it was, again, better utilizing the time clinicians gave us. And this was basic practice management. So it was as simple as things like my local teams evaluating the capacity that was being unused on the existing clinicians' calendars and saying, "Hey, I don't need to hire a bunch of new clinicians this quarter because I'm going to utilize that time on my existing clinicians' calendars," which again, they were asking for as well as other things like just working with the clinicians to better set up their calendars so that it was more receptive to the patient demand coming in.

And that could be what slots they were making available. There's -- as you would expect, there's prime time slots, certain days of the week, certain times depending on the patient demographics. And so doing a lot of work there. And what we saw in the third quarter was productivity, which is calculated as the number of visits per quarter that clinicians are doing really step up. And that's continued for the last 4 quarters in the second quarter, productivity on a year-over-year basis had improved about 7%.

Got it. So you're kind of in through this process. I'm curious kind of additional levers you have to pull, like how do investors kind of gauge where you are? And is it even certain regions where you see like, okay, this is playing off or things you can kind of point us to, to say that there's more room to go on productivity?

Yes, yes. So just ground you a little bit on productivity. So we've asked for more time from the clinicians. They give us on average about 30 hours a week to see patients. There's administrative time on top of that. So there's still room to move the needle a little bit on the amount of time clinicians give us for patients. The bigger opportunity is on the utilization side. We're utilizing about 70% of that 30 hours today.

So there's opportunity to move that up. We don't know exactly where the ceiling is. We're going to keep chipping away, but we do believe there's more opportunity there, Craig. And it's -- and we have confidence because we do see higher utilization in certain markets. We do see higher hours being available in certain markets. But we also just are identifying as we're ramping up our game on data and insights, things that certain practices were doing that were leading to better results. And I'll give you an example.

One of our state practices, when they booked a first appointment for a new patient, they also booked a follow-up. And what we saw was that in that particular state that the patients ended up being stickier. So they had a stronger therapeutic alliance. They were less apt to drop after the first appointment, and they were getting through their treatment faster. So they were more apt to stay through the treatment and to complete it faster. So we then piloted that in a number of other states this year and saw great results, similar results. And now we've rolled that out nationwide. And that's part of why we're outperforming. We're guiding to about 20% revenue growth, mid-teens visit growth this year. And it's examples like that as we get smarter and more sophisticated in running the practice.

Got it. I wanted to shift gears just to rates in Q2. Total revenue per visit was at kind of the high end of your low to mid-single-digit target. Just any color kind of what's driving that? And how does that perhaps instruct the longer-term view around that range of low to mid-single digits?

Yes, we're stepping into this year, and I think the questions we would get is, how do you even have confidence you can get low single digits, right? And now here we are at 6% in Q2 and guiding to mid-single digits for the year. There are 2 things that I would point to. The first is about 25% of our volume or our revenue comes from contracts with payers that are tied to Medicare. Now we're not getting Medicare rates. We're getting a percentage of Medicare. So it could be 140% or 180% or whatever the case is, but it's tied to Medicare, and so it will float with that.

The federal government is recognizing that they have been under reimbursing mental health for years and years and years, you can say decades, and the importance of mental health services. So really stepped up the reimbursement for 2026. It was high single-digit year-over-year increase, which you don't see very often in Medicare. So that helped. And then with the rest of the portfolio, just blocking and tackling. There were some -- still have some payers that are reimbursing below the average, getting them up and then getting reasonable increases from the payers that are reimbursing at a level that we would view as appropriate.

So just blocking and tackling, which got us to what we would view as an outperformance for the year. As we step into '27, I think it's a similar dynamic. We have constructive conversations and relationships with the payers. The early read on Medicare reimbursement for outpatient is mid-single digits increase year-over-year. Again, that's not set in stone, but that's the early read. And so we think it's setting up well for, again, another low to mid-single-digit reimbursement increase next year, which we really think is durable and will happen for years to come.

Excellent. You mentioned from an AI perspective, the tool and kind of intake. So I want to maybe build on that in terms of more broadly, perhaps where you're spending and allocating money in terms of investments for technology, like key applications.

Yes. Well, the big one for us is the electronic health record. So we're in the process of planning our transition to a new electronic health record next year that -- and we're shifting from what I would consider a small practice mental health tool to an industrial strength big outpatient primarily -- the vendor we're going with is more medical than mental health because there's not any companies in the mental health space that look like us.

But industrial strength solution that in itself will have a lot of AI capabilities and be a tremendous foundation for us for the future as we drive improvements in patient experience and clinician experience and operational efficiency. So EHR is a big one, but that won't show up until next year. So what we're doing in the meantime is really a continuation of last year, right? There are some digital solutions that we've put in place that have been game changers for us around the administration of digital or virtual visits with 70% of our visits in total are still virtual today, even with our big brick-and-mortar footprint.

And then we're doing a number of AI use cases, whether that's AI documentation for the clinicians. We're doing some things with RCM. We're doing some additional use cases with our new patient booking, phone intake team and process. And then the new one I would point out is -- and it's around patient experience and that stickiness with the patient and getting them to a better health outcome is we're piloting -- just started in the last couple of weeks of piloting a patient engagement tool that interacts with the patient in between visits. And then based on the learnings of that, we will connect with the clinician before the patient's next visit with them.

So basically to provide them almost the clinician a cheat sheet of here's what's been going on with Dave over the last couple of weeks in between your visits. So we're -- so there's a lot that we're exploring and are excited about when it comes to technology.

Got it. Just circling back to the EHR front, I think you've been consistent over the years, and I would say also realistic in terms of value-based care in terms of today, it's been mostly access, which you're providing, and I think the payers value that mental health could be challenging in terms of outcomes. But what does the EHR mean either from a data perspective or things on an intermediate to longer-term perspective on value-based care?

Yes. There's a lot of benefits in the EHR across all aspects of our practice, but it will benefit value-based care or measurement-based care because it's going to help us in driving better outcomes for the patients. And I'll give you an example. What it's going to allow us to do is we call them care pathways is that we're going to be able to evaluate the progress a patient is making in their journey.

They'll take regular health surveys, and we'll be able to measure, are they improving on their depression symptoms or not? Or did they improve to a level and then have they kind of stagnated and -- but not at a level where we want them to be yet. And so with the data, we will be able to identify -- almost think of it like a next best action for the clinician. So in the new EHR, there'll be these care pathways, these clinical rules that will populate pop-ups to the clinician. And it might be, "Hey, your patient is not getting better, you're in therapy, we recommend you refer them to a psychiatrist for potential medication management evaluation" or they're with a psychiatrist, they've tried a number of different medications, have not improved their depression. Now is the time that we start considering something like Spravato or TMS. All of that, Craig, is to get to better health outcomes for the patients, which will then just allow us -- I mean we say like we want to be the best and prove it, right? And that will -- that's what changes the game with the payers to be able to interact with them with data and facts, not anecdote.

Got it. And I want to come back to just the point of that intake where you get a bit of a bump through AI, which I think is unique. I mean, I think most of the focus has been from the investment community on efficiencies. So you have that in terms of potential tailwind that could create it. On the efficiency front, though, anything internally as you continue to scale your organization, how, kind of, you're utilizing technology?

Yes. We're using AI a little bit on the efficiency front. I think our focus has actually been more up until now on the growth side as well as experience. So for example, AI documentation, that's to kind of remove burnout, improve clinician satisfaction, things like that, less so about trying to reduce costs. So that was our initial focus. We're starting to get into the efficiency side where we're doing things like revenue cycle management use cases as well as some use cases in that call intake where we're doing partial containment, whether it's for like outbound calling as an example.

So we're using some AI tools. And obviously, that will allow us to scale more effectively as we continue to grow. But there's opportunities there, but I think, initially, our focus was probably more on the growth side.

Got it. So on growth, your long-term outlook has been kind of mid-teens growth. Like you said, you're 20% this year, so above that. How do you think about just the durability and again, on an organic basis, kind of that mid-teens growth algorithm?

Yes. No, I appreciate the question. So just like for grounding, so if you take this year's midpoint, our 4-year CAGR is 19% on top line. So we've been doing better than what we talk about our goal being mid-teens. Every year, we step into the year trying to do at least mid-teens top line growth. We've been beating that. As we think about the future, we still think the growth algorithm that we have works and is very durable. And so it's the -- first of all, you'd have -- it's depended on getting improved reimbursement from payers. So we talked about the low to mid-single digits. We think that's very durable. You're seeing very strong performance this year.

And then also double-digit volume growth, visit growth, and that's going to be primarily driven by new clinician adds or net clinician adds. And so that's how we get to mid-teens, where there's a potential opportunity to do better is as you think about where specialty services will -- those service lines could go in the future, things like that. But we feel really good about our underlying growth model. And an example that I would point to that we talked about on the last earnings call, I think it was a surprise to some is we are the largest provider of outpatient mental health services. At the same time, we're in only roughly 50% of the 150 largest U.S. markets. And even in the markets that we're in, while we're the largest, our market share is usually like less than 5%. So we have just tremendous opportunity to run. We're kind of uniquely positioned in this highly fragmented but consolidating space. And so that's really what gives us confidence around that growth algorithm.

Great. I will come back to specialty services. I figure I know that's getting a lot of attention and we probably could spend the whole discussion here. But getting back -- you called out the stat before, the 70% virtual in terms of visits. How are you thinking about that in terms of on a multiyear basis? Is that the right range? Does it fluctuate a little bit from here?

It's been stable at around that 70-30 split for the last year or so. We still believe that over the long run, that in-person will increase. with time, but it is a very local dynamic. And so we treat the virtual versus in-person as such. So I always use this as an example, we have practices here in New York City, and we have them in California. Those are highly virtual. It's just the culture of the clinicians, the patients, they don't come into the office as much. They certainly do in-person appointments, but there's a higher percentage of virtual utilization.

And you have the opposite of that would be like, for example, our Milwaukee practice, where for whatever reason, the patients and the clinicians like to come into the office to do their sessions. And so at a local level, we're constantly evaluating, do we need to add another center to support growth? Or no, we have plenty of room. Our clinicians are hybrid. They'll share offices. We can hire more clinicians without having to add real estate. So it's just -- it's always an ongoing evaluation for us, but it is very much at the local level. I still think over time, in-person will increase. And then obviously, as you add things like specialty services, so TMS, Spravato, those are in-person, obviously. And so as those become a more meaningful part of our portfolio, that will also raise up in-person utilization.

Makes sense. And on the clinician front that you've -- net clinician adds have been in and around that 10%, 11% range. What are some of the things that are helping you because it's a competitive space, right? So what are some of the things your ability to kind of continue to attract and retain clinicians at LifeStance?

So first of all, there's a lot of clinicians out there, and we're not trying to be all things to everyone. If you look at the universe of clinicians, we're low single-digit market share of outpatient mental health clinicians. And so we have a lot of clinicians that are the potential for us to recruit, and we've been very successful in that. As we continue to own the value proposition, Craig, and it's the same things that will attract clinicians to us is what keeps them with us. And as we're recruiting from -- we always think of the 3 cohorts of clinicians.

There's the 1099 individual practice looking for W-2 benefits, a more connected to a practice with collegiality and support from an operations and clinical perspective. You've got the new hires that are new grads and then -- so the new grads. And then the third bucket would be someone who's coming from salaried at like a health system and they want more flexibility. Still want the W-2 benefits, but they don't want to be 40 hours in a week in the office. They want to be able to be hybrid, choose their hours a little bit more, and they don't want to be like hounded on for productivity. And so our value prop resonates a little bit different depending on the cohort we're recruiting, but value prop continues to resonate and something we're always working on.

Great. So on specialized services now. And you mentioned up top that a lot of newer entrants in the space, more virtual only, which is not going to work in this category. Walk us through kind of how you're rolling this out in some of your clinics, what it looks like today. And I'd love if you just kind of size where it's at and I know it's growing above the corporate average, but some context behind it.

Sure. So I'll start with the context first. So last year, our specialty services were about $50 million of revenue for us. And there's 3 services that we consider in this portfolio. The first is neuropsych testing. We're the national leader in neuropsych testing. Examples of this, for example, if you need to test your kids for ADHD or autism or things like that. That's an example of neuropsych testing, high demand for these services. Then we get into what we were talking about a little bit earlier, the services for treatment-resistant depression.

So this is TMS and Spravato today for us. And so they made up very little of the $50 million last year. They're relatively new for us as we're -- and we're looking to expand them. So this year, that $50 million will grow to about $70 million. So we're going to grow at about 40% year-over-year. The bulk of that growth will come from TMS and Spravato. We are rolling those services out in a very thoughtful and deliberate way. We're only adding about 5 of each a quarter. And when we were looking at these services and we were looking at acquisitions to speed up our growth of them, there were some businesses that are stand-alone, and this is all they do. And what we found was that their economic models weren't viable because their customer acquisition costs were through the roof.

And so you just couldn't make the math work. And so we ended up passing on acquiring and deciding to go organic and -- which is fine for us. Again, we have a portfolio of 600 centers. So how we're doing this is our 600 centers are grouped into practice groups, about 3 to 5 centers, and there's an operational leader that sits over the top of each of those practice groups. And what our model is, is we're going to put one TMS chair and Spravato room, which has multiple chairs in it in each of those practice groups. And we believe that with -- we have 1 million -- over 1 million patients across the practice that there's a lot of those patients that need and would benefit from these services. And so the patients of that practice group will feed those Spravato and TMS and fill that capacity.

And obviously, all through internal referrals for the most part, which is a very effective way from a CAC perspective. So that's how we're doing this. We're maturing our operating model. Part of that is what we need to do internally to execute. Part of it is working with the payers. For example, what we're finding is there's a lot of variability on Spravato reimbursement from the payers. And there are some payers in some states where it's -- they're reimbursing at a level that where it's not viable. And so we're passing on putting the Spravato in those particular states for now while our payer engagement team goes out and recontracts with them. So again, just very thoughtful and deliberate, but we're excited about what the future could be. And obviously, there's additional therapeutics coming down the road that may have additional conditions like PTSD trauma that could be very beneficial to our patients.

That's helpful. And then I would add to it, psychedelics has been in the news a lot, and you have some of the pharma companies really digging into that area. How are you approaching it? And what's your view on that opportunity on a longer-term basis?

Yes. So Spravato is a psychedelic. So the way we're thinking about this is as we're rolling out Spravato, we're really maturing a model that's foundational for if additional psychedelics were to get approved by both the government as well as by payers for reimbursement. And so it will -- we will be able to quickly roll those out if -- again, if it's economically viable and it is an attractive from a clinical efficacy perspective for our patients. So we're excited about what the future could be, but there's a lot of unknown still around the additional psychedelics.

Got it. I do want to touch on just the margin performance of the business. On the back of that strong growth, you're dropping through more to margins. So talk to us about kind of that 15% target for 2028 and 20% longer term. What are some puts and takes to drive towards those targets?

Yes. So every year, we step into it and we're -- what we're focused on is achieving at least mid-teens top line growth and expanding margins. That's been our commitment for the last 4 years. and we've been achieving that. And so today, we're at about -- our guide is about 13% adjusted EBITDA margins, and we've put a marker out for 2028 of being at mid-teens. So we're getting pretty close to that with the outperformance this year. We have line of sight to 15% to 20% adjusted EBITDA margins. We're not saying 20% is the ceiling, but we feel like in the coming years, we're going to -- we can get into that 15% to 20%, again, with that intermediary goal in 2028.

The way we get there is continue to drive attractive top line growth, getting operating leverage as a result of that, what you'll continue to see is improving margins on the center margin percentage line. We believe the destination for that today is in the mid-30s, which is obviously is a range. And we think if we're in the mid-30s, that's part of the ingredients of getting us to that 20% level. And then the rest and where I think the bigger opportunity is on the G&A line, where we're in the low 20s as a percent of revenue today, and we believe we can get that down into the mid-teens in the coming years. So the combination of that center margin expansion and the G&A leverage will get us to that, let's call it, into that 15% to 20% zone that you mentioned.

Got it. Well, as we wrap up here, I do want to talk about just capital allocation, kind of bring some of this together. You've returned to M&A, very small tuck-in deals, more geographic specific. So talk to us about how you're approaching M&A, what the opportunity set looks like out there. And then also you're buying back stock, too, which speaks to improved free cash flow and balance sheet.

Yes. Yes. I mean, so -- you and I have talked about this, like our priorities are in rank order for capital deployment are supporting organic growth. So that's -- we talked about the real estate, opening new de novo centers. This year, we'll open up 20 to 30 new centers. Number two is where your question was M&A. We are very curious about specialty lines, adjacency services, things like that, and we're out looking. What we've seen that makes sense today for us and is very attractive are small tuck-in deals like the one we did last week in Iowa that opened up a new state for us, very economic -- like it's very attractive to us from an economic perspective to do those small tuck-ins.

And then you put the LifeStance engine on top of it and grow it from there. So we're seeing a lot of those opportunities, Craig. We're doing about 1 to 2 a quarter, and we'll probably stay at that pace through the rollout of the new EHR next year, and then we'll reevaluate our pace after that. Again, a lot of geographic expansion opportunity. And so we're doing that. And then our third priority being the share repurchase. We just did our third one this year. We've deployed almost $125 million of capital towards share repurchase. Done it 3x. All 3 were in support or connected to a secondary offering. And we found that to be a very effective use of our capital, still have a very strong balance sheet, very low debt ratios as well as strong generation of free cash flow. And so we feel very good about the balance sheet being able to support the strategy of the business going forward.

Excellent. Well, I think we'll wrap there. So Dave, thanks so much for your time this morning.

Thanks, Craig. Appreciate it. Appreciate the opportunity.

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to LifeStance Health Second Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Monica Prokocki. You may begin.

Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's second quarter 2026 earnings conference call. I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer; and Ryan McGroarty, Chief Financial Officer. We issued the earnings release and presentation before the market open this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call.

Before turning over to management for their prepared remarks, please direct your attention to the disclaimers 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, business model and strategy. Those statements involve risks, uncertainties and other factors, as noted in our periodic filings with the SEC that could cause actual results to differ materially.

Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year.

At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave?

Thanks, Monica, and thank you all for joining us today. This was another exceptional quarter for LifeStance. We exceeded each of our guided metrics for the quarter, delivering remarkable revenue growth of over 26% and adjusted EBITDA margins that exceeded 15%. Given the outperformance in the quarter, we are again raising our full year guidance across all metrics. Ryan will provide the details on our improved view of 2026 later.

Regarding operational execution, we continue to grow our clinician base now at over 8,500 clinicians as our value proposition continues to resonate. Clinician productivity also remained strong in the quarter, reflecting the power of our operating model and discipline. As for specialty services, we continue to expand our reach as we launched TMS and Spravato in additional centers to support patients with treatment-resistant depression and to drive clinically meaningful improvements in outcomes.

Turning to technology. We continue to deploy digital, AI-enabled and workflow automation tools that improve patient access, enhance the clinician experience and drive operational efficiency across the organization. Regarding our new EHR, we have begun our preparations for the transition to a new vendor planned for 2027. This investment is expected to be a critical enabler of our long-term strategy, helping us streamline front and back-office operations through more intelligent workflows, deliver a better patient and clinician experience that supports engagement and retention and equip clinicians with better tools to provide high-quality care and drive improved clinical outcomes.

Turning to geographic expansion. We have a significant opportunity to increase density within our existing markets and expand our footprint into new geographies as we only have a presence in roughly half of the 150 largest U.S. markets. In addition, there is substantial room to expand in smaller markets as well. Tuck-in acquisitions remain our preferred approach for entering new geographies, and we have a strong pipeline of opportunities that support our disciplined growth strategy. During the second quarter, we successfully completed another small tuck-in acquisition that expands our therapy and psychiatry presence in Arizona. Where compelling acquisition opportunities are not available, we will pursue expansion through our proven de novo approach.

Finally, I'd like to highlight our ongoing commitment to clinical excellence, delivering high-quality care and improving patient outcomes is central to our mission and remains a key differentiator for LifeStance. During our first quarter call, we discussed outcomes data we published in April from nearly 180,000 LifeStance patients with moderate to severe anxiety and depression, which showed that roughly 3/4 experienced clinically significant improvements in their symptoms. More recently, we took that analysis a step further by examining outcomes from nearly 140,000 LifeStance patients across different generations and geographic regions.

What we found was remarkably consistent. At least 75% of patients experienced clinically meaningful improvement regardless of generation or region where they receive care. We believe these findings are important because they demonstrate that our strong outcomes are consistent across the diverse populations we serve. More broadly, we believe mental health care is entering its next phase where differentiation will increasingly be driven by outcomes, not just access.

While we're pleased to have delivered another quarter of exceptional growth and outstanding margin expansion, we believe the larger opportunity lies ahead. The combination of our scale, clinical outcomes and geographic expansion opportunities positions LifeStance to lead the evolution of outpatient mental health care and supports our confidence in the significant growth runway still in front of us.

With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan?

Thanks, Dave. I am pleased with the team's tremendous operational and financial performance in the second quarter, which exceeded our expectations. For the quarter, revenue grew 26% to $435 million. Revenue surpassed our expectations from both better-than-expected visit volumes and total revenue per visit. Visit volumes of $2.6 million increased 19%. The outperformance was driven by a combination of better-than-expected clinician productivity and net clinician adds.

Total revenue per visit of $167 increased 6% and was ahead of our expectations. Our visits per average clinician were very strong once again, increasing 7% year-over-year for the third consecutive quarter. This was achieved while at the same time adding 193 clinicians in the second quarter, bringing our total clinician base to 8,542, representing growth of 11%. Turning to profitability. Center Margin of $153 million in the quarter increased 41% and was 35.2% as a percentage of revenue. This came in ahead of our expectations, primarily due to the revenue beat.

Adjusted EBITDA increased 94% to $66 million in the quarter, which was very strong and exceeded our expectations with the outperformance driven by favorable Center Margin. This resulted in a margin as a percentage of revenue of 15.2%, which is an impressive improvement of over 500 basis points from the second quarter of last year. We also finished with positive net income of $24 million in the quarter, which was an improvement of $27 million from the second quarter of last year.

Turning to liquidity. We generated robust free cash flow of $88 million in the quarter as compared to $57 million in the second quarter of last year. Free cash flow was driven by strong performance in collections in the quarter and also benefited from the favorable timing of payroll. These payments, along with our annual 401(k) match, represent roughly $60 million and will impact free cash flow in the third quarter. We exited the quarter with a strong balance sheet, including a cash position of $226 million and net long-term debt of $259 million. Importantly, that cash balance is post the $49 million deployment towards share repurchases during the quarter. As a result, our net leverage is currently 0.2x and gross leverage is 1.3x.

Additionally, this morning, we announced that our Board of Directors approved a $100 million share repurchase authorization. Since launching our initial $100 million program earlier this year, we deployed $97 million of the previously authorized capacity. We believe we are well positioned with significant financial flexibility to support the business and execute on our strategic priorities.

In terms of our outlook for the full year, we are raising our revenue range by $45 million at the midpoint to $1.685 billion to $1.725 billion. The midpoint of the revenue guidance range implies a growth rate of 20% for the full year. We are also raising our Center Margin range by $23 million at the midpoint to $570 million to $594 million and raising our adjusted EBITDA range by $15 million at the midpoint to $215 million to $235 million. The midpoint of the adjusted EBITDA guidance range implies a margin as a percentage of revenue of 13.2%, which is over 200 basis points of margin expansion year-over-year.

Our updated annual guidance assumes year-over-year revenue growth driven primarily by higher visit volumes, combined with mid-single-digit increases to our total revenue per visit. Based on the adjusted EBITDA outperformance so far this year, we continue to give ourselves flexibility to make additional investments in the second half of this year to better position us to support our long-term growth objectives.

We are investing across a number of strategic priorities, including: first, we are driving patient acquisition and expanding access to our services through marketing and further growing our business development team. Second, we are investing in our technology team to support current and future tech and AI enablement. Third, we are building out the teams that lead and support clinical excellence to drive improved patient outcomes. And finally, we enhanced total compensation and benefits for our clinicians and many of our center support staff. These investments are reflected in our updated outlook and support our continued focus on balancing growth, operational execution and profitability.

Additionally, we continue to expect stock-based compensation of approximately $60 million to $70 million this year. For the third quarter, we expect revenue of $420 million to $440 million, Center Margin of $140 million to $152 million and adjusted EBITDA of $49 million to $59 million. Given our excellent performance in the first half of the year and the strong momentum in the business, I remain excited about our long-term growth potential.

With that, I'll turn it back to Dave for his closing comments.

Thanks, Ryan. In closing, our performance in the second quarter underscores the substantial opportunity in front of us. As we go deeper in our existing markets, grow our geographic reach, broaden our specialty capabilities and strengthen our differentiation through clinical excellence and measurable patient outcomes, we are positioning LifeStance for sustained long-term growth.

Operator, we will now take questions.

[Operator Instructions] Your first question comes from the line of Craig Hettenbach with Morgan Stanley.

Dave, understanding you're coming up on more difficult comps on productivity. What are some of the levers that remain to pull on that front as you go forward?

Craig, this is Dave. And I appreciate the question around productivity. And the first thing I would say is that this is our fourth quarter of really strong productivity levels with our clinicians. And this is not just how we operate and manage the practice. We're continuing to evaluate opportunities and work on opportunities to improve that productivity level. And just kind of a reminder, of -- from a productivity perspective, there's 2 angles to it. First, there is -- we have to increase the flow of new patients. And we've talked in the past about actions like improving conversion of patients that are seeking care to a booked appointment and continue to work on activities like that.

And then the other side of that is just general practice management actions like optimizing clinician schedules so that those schedules are more receptive to that increased new patient flow. And then it's that deliberate balance between using more of the capacity that our clinicians are giving us versus adding new clinicians. And we still have a lot of runway on this. We're utilizing right now about 70% of the time that clinicians give us.

Very helpful. And then just as a follow-up, psychedelics are getting more attention on the back of Lilly's recent acquisition in that space. How do you think about that market and the role LifeStance can play there?

It's Dave. I'll take that one as well. First of all, just at a macro level, the specialty services, which is where we would put psychedelics for us, it's a tremendous opportunity for us in the coming years and it's going to drive better outcomes for our patients and it will contribute to both growth and margins. Specific to the psychedelics, we're monitoring that and we think that is a great opportunity for us and we're set up really well if that were to be approved by the FDA and also from a payer reimbursement perspective. And we'll be able to roll out those new services in a very efficient way, leveraging our center footprint as well as even some of the foundational work we've done to roll out Spravato.

Your next question comes from the line of Lisa Gill with JPMorgan.

I was wondering if we could talk a bit about revenue per visit and the key drivers there. You talked about the specialty business. I'm just curious what the key drivers are? Is that the increase in kind of the acuity level of the patient? Is it your contracting with managed care? What are some of the key drivers as we think about the revenue per visit?

Yes. Lisa, I appreciate the question. This is Ryan. And so I'll go into the question. Just in terms of -- so to start off, we're really pleased with the TRPV of 6% year-over-year. So we delivered TRPV of $167 in the quarter. So that grew sequentially $3.1 overall. And it really is one of the reasons between rate and volume in terms of why we raised our revenue by $45 million for the full year and also adjusted EBITDA by $15 million.

To the extent around -- or to the question around like what's driving it, and it really is from a payer contracting perspective. So we're sitting here midyear now, and we have good line of sight into the rate increases for the full year. And as you probably recognized in our commentary, we updated our guidance from low to mid-single digits to mid-single digits. And it really is just based off of the good visibility we have into our payer contracts. From an overall kind of payer perspective, we continue to have good constructive dialogue with them in terms of making sure that they're providing the access to high-quality mental health care that we offer.

That's really helpful, Ryan. And then just secondly, on the EBITDA, really nice margin, 15.2% in the quarter, a little more than 13% for the year. Can you talk about what your long-term goals are as we think about the EBITDA margin?

Absolutely. So when we think about EBITDA margins, and again, I appreciate you kind of recognizing the strength of the quarter and then also just the position as you think about the full year guide being 13.2%, we're really pleased with the momentum that we have. When we think about a long-term perspective, so we've gone out there saying long-term margins in the 15% to 20% range with 20% not being a ceiling on it. We actually further dimension that in our Q4 call just around the 2028 margins and having mid-teen margins by full year 2028. We're super happy, as I mentioned, with the progress that we have on the progression of margins. But we're not, at this point, going to refine any of our long-term targets. And again, there's a ton of momentum in the business right now, and we're really pleased that we've been able to capture that.

Your next question comes from the line of Ryan Daniels with William Blair.

Congrats on the strong performance year-to-date. I wanted to dive a little bit more into your specialty services. Obviously, it seems like a big growth opportunity. I know it's growing rapidly. I'm curious if you could talk about the rollout process there. You mentioned again, you expanded it in some markets. Given your density and the size of the markets you're in and what appears to be a pretty big need for treatment-resistant depression services, what are the gating factors there? Is it payer contracts? Is it just putting in the CapEx? Is it training? What are kind of the rollout plans and hurdles to that?

Ryan, it's Dave. I'll take that one. As I mentioned in Craig's question, we view specialty services. And right now, that's neuropsych testing and then the treatment-resistant depression services of TMS and Spravato as a tremendous opportunity. And obviously, there's potential for other service lines as well. Just for a little bit of grounding, we were -- our specialty services comprised about $50 million of revenue last year. We said that's going to grow roughly 40% this year, and we expect for years to come that the growth rate of specialty will be higher than our core business.

And the majority of that growth this year is really coming from the TRD services because we're in that early stage of rollout. And we're adding new chairs and Spravato sites each quarter. From a gating perspective, it's a little bit of a few things. First is we're -- it's early stages for us. So we're refining that operating model. And so we're doing a little bit of test and learn. And it can be -- there can be nuances depending on states and the payer environment and things like that. So -- and I would view the gating is more us than anything else in the macro environment. And then we would expect to be accelerating rollout in coming years.

Okay. Perfect. Very helpful. And then the other question I had, I thought you had a really kind of insightful comment that payers are moving from just access to outcomes. And obviously, you're very well positioned given your scale in clinical studies and pending EHR to really prove that you can provide great services. And that gives you an advantage with payers, probably referral sources. So maybe talk a little bit more about how you'll use that to your advantage longer term? And then also any movement towards more value-based or outcome-based contracts where you could probably also have a unique advantage for some of your peers?

Yes. This is Dave. I'll take that one as well. So first of all, as Ryan mentioned, we're having constructive conversations with payers. It isn't all about reimbursement and we really are trying to get to being a strong partner for the payers. And that's differentiated for us versus many of the other players in the industry. Having said that, the majority of payers are still focused on access for their employer clients and their members. We have some value-based arrangements based on access. And then there are a few leading payers that are starting to shift towards quality and outcomes. And we welcome that change.

In my prepared remarks, I talked about our second white paper that we just put out around clinical excellence with the quality outcomes we're delivering on depression and anxiety across different generations and geographies. And there's really a lot more to come. We're early days on clinical excellence. It's a very exciting space for us. And to your point, we believe that this will further differentiate us from other players in the industry. And that's just going to, if anything else, strengthen that partnership as we're having those dialogues with the payers.

Your next question comes from the line of Jack Slevin with Jefferies LLC.

Congrats on the quarter. Maybe to start, I know recently, you've talked a little bit about plans on EHR rollout and how that can expand things. I wanted to just sort of check in on progress to do that implementation and maybe any updated thoughts on some of the benefits you think that's going to bring to the platform?

Jack, this is Dave. I'll take that one. So first of all, from an EHR perspective, it's foundational for us. It's going to enable future success for LifeStance. As we mentioned in our prepared remarks, this is a planning year for us. And then what we expect to do is roll out the new EHR next year. The benefits are widespread across the organization, right? So efficiency of front and back office, it's going to improve the patient and the clinician experience and as well as even patient engagement. And then it's going to empower our clinicians with better tools and data to deliver quality care and better outcomes. So again, this is a foundational improvement for us that's going to enable future success of the business, and we're very excited about it.

Awesome. Helpful color. And then just for my follow-up here, I wanted to just think about the cadence of clinician adds going forward? I guess -- and maybe this dovetails on some earlier questions with the productivity. But with that so strong, it would seem you have room to continue adding on the clinician front. Can you just talk a little bit about the demand and sort of what's right in front of your face as far as the ability to bring new clinicians on while sustaining some of the great metrics you've had so far this year?

Jack, it's Dave. I'll take that one as well. So first of all, if you look at the last year, what you've seen is strong net clinician adds and improved productivity. You can expect that is the recipe for the future. What we've talked about from a long-term growth algorithm perspective is low double-digit visit growth year-over-year, primarily driven by net clinician adds and complemented by improvements in productivity. And that's what we expect to see as we look into the back half of this year and into the future years.

Congrats on the results.

Your next question comes from the line of Kevin Caliendo with UBS.

I want to talk a little bit about M&A. You've done a couple of transactions now. And if you can just -- it's been a while. And I want to sort of understand why now this is happening? Is it reflective of the balance sheet of the opportunity? And if you can remind us strategically why M&A versus recruitment? Is it entering new markets? Is it better ROIC in certain cases? If you could just go back through it because I want to understand if it becomes a bigger part of the story, sort of how to think about the math around some of this and the rationale as to why.

Kevin, this is Dave. I'll take that one. First of all, let's go to the business reason for doing M&A. And I mentioned in my prepared remarks, we have a significant opportunity in front of us for establishing presence in new markets. We're only in roughly 50% of the 150 largest U.S. markets, and we're in 33 of 50 states. So we have a lot of opportunity to plant flags in new geographies. And so then connect that to M&A.

The primary intent right now for M&A is to use it to open up new geographies. And having said that, these small tuck-ins will not have a material impact on our '26 financials. This really is about foundational acquisitions that will enable future growth. And so we're going to continue to be very disciplined and we'll focus on opportunities that are strategic and financially makes sense.

When you say financial sense, like does it from a real estate perspective, make more sense to do M&A versus de novos and things like that? How should we -- I'm just trying to understand mathematically when you're adding real estate or you're adding a new market or even just M&A in general mathematically? Because -- and I bring it up because in the first iteration pre you guys, the M&A became a little onerous, right, and the returns weren't as great and there was move away from in office, and I think there were some issues from the balance sheet that occurred. It doesn't seem like that's the strategy here. It seems much more adjunct. Is that a fair way to describe it?

It is. We will use M&A to open up new geographies. It is a very efficient way, a capital-efficient way to be able to enter a new geography. If there's not an attractive acquisition target, then we'll use de novo, but that can be a slower ramp to growth in that particular geography. So those are the 2 ways we can enter. We think of the de novo engine, again, as more for opening up new geographies. If we're going to plant a new center in an existing geography, we want to grow an existing geography, the organic engine is the way to do that. Just financially, it makes a lot more sense.

Your next question comes from the line of Richard Close with Canaccord Genuity.

Congratulations on the results. Maybe diving down on the clinician adds, maybe provide some more color on really what's driving the strength there in terms of why you seem to be bringing more and more clinicians to LifeStance, what's the differentiation? And then Ryan, you mentioned compensation changes. Maybe you can go into a little bit more detail there.

Richard, it's Dave. I'll take that. What you saw in the second quarter is what we've been delivering consistently now for multiple years in regards to the clinician growth or the net clinician adds. And our value prop to clinicians continues to resonate. And that value proposition can look different to the different -- to the various clinician cohorts that we recruit from. So whether they're a $10.99 clinician that is looking for more W-2 type benefits and more administrative support, and they just want to practice and not run a business or if it's a salaried clinician, they're looking for a little bit more flexibility while still maintaining the W-2 or if you're a new graduate and the support that we provide, which is much, much more than what you would get from especially like small practices or individual practice in the U.S.

And so our value prop resonates across those 3 cohorts where we primarily recruit clinicians from and that continues. And just as a reminder, we still are like low to mid-single-digit market share of the total mental health clinician universe. So we have a lot of room still to run in regards to growing our clinician base.

Ryan, do you want to comment on the compensation that you mentioned?

Yes. Thanks. I'll take that one as well. So we did mention that, and I mean that is one of the reasons why Center Margin is going down a little bit in the back half of the year versus second quarter. Specific to the clinicians, we added some bereavement benefits that line up really well with the mission of the company.

Okay. That's helpful. And then my follow-up was maybe on the AI front. You just talked about the electronic health record. I assume since that's going to be a new platform, there's AI integrated into that. But maybe talk about the tech investments, Ryan, that you called out in the tech team. Maybe what you guys are using AI currently in the operations, administrative and clinical about like what's planned in the coming years?

Richard, it's Dave. I'll take that one. So first of all, if you think about AI and digital, we're in a new chapter of enabling the business with those kinds of tools. And I think of it both growth and efficiency. There's been a lot of emphasis more on the efficiency side of this, but we've even leveraged it to improve growth. Talked about the use case last year in our contact center, our phone contact center, where we were able to improve conversion of patients seeking care to book appointments and we were using -- we accomplished that through the use of some AI tools.

And this year, we're just continuing to add on the use cases across RCM, new patient scheduling, the AI documentation for clinicians. And then we're also exploring new applications for the back half of this year in '27. We're piloting some additional use cases there. And then as you referenced, there will be a meaningful unlock from a technology perspective once we roll out the new EHR next year. So very exciting times at LifeStance in regards to this new chapter of technology enablement.

Congrats.

Your next question comes from the line of David Larsen with BTIG.

Congratulations on another very good quarter. It looks like the revenue per visit, as far as I can tell, increased like around 7% year-over-year. That's one of the highest increases I've seen over the past several quarters. Any sense for what's driving that? Is that reimbursement rates? Or is it mix? And then also, can you maybe just comment on your revenue cycle, the billing piece? Are you using AI there to perhaps create more accurate quoting?

Yes, sure. I'd be happy -- this is Ryan, Dave. I'll be happy to kind of address the first question, and Dave will jump in on the second question. So first and foremost, just as it relates to the TRPV. So we did grow TRPV 6% in the quarter on a year-over-year basis. And again, this is based off of the updated outlook just as it relates to our payer contracting. And so as I mentioned earlier in this call, is that we're midway through the year. And so we have good line of sight on our contracting. And as both Dave and I have mentioned, we have very constructive dialogue with the payers. So we feel really good about the trajectory kind of closing out this year on TRPV.

Now I'll turn it over to Dave for the second question.

Yes. In regards to revenue cycle, you're seeing the strength of the performance of our revenue cycle team and DSO in the low 20s this quarter. That was part of the reason why we had such a strong positive free cash flow of $88 million. And that is -- that's driven by improved process as well as tools. And certainly, AI is a piece of that. So we're leveraging vendors that are RCM experts with innovative tools and things like that. And we're piloting new ones as well. And so we're just constantly looking to advance our capabilities in regards to technology. And again, it's not just AI, though. We're using RPA. We're using digital tools. So there's a lot that goes into the improved RCM results.

It seems to me that even if the revenue per visit is increasing nicely, that's an area that the plans might kind of actually be happy about and they might want to invest in ambulatory or outpatient mental health because it can reduce total claims costs in other areas of their book of business. And it sounds like your plan relationships are good.

That's really well said. You just -- you gave me the answer on why we're having constructive dialogue with the payers. I mean at the end of the day, they want to get quality care for their members and they want to reduce total cost of care and with outpatient mental health being a lower cost of care setting, if you can deal with the problems early on, you can avoid more costly medical interventions down the road.

One more quick one for me. Are you exploring Medicare, Medicaid exchange sort of coverage? Do you have any intentions to expand into those payer classes or not really?

We do some of that today. We do Medicare Advantage and some exchange. Usually, they're in conjunction with a large payer contract where we're taking all of their lines of business. But our focus continues to be the commercial business. And so we -- again, it's more of an accommodation, but we do very little Medicaid and Medicare fee-for-service.

Congrats on another good quarter.

Your next question comes from the line of Sean Dodge with BMO Capital Markets.

On the Q3 guidance, it does imply EBITDA would be down sequentially. Ryan, you mentioned some investments you're making to help support future growth. But just can you frame for us like what the incremental spend with these investments are going to be? And is all of that kind of all of this incremental going to hit in the third quarter?

Yes, Sean. So this is Ryan. So I appreciate the question. So overall, you're right, like when you look at the sequential view, EBITDA goes down and you're referencing the investments that I went through just as it relates on the call. So when you think about the second half, so we're pleased with the opportunity to continue to invest in the business to be able to deliver the strong growth that we've done. So if you look at it on a 4-year basis, if you look at the revenue side on a CAGR, if you take the midpoint of our guide, it's like 19% compounded annual growth.

And so we feel really good that both on the revenue side and on the EBITDA with a 4-year CAGR of 44% that we have the track record of making disciplined investments. So when you think about some of the investments, and they're not all coming in Q3, Sean, to your question, it's really around tech, AI enablement, practice operations around some of the clinical support that Dave referenced in terms of clinical excellence and outcome measurement and then also just addressing the higher patient volume needs overall. But again, like we feel really good about the disciplined approach we have. And then again, on the EBITDA basis, where midpoint of our guide expands margins up by over 200 basis points.

Okay. Great. And then -- going back to M&A, Dave, you talked about why you're restarting it. But just any update like on the pipeline now, how we should be thinking about cadence of deals, size and composition of the things you're looking at? Is it mostly going to be smaller practices? Are there some bigger kind of opportunities out there? And then just how -- like what kind of role is specialty going to play in again, M&A specifically?

I'll take that on the M&A side. So first of all, the M&A today is primarily focused on the tuck-ins to open up new geographies. We are curious and opportunistically look at other parts of the ecosystem, whether that's specialty or larger practices. But what we're finding right now is that what makes sense for us from -- as we're being disciplined and strategic is that it's the small tuck-ins are the most actionable. We have a healthy pipeline that is growing in that space. And so I would expect that we'll continue to execute on the small tuck-ins for years to come. Again, it's a very efficient way for us to enter a new geography.

In regards to the larger practices, we'll be opportunistic. But up till now, they financially haven't made sense. There's just -- there's less value creation in acquiring one of those versus when we buy a small tuck-in and use that as the foundation to really grow a new geography. And then on the specialty side, there is opportunity in the coming years around acquisitions in that space. But again, up until now, we haven't seen anything that makes sense for us.

Your next question comes from the line of Scott Fidel with Goldman Sachs.

You have [ Valentin Glossiv ] on for Scott Fidel. How are newly hired clinicians ramping today relative to the historical experience? And are there any changes in the productivity ramp time lines?

This is Dave. I'll take that one. That's part of the story of the improved clinician productivity. So it is an area of intense focus for us in improving the ramp of new clinicians because they're going to be happier when they're more productive and so again, that's something that we focus on. And it has been improving and is part of that improved productivity story that we've been talking about for the past year.

And also as a follow-up, as productivity improves, how do you think about balancing utilization of existing clinician capacity versus accelerating hiring?

This is Dave. I'll take that one as well. We're always going to prioritize the using of the capacity of our existing clinicians first before we hire new clinicians. It's a win-win. We're filling the clinicians' panel. They're seeing more patients. They're making higher income. And at the same time, it's just a more efficient way of running the practice financially for LifeStance.

Your last question comes from the line of Scott Schoenhaus with KeyBanc.

Can you hear me?

Yes, Scott, we can hear you.

Okay. Another great quarter. So congrats. Your Center Margins of 35%, this beat our estimate and was up nicely. And I know you talked about the maybe slowdown in the back half with some bereavement benefits and other compensation tools. But maybe talk about anything specific to call out in the quarter to drive those really great margins? I know you talked a lot about productivity. And then after we get through these compensation tools, should we expect these operating margins to reaccelerate back to these kind of levels?

Yes. So this is Ryan. So I appreciate the question. So just as it relates to Center Margin, when you think about the quarter, really clean, high-quality quarter. So when you think about the strength of Center Margin, if you isolate there, it really is on the backs of the revenue growth as it relates to both the rate and the volume. And you could think of those as like 60-40 between the rate and the volume in totality. And so we feel really good about the performance in the quarter.

And then also when you kind of put it out on a full year basis in terms of Center Margin. So you highlighted the investments that we're making second half over first half. Center margin in totality still grows on a year-over-year basis by like 175 bps. So really pleased with the progress that we've had on both -- on basically everything, top line growth, Center Margin and then adjusted EBITDA.

Great. And if I could just sneak in one last follow-up here. You guys talked about the EHR EMR rollout happening next year. How should we think about that productivity ramp, right? I'm assuming as you implement this, depending on when you implement this, the timing of next year, it will be phased? And should we think of productivity gains then more back half weighted than front half weighted? Any comment would be -- or any color would be helpful.

This is Dave. I'll take that one. We're still in the planning phase on the EHR, but you have it right in that our working hypothesis or approach right now is to do it in ways just because of the size of LifeStance with over 8,500 clinicians. And when you roll out a new EHR, there's always going to be a little bit of a short-term blip in productivity that impacts the clinicians as they move on to the new platform. That's something we're working through because obviously, we want to minimize that disruption as much as possible. And we'll give more specifics as we're getting closer to next year and giving some guidance.

That concludes our Q&A session. I will now turn the call back over to David Bourdon for closing remarks.

Thank you, operator. Before we close, I want to take a moment to speak directly to our nearly 11,000 mission-driven teammates. The work you do matters. And every day, you show up for our patients, often at some of the hardest moments when they may feel vulnerable, overwhelmed or unsure where to turn, and you do this with extraordinary compassion and professionalism. I'm deeply grateful for the dedication you bring to our patients and to your fellow teammates.

Mental health care has never been more essential. We're proud of the difference LifeStance is making today, and we remain even more committed to expanding access so we can help millions more people get the high-quality care they deserve.

Thank you for joining us today. And operator, that will conclude our call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Everyone, have a great day.

I cover health care services at Bank of America. Thrilled to be introducing Dave Bourdon to you at LifeStance. It's only a 15-minute presentation. So without further ado, I'll turn it over to you.

Thanks, Andrew. Appreciate it. I appreciate the opportunity to share a little bit about LifeStance with you. And we're the category leader in outpatient mental health care, and there's a tremendous opportunity in front of us.

Before we get into that, a little housekeeping is our forward-looking statements, all right? And I mentioned that we have a tremendous opportunity in front of us. And I think about it in 2 ways. The first is some of the macro themes that are benefiting LifeStance in the mental health outpatient industry and then things that are unique to LifeStance.

So let's start with the industry. So outpatient mental health, it's an attractive industry. And where we play in that is think of us as like the primary care of mental health. So we don't do things like residential or inpatient as well as we don't do specialty, special services, for example, like the autism therapy or the ABA, which you're hearing a lot in the news, there's pressure from the payers, pressure from the states.

We do not play in that space. Again, we really think of ourselves as the primary care of mental health. As a matter of fact, if you go to one of our centers, it's like visiting your PCP office. That's what it looks like for us, all right? It's about a $50 billion TAM for outpatient mental health, and it's growing.

And the reason it's growing is a couple of things. So the first is that you just have an increasing demand for mental health services. You think about what's going on in the macro environment, the increasing stresses. And then you have just an increase in diagnosis and awareness. So people are going into their physical health, so their practitioners, so it could be a PCP, going into their OB/GYN, whatever the case is.

And what they're realizing is that there's a comorbidity there and to be able to better treat that patient, they're identifying that there's some mental health needs. And so the result of that diagnosis is increasing the needs for mental health.

That's one aspect. Another aspect is if you go back to I'll date myself, I'm an old guy. I've got -- I have 4 kids in their 20s now. But when I was their age, there was a social stigma associated with going to get mental health services. It just wasn't something that you did, you could be looked down upon.

As that stigma lessens, that's also increasing utilization because there was a lot of people in the U.S., there still is even today that need mental health services, and we're not seeking them. So again, with that social stigma reducing, that's increasing the demand for our services.

Another aspect that isn't talked about as much is there's an affordability challenge. And the reason I mentioned that related to outpatient mental health is because of really almost decades of underinvestment can even go to the extreme of neglect by payers, whether that's commercial payers or the federal government, reimbursement for mental health practitioners even it was extremely low.

And so as a result, most wouldn't accept insurance. They'd only take cash pay. And that has continued, but there's pressure on that cash pay environment because patients can't afford it. So they want to be able to use their health benefits. Part of their health benefits is mental health care.

And so they're putting pressure on the industry, whether that's on the payer side about increasing network adequacy. So what you have is this migration from cash pay into insurance, and I'll get to LifeStance in a second, but that's another macro theme that is benefiting us.

All right. So last thing I'll mention about the industry because it's different than the rest of the health care ecosystem is highly, highly fragmented industry and just in the early stages of consolidation. Most outpatient mental health practitioners are at small practices or even individual practices. So we're the largest to say we're the category leader. The next tier of practices that look like us are a fraction of our size.

So again, we're in the early days of consolidation in a highly fragmented marketplace. All of those trends benefit LifeStance, all right? So let's get into LifeStance. So we're unique. And we're not unique for any one thing. We're unique for really a handful of things that combined really make us compelling.

So let me briefly walk through those. So first is scale. I mentioned we're the largest, over 8,300 clinicians. We did 9 million visits with patients last year and about 1 million patients. We're across 33 states and growing, all right?

The next is hybrid. So we have both virtual and in-person capabilities. So we'll do millions of visits, both virtually and in-person in 2026. Most of our competitors that are the newer entrants in the marketplace since COVID are virtual only.

And so us having that brick-and-mortar, we have over 575 centers across our 33 states is a big competitive advantage for us. The third thing I'd mention is we have a broad range of services and licensure. So our core services are therapy and psychiatry, which is mostly medication management. And when you think about therapy, we have master's level therapists, we have social workers and we have psychologists.

And then on the psychiatry side, we have psychiatrists and nurse practitioners, again, mainly doing medication management. In addition to those services, we also are starting to provide what we call specialty service lines. So we're already the national leader in neuropsych testing.

So think of neuropsych testing, an example of that being you have a child, you're not sure if they have ADHD, you can bring them in, you go through a battery of tests with a clinician who specializes in this service. And then they'll be able to provide -- render an opinion around what the situation is with your child. So that's an example of neuropsych testing, where newer services for us are related to treatment-resistant depression.

And these -- you're hearing a lot about these in the news, and these are Spravato and TMS. And so we're early in the days of rolling that out. But again, because of our brick-and-mortar footprint, we're able to roll this out at scale and in a very capital-efficient way.

All right. So that's our broad range of services. The last thing I'd mention is it connects to the cash pay to insurance comment that I made earlier. We focus on patients that are coming from commercial payers. So that's 90% of our revenue is coming from that channel, and we get the remainder from the government as a payer and then a little bit from -- directly from patients. But again, our focus is on commercial patients. So those are the first 4.

If you wrap those all up, what ends up happening is that becomes a very compelling value proposition for us to medical practices and inpatient mental health facilities to be a referral partner. So when they need care for their patients, mental health -- outpatient mental health, they're referring their patients to us for that care.

That's our primary channel of getting new patients. That's free. You can't charge for that. And it's actually -- it's a win-win, right? We're holistically treating their patient with them and getting that patient to a better health outcome. As a result, part of the special sauce for us is that our cost of acquiring new patients is very low.

We're below 2% of revenue in cost of acquiring new patients. That's unseen in the rest of the mental health industry with many of our competitors having to spend multiples of that to be able to get new patients in the door. And again, it's because of that preferred partner relationship.

So what does all this mean? It's resulting in a model that's delivering differentiated results. Now I'll start with the patient because it kind of always starts and ends there. And when you think about a patient, patient satisfaction, if you look across our 575 centers, we're averaging 4.7 out of 5 Google Stars, all right?

So if somebody is searching for outpatient mental health care, and we have a center in their area, they're seeing that great rating. We're getting a lot of new patients in the door. Again, that's free advertising for us, but it's also demonstrating the great work that our clinicians are doing and providing such a high-quality service to the patients.

The next thing I'd mention is outcomes. So last year, we started tracking the outcomes for our patients. We are doing this through surveys on a systematic basis, and we've got a lot of rich data as a result of that. And recently, we put out a study where we had followed 180,000 LifeStance patients that had depression or anxiety. And what we found was that roughly 3/4 of those had a clinically significant improvement in their care.

So we are pleased with that. And at the same time, we view that as that's the starting point. And really now it's about how do we do even better. But we're very excited as we really step with both feet into this clinical excellence journey.

So by doing well with the patients, that results in some really solid financial outcomes. So a few stats there. So if you look at the midpoint of our guide for revenue for 2026, what you see is that we have a 3-year CAGR of 16%, driven by organic growth, right?

So very attractive on the top line. If you go to the bottom line, back in 2023, we were at about 5.5% adjusted EBITDA margins. If you go to the midpoint of the guide for this year, it's over 12.5%, significant improvement in our earnings margin performance.

Then you're like, okay, so then keep following that down, free cash flow. This will be our third year of positive free cash flow. We have a very capital-efficient business, a very strong balance sheet, gives us a lot of flexibility. And then this will be our second year in a row of having positive net income.

Those are milestones that we're really proud of in our growth as a public company and as we're maturing. So that's kind of the current year as we think about long term, what we've talked about is any time we're stepping into a year, we're -- we expect to achieve mid-teens top line growth.

And when we think about long-term margins, we're targeting -- or I shouldn't even say targeting, we can see a path to about 15% to 20% EBITDA margins. And we don't necessarily think that's the ceiling, but we can see a path to that. And so we were getting a lot of questions around the timing of that.

So when are you going to get to that 15%, let's say? And so recently, we put out guidance that by 2028, we will achieve mid-teens EBITDA margins. All right. So that's the financials. And I'm going to end with where I started, and that is, is that this is an exciting time for LifeStance. The demand is increasing for our services. We're uniquely positioned.

Our model and our performance really gives us confidence in being able to meet the needs of future patients as well as being a compelling place for clinicians to practice. So that's it. I appreciate the time being able to tell the LifeStance story, and have a great day.

Hello, and thank you for standing by. My name is Mark, and I will be your conference operator for today. [Operator Instructions] Thank you.

And I would now like to turn the call over to Monica Prokocki. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's First Quarter 2026 Earnings Conference Call. I'm Monica Prokocki, Vice President of Finance and Investor Relations.

Joining me today are Dave Bourdon, Chief Executive Officer; and Ryan McGroarty, Chief Financial Officer.

We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call.

Before turning over to management for their prepared remarks, please direct your attention to the disclaimers 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, business model and strategy. Those statements involve risks, uncertainties and other factors as noted in our periodic filings with the SEC that could cause actual results to differ materially.

Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix.

Unless otherwise noted, all results are compared to the comparable period in the prior year.

At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave?

Thanks, Monica, and thank you all for joining us today.

We had an exceptional start to the year at LifeStance. We exceeded each of our guided metrics with strong revenue growth of over 21% and more than $50 million in adjusted EBITDA, a 48% increase over last year. We grew our clinician base by more than 300 in the quarter to over 8,300 clinicians. We also delivered meaningful year-over-year improvements in clinician productivity, reflecting the continued impact of the initiatives we implemented last year.

Given the outperformance in the quarter, we are raising our full year guidance across all metrics. And later, Ryan will provide the details on our improved view of 2026.

From a macro environment perspective, we continue to see a growing demand for high-quality mental healthcare, as well as patients seeking more affordable solutions, driving a shift from cash pay to insurance coverage.

LifeStance is uniquely positioned to meet these needs. We're seeing this through our success in growing our clinician base, attracting new patients and driving clinical and operational excellence.

Regarding operational execution, the momentum we established in 2025 with strong visit growth and clinician productivity carried into the first quarter. These efforts centered around enhancements to new patient conversion and engagement.

Importantly, these initiatives are embedded in our operating model and supported by clinician level visibility, education and incentives, giving us confidence in their durability as we continue to scale our clinician base.

Turning to technology. We continue to apply digital and AI tools in focused, practical ways to improve patient access, clinician experience and operational efficiency.

Across the organization, digital and AI tools, including digital patient check-in, AI-driven workflows and robotic process automation support operational excellence, particularly in areas with heavy manual processes such as revenue cycle management.

In addition, AI-enabled scheduling tools support our new patient telephone booking process, resulting in converting more calls to appointments.

We are also rolling out AI-assisted clinical documentation to reduce administrative burden and cognitive load for clinicians, enabling them to spend more time with patients, which should improve patient and clinician satisfaction.

As per our new EHR, last quarter, we announced the selection of a best-in-class vendor with implementation expected to begin this year and the transition occurring during 2027.

Our focus has now shifted to organizational readiness and early clinician engagement. The transition to the new EHR will support our ability to scale efficiently, integrate AI more seamlessly and improve the consistency of both the clinician and patient experience, while delivering clinical excellence.

There remains a tremendous opportunity for technology to further enable the business. We will remain focused on prioritizing use cases with clear clinical and operational impact as we deploy these tools more broadly across the organization. This approach to technology strengthens LifeStance's leadership position, while reinforcing clinician trust and the quality of care we deliver to patients.

Turning to geographic expansion. We see a significant opportunity ahead to increase both density within our existing markets and to expand our geographic footprint.

As we've discussed, tuck-in acquisitions are our preferred way of entering new MSAs. And after 3 years, we're back to executing on M&A, with a disciplined and targeted approach. We have established a strong pipeline of potential acquisitions and expect tuck-ins going forward to be a meaningful part of our geographic expansion strategy.

We're pleased that during the first quarter, we opened 2 new markets through acquisitions, adding high-quality practices that align well with our model and our culture. While these deals will contribute a nonmaterial amount of revenue this year, they establish new market entry points to support future growth in 2027 and beyond. Where attractive tuck-in opportunities are not available to us, we'll continue to enter new geographies with a de novo approach.

Finally, I'd like to highlight our progress on clinical excellence. Our clinicians and the positive impact we're having on patients is the foundation of everything we do at LifeStance. Measuring how we're improving patient outcomes at scale is critical to ensuring our care is effective, and we also use these findings to identify opportunities to improve that care.

In April, we published new clinical outcomes data from nearly 180,000 LifeStance patients that showed roughly 3/4 benefited from clinically significant improvements in their anxiety and depression, further validating our commitment to clinical excellence.

These clinical outcomes, combined with strong patient satisfaction as reflected in our over 4.7 out of 5 Google Stars rating for our over 575 centers, reinforce that our model is working. And importantly, these strong patient outcomes and high satisfaction scores are the direct result of the dedication of our clinicians and our ongoing commitment to enable our clinicians to deliver high-quality care to patients.

With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan?

Thanks, Dave. I am pleased with the team's operational and financial performance in the first quarter, which exceeded our expectations.

For the quarter, revenue grew 21% to $403 million. Revenue surpassed our expectations from both better-than-expected total revenue per visit and visit volumes. Visit volumes of 2.5 million increased 18%. The outperformance was driven by a combination of better-than-expected clinician productivity and net clinician adds. Total revenue per visit of $163 increased 3% and was modestly ahead of our expectations.

Our visits per average clinician were strong once again, increasing 7% year-over-year for the second consecutive quarter. This was achieved while at the same time adding 309 clinicians in the first quarter, bringing our total clinician base to 8,349, representing growth of 11%.

Turning to profitability. Center Margin of $136 million in the quarter increased 24% and was 33.7% as a percentage of revenue. This came in ahead of our expectations, primarily due to the revenue beat as well as lower spending in center costs.

Adjusted EBITDA increased 48% to $51 million in the quarter, which was very strong and exceeded our expectations. This resulted in a margin as a percentage of revenue of 12.7%. The outperformance in the quarter was attributable to favorable Center Margin.

We also finished with positive net income of $14 million in the quarter as compared to $1 million last year.

Turning to liquidity. We generated robust free cash flow of $22 million in the first quarter, which was an improvement of $32 million from the first quarter of last year. We exited the quarter with a strong balance sheet, including a cash position of $195 million and net long-term debt of $263 million.

Importantly, that cash balance reflects $49 million deployed towards share repurchases during the quarter following the Board's $100 million authorization in February.

With net leverage of 0.5x and gross leverage of 1.6x, we believe we are well positioned with significant financial flexibility to support the business and execute on our strategic priorities.

In terms of our outlook for the full year, we are raising our revenue range by $25 million at the midpoint to $1.64 billion to $1.68 billion. The midpoint of the revenue guidance implies a growth rate of 17%.

We are also raising our Center Margin range by $21 million at the midpoint to $547 million to $571 million and raising our adjusted EBITDA range by $15 million at the midpoint to $200 million to $220 million. The midpoint of the adjusted EBITDA guidance implies a margin as a percentage of revenue of 12.7%, which is over 150 basis points of margin expansion year-over-year.

As we previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volume, combined with low to mid-single-digit increases to our total revenue per visit.

Additionally, we continue to expect stock-based compensation of approximately $60 million to $70 million this year.

For the second quarter, we expect revenue of $405 million to $425 million; Center Margin of $135 million to $147 million; and adjusted EBITDA of $50 million to $60 million.

As we look beyond 2026, we continue to expect annual revenue growth in the mid-teens and to achieve mid-teens adjusted EBITDA margins by full year 2028.

The macro trends we're seeing across mental healthcare, along with the momentum in our performance, reinforce our confidence in that outlook.

With that, I'll turn it back to Dave for his closing comments.

Thanks, Ryan. This is an exciting time for LifeStance. Demand for mental healthcare is growing while affordability is increasingly important for patients. Our model is differentiated and delivers high-quality outcomes. This combination gives us confidence to meet the needs of patients and provide a compelling place to practice for clinicians.

Operator, we will now take questions.

[Operator Instructions] So your first question comes from the line of Craig Hettenbach from Morgan Stanley.

Clinician growth was a bit above expectations in the quarter. So any tailwinds you would call out in the quarter? And then more broadly, just some of the things you're doing to kind of attract and retain clinicians to the platform.

Craig, this is Dave. I'll take that one. So we did have strong, we had very strong results around clinicians in the first quarter, as you noted, not just in the clinician adds, which were over 300, but also saw the third quarter in a row of strong productivity improvements. We grew that about 7% year-over-year.

In regards to the clinician growth that we saw, nothing new to point to there, primarily driven by the strength of our recruiting along with stable retention.

Got it. And then when I think through on the margin front, so delivering some good operating leverage here, the 15% to 20% longer-term EBITDA margins, how are you thinking about all the things you're doing from a technology perspective? I know you touched on the EHR investment. But just how do you envision kind of some of the efficiencies in AI kind of layering into kind of that path to the longer-term margins?

Yes, Craig, this is Ryan. So overall, so technology is a key lever, right, in terms of being able to deliver the long-term margins. But you framed it exactly right. So when we've stand out, we've talked about long-term margins in the 15% to 20% range. Overall, we further time to mention that to hitting adjusted EBITDA margins of mid-teens by 2028. And so we look at the leveraging. So to get to those margins, you get continued expansion around your Center Margin.

And then you also get continued leveraging through your G&A line, which does come from items such as AI enablement, technological initiatives that kind of make us more efficient in being able to get the scale growth overall. So it is a key component just as we think about the long-term margin profile of the business.

Your next question comes from the line of Ryan Daniels from William Blair.

This is Matthew Mardula on for Ryan. Congrats on a great quarter. It's great to hear about all the productivity initiatives continuing to work well. But when we look ahead, are there still new productivity initiatives planned by the company to be released in the upcoming quarters that are in the company's pipeline? Or is the strategy more focused to work on the current productivity initiatives that are already established and going well instead of maybe adding new ones?

Matthew, it's David. I'll take that one, and thanks for the congrats on the quarter. We're really pleased with the strong start to the year.

In regards to the clinician productivity, we have numerous initiatives that are underway. We've talked about that a lot in the back half of last year. The thing I always start with is remember, this is about visit growth. And what we're doing is an intentional balancing of using the available capacity of our existing clinicians versus hiring new clinicians. And the higher productivity benefits, both the clinician as well as the LifeStance.

So we're going to continue to look for new opportunities to improve productivity, while we're also continuing to execute on the initiatives that we've talked about for the past half year, of which all of those are durable and are continuing. You're seeing that in our results. But I always come back to it that intentional balancing. And when we think about the long-term growth algorithm, we still point to that that's going to be primarily driven by net clinician adds versus productivity and with productivity just being complementary.

Great. And then regarding visits, with that coming in strong at, I think, roughly 18% growth in Q1. And then given the last 2 quarters before Q1, we've seen visit growth around that 16% to 18% growth. And when we think about your guidance of that low double-digit visit growth going forward, should we maybe be expecting visits not to accelerate as seen in the past quarters in the back half? And that might just be because of the productivity initiatives that were established and gaining maturity in the second half of last year.

But if you could just kind of help me understand, what you're thinking about visit growth for the rest of the year? And any color into that given what we've seen in the past couple of quarters would be great.

Yes. So perfect. This is Ryan. I'll jump in there for that one. So first and foremost, just as you talk about the guide, overall, we're very pleased with the guide. So just you take it from a top line from a revenue perspective, growing at the midpoint at 17%. And then if you go down the P&L to adjusted EBITDA of 33%.

When you think about revenue, so I'll start there is, obviously, we've raised our guidance by $25 million. When you think about the 17% year-over-year growth, it takes on a more normal shape to some of our consistent patterns that we've had in terms of revenue being approximately 50/50 first half versus second half, with second half being modestly higher. And so that plays into the whole visit volume.

So we do have -- and you referenced this in your question, as you get into the second half of the year, you do lap your productivity initiatives. And as Dave mentioned, our growth will always be primarily from net clinician adds complemented by productivity, and you see more of that dynamic kind of happening in the second half versus the big gains in productivity that we saw in the second half of last year and the first half that we're expecting this year.

Your next question comes from the line of Richard Close from Canaccord.

Yes, John Pinney on for Richard Close. Congrats on the quarter. First, on the clinician adds, do you have any sense of, like where a majority of the strong quarter, 309 adds sequentially, where a majority of them are coming from? And how many are attributable to the tuck-in acquisitions? Are they mostly like new adds? Are they moving from private practice? Or just any other sense of the source?

John, this is Dave. I'll take that one. So first of all -- I'll take the last part of your question first. M&A did contribute in the quarter to net clinician adds, but very modest. So as mentioned in our prepared remarks, M&A is immaterial to 2 tuck-ins from a contribution perspective. So the net clinician growth is primarily driven by organic hiring, again, with stable retention.

Now your first part of the question, where are those clinicians coming from? No real change in that dynamic. We continue to see clinicians coming from 3 buckets. The first is and the largest being clinicians that are $10.99, small practice, and they're looking for more support and a stronger connection to our practice. And so they're joining us.

The second bucket I'd highlight is the clinicians that are salaried, this is a smaller bucket. These are ones that are at hospital systems or practices like that, and they're looking for more flexibility, but while still retaining some of those W-2 benefits in regards to health, health care, matching 401(k), those kinds of things.

And then the third bucket is new graduates. So individuals that are just graduating from school, then getting their licensure and coming to work at LifeStance. We continue to have a strong pipeline across all 3 of those categories. And again, I wouldn't point to anything new in the first quarter.

All right. And then on the EBITDA guidance, it looks like margin at the midpoint steps up with the 2Q guidance. And for the full year, it stays pretty consistent with what was achieved in first quarter. Is there anything to like keep in mind when modeling in the second half of the year?

Yes. So this is Ryan. So I'll jump in on that question. So you got it right, like overall. One thing kind of as you're thinking about your models is that G&A does step up $6 million from our previous guidance. We're very thoughtful about, like the investments that support our growth.

As it relates to G&A, there's really nothing significant to point to as it relates to -- we talked about this a little in Craig's question just around continued investment around AI and technology and then also in patient acquisition on a BD perspective. But when you're looking at just the sequencing the phasing second half versus first half, that is something that's notable just in terms of kind of key difference between first half and second half.

Your next question comes from the line of David Larsen from BTIG.

Congrats on another great quarter. Can you talk a little bit about the technology infrastructure and basically the conversion from inbound inquiries from prospective patients to first visit? And maybe just talk about how that process is evolving or improving or how it's changed over the years and what your expectations are for it going forward?

Dave, this is Dave. I'll take that one. So in regards to the conversion of patients seeking care to a booked appointment, one of our big focus areas for online booking is we've rolled out what we're calling Care Matching 2.0. And we had piloted the new solution. It's a new algorithm, with a little bit of new technology in the back half of last year and the beginning of this year, and that went really well. What we're seeing is an improvement in conversion of patients seeking care to a book appointment by about 5%.

And so as a result, we're now rolling out that new Care Matching algorithm and online tool across the country and have that rolled out completed in the next couple of months. So we're really pleased with that.

We won't stop there. It's really a journey. We'll also be looking at the patient experience online as they're going through that process and are there opportunities to reduce friction. And we'll be doing some of that exploration in the back half of this year.

Great. And then can you talk a little bit about how you measure results like the functionality of the patient themselves? And I guess, I don't know, perhaps like performance with activities of daily living. Are they tracking health improvement metrics? And do you have an app where the members can sort of correspond with the docs on a real-time basis and track and measure habits so that you can sort of see and track how all the patients are doing and if they're improving? And if so, like by how much?

Yes. This is Dave. I'll take that one as well. There are a couple of things there.

So first of all, from a measurement perspective, and I talked about in my prepared remarks, the study that we published based on data we had across 180,000 patients, and that data was from last year. What we're doing now is on a regular basis, monthly, we're checking in with our patients, and they're completing surveys primarily around anxiety and depression, and that allows us to track their progress.

And if it's going great, then we stay the course. But obviously, if their health is not improving, then what we're doing is we're exploring from a care pathway perspective, what are other options that our clinicians could provide to those patients to improve their health. And that survey is taken by the patients in our digital patient check-in tool. So that's where the patient interacts and fills out that information.

In regards to an app, we do not have that, so we do not have that capability you described. That is something that we're exploring. And we think about it as almost a continuum of care and what are ways that we can interact with and support the patient in between the visits that they're having with their clinicians. So more to come on that. And we do believe that that will eventually improve the outcomes for patients and potentially get them healthier faster. But that's more of an in the exploration phase at this stage.

Your next question comes from the line of Sean Dodge from BMO Capital Markets.

Maybe just staying on that outcome study, Dave, you just mentioned, how do you leverage those findings now? Is this more of a tool that helps with negotiations, and coverage and rates from managed care? Or is this something that maybe more helps with like competitive positioning, competitive differentiation and driving more referral volumes from primary care? Or is it kind of all of the above? Just how do you kind of like operationalize this now?

Yes. It's Dave. I'll take that one, Sean. You nailed it. It's really all of the above, right? So first of all, as I was just talking about, it's going to become a more increasingly important part of how we provide care to patients because it's rich data that our clinicians can use in the treatment of their patients and understanding how their health is improving or not improving. So that starts there.

And then sure, it becomes a proof point for us as we're working with referral partners or prospective referral partners about them sending their patients to us. It's part of establishing that trust.

And then in regards to the payer dynamic, today, most payers are still focused on access. They need access for their members and they're hearing it from their corporate clients around that access to outpatient mental healthcare. But we believe that, it will become increasingly important to be able to demonstrate quality outcomes. And that's why we have such a big focus on clinical excellence. And we're going to continue to put a lot more emphasis on that this year and in the coming years. We believe there's a lot of opportunity for us to be able to differentiate ourselves versus other practices.

Okay. Great. And then maybe going back to the clinician productivity enhancements. You talked about one of the other maybe less direct benefits of that being improved clinician satisfaction and that leading to less turnover since they're getting the hours they want as they're seeing more patients. I guess, with having a couple of quarters of kind of that behind you now, these improved productivity tools, have you seen any change in clinician retention or clinician churn, or is it maybe still a little too early to tell?

I think it's too early to tell. What we're seeing is continued stable retention. We are anecdotally getting very positive feedback from clinicians around us better filling their calendars, the new cash incentive program that's tied to both productivity and quality.

So again, we're continuing to get anecdotally positive feedback from the clinicians, but we have not seen anything meaningfully move in regards to retention.

Congratulations on the quarter.

Your next question comes from the line of Jack Slevin from Jefferies.

Congrats on the really strong quarter. Maybe I'll just tack 2 into one here. I guess looking at the stack of the guidance, a lot of commentary on the productivity efforts and other things. But maybe just more granularly thinking about care margin, I think, it assumes sort of a higher year-over-year step-up based on how that trended last year when you look at the last 3 quarters.

Can you maybe just talk a little bit about what drives that or what in the baseline from last year may not necessarily be the right thing to comp against as you think about the care margin performance that's implied in the new guidance?

And then the second one, we noticed over the last, call it, 5 or 6 months that payers have been broadening access for TMS or some of the higher acuity services that you provide. Can you maybe just talk a little bit about how that's trending for you or if you see potential for that to accelerate? Optum quite recently made it possible for NPs to bill for that service, which they previously had not allowed in a number of states. I'd just love to think about that broadly and if those good trends can continue or if there's potential to accelerate.

Jack, this is Ryan. I'll start off on the first question. I think Dave will jump in on the second part of your question.

So as it relates to Center Margin, just as it relates to the step-up that we're seeing there. So when you look on a year-over-year basis, Center Margin approximately has improved about 130 bps. So went from last year, 32.4% to implied in our guide is 33.7% this year.

When you think about some of the components just in terms of the favorability, it really is from rate, operating leverage from volume, which includes some of the productivity initiatives that we've talked at length about, and then also just some favorable spending kind of within that bucket.

When you think about the spending, I wouldn't point to anything specific on that. But to go back to like we're really pleased with the progression just as it relates to being able to expand our Center Margin, and it's tied back to just Center Margin expansion in addition to G&A leveraging gets us to our long-term growth algorithm.

And I'll turn it over to Dave to answer the specialty question.

Yes. So in regards to specialty, just from a grounding, last year, we did about $50 million in revenue from specialty services, and we expect that to grow to roughly $70 million this year or about 40% year-over-year increase. The majority of the $50 million is neuropsych testing, where we're the national leader in that particular service.

But then when you step into 2026, the higher growth rate versus regular book of business is driven by the TMS and Spravato services, which we're in the early stage on from a rollout perspective. We're adding new TMS chairs and Spravato sites every quarter, and we'll continue to do that for some time to come.

The other thing I would point to, Jack, is we're really set up well for these specialty services, whether it's TMS Spravato or if there is new things that are approved in the future, like psychedelics because we have over 575 centers. And so this ends up being a very low capital intensity for us because we're able to leverage those centers, and it works well for our model and providing holistic treatment for our patients, especially for the patients that need these services.

Congrats again on the strong results.

Your next question comes from the line of Peter Warndorff from Barclays.

You guys opened 6 centers this year -- this quarter and you had 2 tuck-in acquisitions. So I was just curious what the cadence might look like for the rest of the year.

And then when it comes to that M&A, I know you've talked about recently how some of the larger businesses in that kind of $200 million to $250 million range maybe had higher valuations than private markets. I mean, are you seeing anything differently there?

Peter, this is Dave. I'll take that. So in regards to the first quarter, firstly, you had your facts right. So we opened 6 centers, and we had the 2 tuck-in acquisitions. In regards to the rest of the year, what we've talked about is opening up 20 to 30 centers for the full year. We're still on pace for that.

And then from an M&A perspective, we have a strong pipeline of tuck-in opportunities that we're evaluating. Obviously, there's a lot of moving pieces there. So I don't want to make any commitments in regards to the timing on those. But we do expect the tuck-in acquisitions to be a meaningful part of our geographic expansion strategy going forward and we do intend to do those on a regular basis.

In regards to the overall M&A environment, no change to what we said last quarter, and that is we see meaningful opportunity in the tuck-in type acquisitions, or down market. We do not see meaningful opportunity for us -- as you get into that next or the biggest tier of our competitors that are in that $200 million, $250 million of annual revenue.

And the reason we don't see an opportunity there is because there's a lot of geographic overlap between us and them. And so there's just not meaningful synergy or value creation in the combining of those practices with us. It's just much more financially effective for us to grow organically rather than trying to do an acquisition of one of those larger practices.

Got it. Okay. And then on the visit rate side, you had a nice bump in 1Q, up about 3% year-over-year. Just curious, I think that last year, you had the last customer pricing impact that came through in March. So maybe there was a bit of a headwind still in 1Q. How should we think about the cadence of that over the remainder of the year?

Yes. So Peter, again, your facts set is right. So we're actually really pleased with the TRPV. You referenced the 3% year-over-year. So we did $163 from a TRPV perspective. So sequentially, that grew $3.80. This is key as we think about just rate in general. This is one of the reasons why we raised our revenue $25 million and also EBITDA by the $15 million for the full year was on the strength of rate increases.

As we think about the balance of the year, we're still guiding to low to mid-single digit as it relates to rate. We still have some work to do as it relates to kind of executing on the rate and payer negotiations. I would kind of frame the overall environment consistent to like our prior calls just around it's very constructive, and we're getting really good response from the payers.

So again, when you think about this year, guiding to low to mid-single digits. And again, it's also a critical component to our long-term growth algorithm kind of in that same range, low to mid-single digits. So we really like the momentum that we're seeing there.

Your next question comes from the line of Scott Schoenhaus from KeyBanc Capital Markets.

Almost got it there. Congrats on the strong start of the year, really firing on all cylinders here, team.

My question is a follow-up on the 6 de novo adds. Are those -- historically, you talked about trying to build density in metropolitan areas. Is that the way we should be thinking about those adds? And then when you're starting a de novo clinic, can you talk about the productivity ramp up? It seems like these technology investments have caused your productivity ramp to be quite quick. Maybe just walk us through your de novo strategy and the productivity on these de novo adds.

Scott, it's Dave. I'll take that one. So in regards to the de novos or the building of new centers, they come in a lot of different flavors. So you could have a center going in, in an adjacent town where we already have an existing center, already have existing referral partnerships, things like that. And so that kind of center is going to ramp very quickly. Those are the majority -- when we talk about the 20 to 30 centers that will build this year, that's the majority of the centers that are being added.

We also are placing some de novos in brand-new geographies, because again, our preferred entry is through M&A rather than going pure de novo. That's a minority of the centers that we're adding in that 20 to 30. And those are going to have a slower ramp than the first category that I mentioned. That you're looking at more of 12 to 24 months to getting to breakeven. But again those are important beachheads that are going to be the foundation for growth in the years to come.

That's helpful. And then this is sort of an industry broad general question. You've seen a lot of industry changes and shifts, whether it be a large D2C behavioral health company trying to get into the payer market. And then a company in the behavioral health space that was acquired by a large provider network.

May be talk about is that -- are you seeing impacts on either recruitment or patient perspective or rate perspective from the payers? Maybe talk about what's changing in the competitive landscape and if it's impacting you guys at all?

This is Dave. I'll take that one. In regards to the overall industry, you always have to start from the framing of it is still a highly, highly fragmented industry. And so you should expect that there will be consolidation in the years to come. And I think we're in the early days of consolidation.

And I really like where LifeStance is positioned to be able to take advantage of those trends going forward. And because the industry is so fragmented, because there's such unmet demand from patients, we're not seeing any changes in regards to new patient volumes, clinician hiring, things like that. And you're seeing that in our results in the first quarter with really being strong across pretty much every aspect of the business.

That will conclude our question-and-answer session. And I will now turn the call back over to Dave Bourdon, Chief Executive Officer, for closing remarks. Please go ahead.

Thank you, operator. I want to take a moment to recognize our nearly 11,000 mission-driven teammates. Every day, you show up for our patients, often at some of the hardest moments in their lives, and you do it with extraordinary compassion, professionalism and resilience. And I'm deeply grateful for what you do.

Mental healthcare has never been more essential. We're proud of the difference LifeStance is making today, and we're even more committed to expanding our reach so we can help millions more people get the high-quality care they deserve.

Thank you for joining us today. Operator, that will conclude our call. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, and thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the LifeStance Fourth Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to turn today's call over to Monica Prokocki. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to LifeStance Health Fourth Quarter 2025 Earnings Conference Call. I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Gordon, Chief Executive Officer; and Ryan McGroarty, Chief Financial Officer. In addition, Ken Burdick, our Executive Chairman, is also with us. We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifetale.com. In addition, a replay will be available following the call.

Before turning over to management for their prepared remarks, please direct your attention to the disclaimers 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, business model and strategy. Those statements involve risks, uncertainties and other factors, as noted in our periodic filings with the SEC, that could cause actual results to differ materially.

Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Dave Bourdan, CEO of LifeStance. Dave?

Thanks, Monica, and thank you all for joining us today. 2025 was an exceptional year for LifeStance. We delivered robust organic revenue and visit growth driven by continued expansion of our clinician base as well as noteworthy improvements in productivity, all of which translated to delivering on our mission of expanding much needed access to outpatient mental health services. As a result, our team of 8,000 clinicians delivered Carta over 1 million patients and conducted nearly 9 million visits during 2025. It starts and ends with the quality of care delivered by our LifeStance clinicians. Patients continue to provide great feedback on their experience.

In 2025, LifeStance achieving patient Net Promoter Score of 84 and our over 570 centers maintain consistently high Google ratings averaging 4.7 stars. In terms of financial results, this was a year of outperformance, milestones and records for LifeStance. For both the fourth quarter and the full year, we once again exceeded each of our guided metrics, capping a year of consistent outperformance. We generated mid-teens revenue growth for the full year through clinician growth of 9% as well as a remarkable 7% improvement in clinician productivity in the second half of the year.

We achieved double-digit adjusted EBITDA margins for the full year for the first time as a public company a milestone that reflects both the operating leverage in our model and the consistency of our execution over the past 3 years. We delivered positive net income and earnings per share for the full year, reaching this key milestone as a public company, 1 year ahead of our expectations. Finally, 2025 was a record year for free cash flow generation demonstrating the strength of our operating model and our ability to invest in the business while creating long-term value.

Ryan will provide more color on our financial performance. Our results in 2025 bolster the confidence we have as we carry strong momentum into 2026. Turning to operational execution. We made great strides in 2025 to drive improvements in the performance of the business. Earlier in the year, we outlined several initiatives designed to better fill the time clinicians make available to see patients. And as these initiatives were implemented, their impact became increasingly evident in the back half of the year. For example, we implemented process improvements around clinician scheduling to better utilize available capacity. We also launched a cash incentive program that rewards clinicians for improving quality and productivity.

In addition, we expanded patient access through shortened booking lead times, which improved show rates and made enhancements to conversion of phone call to booked appointments by new patients. We also strengthened patient engagement with a new platform that enhances patient acquisition and retention. Importantly, these initiatives have now delivered consistently improved results since implementation in the back half of the year, reinforcing the durability of the improvements. Turning to technology, 2025 marked an important year of progress in how we use digital tools to support patient access, clinician experience and operational efficiency.

Throughout the year, we applied digital and AI solutions in targeted practical ways to improve the experience for both patients and clinicians. From a new patient phone booking perspective, we implemented a new AI technology solution to support our scheduling team, which facilitated stronger appointment conversion and operational efficiency. We are improving the clinician experience and enhancing the care our patients receive. An example of this is we piloted AI-assisted documentation for clinicians.

The early results show reduced administrative burden and cognitive load, enabling clinicians to work more efficiently and spend more time on patient care while also supporting improved satisfaction and retention. We are also using digital and AI tools that are benefiting operational excellence including revenue cycle management. Examples of this are the digital patient check-in tool, AI and robotic process automation that were instrumental in delivering strong cash collections. Overall, our approach to technology in 2025 was intentional and disciplined using digital and AI for business enablement and decision support to drive engagement, productivity and scale while improving the satisfaction for patients, clinicians and our nonclinician teammates.

Turning to 2026 and beyond. We will continue building on our progress in advancing our operational and clinical excellence by focusing on several initiatives that support our long-term growth and scalability. First, we completed our EHR discovery process and made a decision to transition to a best-in-class vendor. This is an important step in advancing our long-term operating model and positioning the business for continued scale. The new EHR will be instrumental in supporting clinicians and patients to improve both their experience and clinical outcomes.

In addition, we expect the new EHR to improve interoperability, which will benefit growing health system partnerships. We will begin working through the implementation in 2026 and and expect the transition to the new EHR during 2027. Second, technology will continue to be an important enabler to delivering on our commitments this year with an emphasis on applying AI and digital tools. We expect to build on the progress we made in 2025 and by expanding technology solutions that improve access, clinician productivity and operating efficiency.

We are starting the year with additional use cases in customer service and revenue cycle management, along with expansion of initiatives like AI clinical documentation and workflow management. Third, we remain focused on attracting new patients and better converting those inquiries to visits. An example of this is provider and printer referrals. A core differentiator of our growth model. We are making additional investments in this channel in 2026 through increased talent resources to support that opportunity with a new operating model that improves local market support. In addition, we have seen improved online conversion of new patients with our care matching pilot and expect to implement it across all of our state practices this year.

In closing, I'm very proud of the progress we have made as a company this year. As we enter 2026, we do so from a position of momentum and confidence. Looking ahead, we are well positioned to meet the increasing demand for high-quality mental health services and patients moving to insurance from cash pay for affordability. We will continue to extend our leadership in outpatient mental health care by pairing continued innovation with disciplined execution. Before I turn it over to Ryan, I want to take a moment to acknowledge Ken Burdick. Ken have been and will remain an integral part of LifeStance's journey. In addition, I appreciate and value his continued mentorship. I'd like to turn it over to him to share a few words regarding a change in his role at LifeStance. Ken?

Thanks, Dave. I transitioned to the Executive Chair role in March of 2025. During the past year, I have been incredibly impressed with the way in which Dave has stepped into the CEO role, and Ryan has taken the reins as CFO. The performance of the business in 2025 speaks volumes of their leadership and the quality and cohesion of the entire leadership team. In light of the confidence that I and the entire LifeStance Board have in the leadership and direction of the business, I will be transitioning to the role of Nonexecutive Chair of the LifeStance Board next month. I could not be more proud of Dave and his team nor could I be more confident about the future for LifeStance.

The financial and operational discipline that has been incorporated into the culture of purpose and passion that has always existed at LifeStance, is a powerful combination that will drive sustained success for years to come. With that, I'll turn it back to the team. Ryan will now walk you through the financial results. Ryan?

Thanks, Ken. I'm pleased with the team's operational and financial performance in the fourth quarter, which exceeded our expectations. We delivered solid growth across revenue and visit volumes as well as a record adjusted EBITDA margins driven by operational discipline. For the fourth quarter, revenue grew 17% year-over-year to $382 million. Revenue exceeded our expectations primarily due to better-than-expected total revenue per visit and to a lesser extent, visit volumes. Visit volumes of $2.4 million increased 18% year-over-year. The outperformance was primarily driven by better-than-expected clinician productivity our visits per average clinician increased 7% year-over-year.

We grew our net clinicians by 44% in the fourth quarter and 657 for the full year bringing our total clinician base to 8,040 representing growth of 9% year-over-year. The level of net clinician adds in the fourth quarter was based on our intentional effort to balance the existing capacity of our clinician base and new clinician hires. This strategy was effective as demonstrated by the strong visit and revenue performance in the quarter and increases our confidence in this approach going forward. Total revenue per visit of $160 was roughly flat year-over-year and modestly ahead of our expectations.

For the full year, we delivered revenue of $1.424 billion, up 14% year-over-year, driven entirely by visit volumes. Turning to profitability. Center margin of $126 million in the quarter increased 15% year-over-year and was 33% as a percentage of revenue. This exceeded our expectations primarily due to the revenue beat as well as slightly lower spend. Full year center margin of $461 million grew 15%. Adjusted EBITDA of $49 million in the quarter was very strong and exceeded our expectations.

This 49% year-over-year increase resulted in our adjusted EBITDA as a percentage of revenue of 12.8%, the highest in our history as company. The outperformance in the quarter was primarily attributable to favorable center margin and slightly lower G&A spending than expected. For the full year, adjusted EBITDA was $158 million, increasing 32% year-over-year with margins increasing 150 basis points to 11.1%. We have continued to deliver on our commitment to drive operating leverage in G&A as we maintain a disciplined approach to expanding margins while supporting sustainable growth.

As Dave mentioned earlier, we finished the full year with positive net income and earnings per share. This achievement was delivered a year earlier than we expected and is a key milestone in our journey as a public company. Turning to liquidity. We generated robust free cash flow of $47 million in the fourth quarter and $110 million for the full year. Exceeding our expectations due to better-than-expected earnings and the dedicated efforts of our collections team. We exited the quarter with a strong balance sheet including a cash position of $249 million and net long-term debt of $266 million. We have additional capacity from an undrawn revolver of $100 million.

We are pleased with our leverage ratios with net and gross leverage of 0.2 and 1.8x, respectively. We have significant financial flexibility to run the business and fully execute on our strategy. Additionally, this morning, we announced that our Board of Directors has authorized a share repurchase program, allowing us to repurchase up to $100 million worth of our outstanding shares. We will fund this program with cash on hand. With a strong balance sheet, meaningful free cash flow generation and the leverage levels that provide ample financial flexibility.

We believe this share repurchase program is an attractive and highly efficient way to deploy capital and create long-term shareholder value. At the same time, M&A continues to be a priority and we have resources dedicated to exploring opportunities in a disciplined manner. In terms of our outlook for 2026, we expect full year revenue of $1.615 billion to $1.655 billion. Center margin of $526 million to $550 million and adjusted EBITDA of $185 million to $205 million, with the midpoint representing 11.9% margin, we're almost 1 point of margin expansion. Our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volumes combined with low to mid-single-digit increases to our total revenue per visit.

As for phasing, our guidance contemplates a revenue split of roughly 50-50 in the first and second half of the year with the second half slightly higher. For the first quarter, we expect revenue of $380 million to $400 million, center margin of $118 million to $132 million, and adjusted EBITDA of $39 million to $45 million. In terms of earnings, the first quarter is seasonally impacted by higher payroll taxes. Additionally, we expect stock-based compensation of approximately $60 million to $70 million in 2026.

As a reminder, we announced in May that we will be sunsetting our stock-based incentive program for clinicians and replacing it with a cash bonus incentive program. The impact of this change was expected to result in a decrease in stock-based compensation of roughly $10 million per year. We are seeing this benefit for the first time beginning in 2026 and we'll continue to see a reduction over the next 4 years as the existing tranches of clinician stock vest. Regarding free cash flow, we expect to once again generate meaningful positive free cash flow for the full year 2026. Additionally, we expect to open 20 to 30 new centers this year.

As Dave mentioned, we recently completed our EHR discovery process and are moving ahead with implementation this year. During 2026 and 2027, we expect this implementation to represent a use of cash of roughly $20 million to $30 million. Much of the spend will be capitalized or adjusted in EBITDA as it is nonrecurring. Any P&L impact associated with these activities has already been reflected in our 2026 guidance assumption. As we look beyond 2026, we continue to expect revenue growth in the mid-teens based on low to mid-single-digit annual rate growth, combined with low double-digit volume growth.

We expect to continue to expand operating leverage through the G&A line and now expect to reach mid-teens adjusted EBITDA margin by fiscal year 2028. We believe this trajectory underscores the strength of our platform, combined with favorable macro mental health trends and gives us confidence in our ability to consistently deliver growth and expanding margins over the coming years. With that, I'll turn it back to Dave for his closing comments.

Thanks, Ryan. In closing, 2025 was an exceptional year for LifeStance. Our results demonstrate the dedication of each of our clinicians and team members and the resilience of our model. We entered 2026 with strong momentum to continue expanding access to high-quality affordable mental health care. Operator, we'll now take questions.

[Operator Instructions] Our first question comes from the line of Craig Hettenbach with Morgan Stanley.

Yes. And just to start, Ken, echo in your comments, nice to see that the execution of the team kind of playing out and then kind of the strategy. Dave, maybe just building on that, the inflection in productivity in the back half of the year and your comments about durability. Can you just talk about kind of this year and as we play it forward, just how that's impacting the business?

Yes. Craig, thanks for the question. In regards to the productivity initiatives, and we talked about a number of them throughout especially the back half of last year. And what you're seeing is the durability in those, whether it's the improvements that we've made in our foam scheduling team for new patients, the the new cash incentive program that we have for clinicians that are tied to quality and productivity, all those kinds of initiatives that we put in it wasn't just a Q3 lift.

We actually saw it build into Q4 and so we're very happy with the productivity improvements and the durability that we've seen, including as we've stepped into 2026. Now having said that, just at a macro level, just a reminder is that we're guiding to about 15% revenue growth in 2026. And the growth algorithm of that is still we expect low double-digit visit growth, and that's going to come primarily from net clinician ads with some complementary benefit from productivity. And then in addition, we'll see low to mid-single-digit revenue per visit growth coming from the payer rate increases.

And then just as a follow-up, when you think about the past to 15% EBITDA margin, and you spoke a lot about just some of the technology investments. As a management team, how are you looking at just the ROI kind of payback and the investments you're making like translating into the model? .

Yes. Sure, Craig. This is Ryan. I'll jump into that question. So I appreciate you starting off just kind of highlighting like what our long-term guide is overall. So again, like I think we've been able to demonstrate a history of delivering on our results. As it relates to investment, we are very disciplined in our approach and kind of looking at whether it's an AI enablement solution or other technological solution. Looking at the return profile of the investment and making sure that it pencils out to be able to kind of drive the leveraging that we're looking for from an operating perspective. So again, a very disciplined and thoughtful process that we have in terms of looking at investments.

From JPMorgan. Your next question comes from the line of Lisa Gill.

I just wanted to follow up on your comments around the visit per clinician being up 7%. And you made some earlier comments around digital and AI. Can you talk about how that's playing into those visits per clinicians? .

Yes, Lisa, it's Dave. I'll take that one. So there's really 2 aspects to this. The first was that we worked with the clinicians to get more capacity on their calendars, right, so that they gave us more availability to be able to see patients. And that's been a multiyear journey for us. And it's really nice to see the benefits of that. Now the converse of that is then the clinician said, okay, we're giving you more capacity. Now we want you to use it. We want to see more patients. And obviously, if they see more patients, they also make more income. And so they were asking for us to fill more of the time on their calendars. So we worked with them around schedule optimization, basic practice enablement and practice management initiatives. So that was 1 aspect of it.

And then the other is then increasing the flow of new patients. And so we've talked about some of those things like improving the conversion of the phone calls that we get from people seeking care to actually booking an appointment. And so the AI tools that we put in place there last year improved that conversion rate by 5%. And so we have a number of initiatives that are driving improved new patient conversion. And then as we step into this year, 1 of the initiatives that I mentioned in my prepared remarks is our new care matching new care matching algorithm and tool.

And we really believe by improving the matching, we improve the therapeutic alliance between the clinician and the patient. And what we've seen from the early results of the pilot is improved conversion, both not only in the -- from phone calls, but also from online scheduling and as -- once we get that patient in the door, they're actually stickier and we believe is we'll see better outcomes on the back end of that as well.

Then just as a follow-up, in your first answer to the question, you talked about low to mid payer rates. I know one of the initiatives that Ken had was cleaning up some of the managed care relationships. Can you talk about where you are on that path? Is it where you want to be and load to mid payer rate sounds like a positive. Do you have good line of sight to that over a multiyear period of time? .

We do. So first of all, we're pretty much complete on the journey of cleaning up the payer contracts. But for the last 3 years, we've probably reduced the number of contracts by 50%. So a meaningful improvement. The genesis of that or the reason we did that was really around administrative efficiency. We wanted our team to focus on the relationships that mattered. And so that was really the driver of that, but we've largely completed that, Lisa. And then as far as the payer rate increases and the durability of that low to mid-single-digit we primarily use an approach of annual rate discussions with clinicians with the payers.

We will from time to time, depending on the situation, lock in a multiyear arrangement similar to like what a hospital system would do with a payer. But for the most part, we're more annual contracts with the payers, and we're having very constructive conversations with them. And so again, we feel very good about that low to mid-single digits and being able to achieve that in the coming years.

Great. Congrats on those great results. .

Thank you.

Next question comes from UBS from the line of Kevin Caliendo.

I just want to go into the comment about moderating the net adds in the quarter and the efficiency. Does that mean that you could have added and this is like a more measured approach to making sure your efficiency and onboarding was in the best shape possible. Is there like a backlog? And I guess the follow-up to that is how should we think about the ads organically versus M&A versus what is exciting in this new buyback that you announced, which I think will very well received. .

Yes. I'll take that one, Kevin. There's a few parts to that. So first of all, as far as the Q4 clinician adds, I think what -- where you were going with that is we are having an intentional balance between the adding of new clinicians versus taking advantage of the capacity that we have with our existing clinicians. And our priority is to take advantage of that capacity on the existing clinicians first because of 2 reasons. The first is that -- we actually believe by doing that, we'll improve their satisfaction and eventually, that will turn into better retention. And the other is it's actually -- it's a win-win for both the clinician and the company. It's just a more efficient way for us to be able to run the business. So that has been an intentional balancing act.

Again, what I mentioned earlier is that we still believe for our growth algorithm as we step into '26 and in the coming years, the primary driver of visits will continue to be clinician net adds. Improvements in productivity will be complementary, but not the major driver. And then as far as M&A goes, First thing I want to make the point on is there's no material M&A included in our '26 guidance. It does continue to be a priority, and we do have an active pipeline. At the same time, we're going to be very disciplined, and we're focused on opportunities that are both strategic and financially make sense.

And it's an interesting environment right now. We see this with the larger companies, revenue in the $75 million to $250 million range, they have valuation expectations that they're dislocated from reality. At the same time, as we're going down market, those opportunities seem to have more appropriate valuations, and we're targeting those kinds of companies for geo expansion. So I would expect to see some of those smaller tuck-ins. But again, that is not going to materially move the needle on the financials in '26 what it does, it positions us well for future year growth.

From Jefferies. Your next question comes from the line of Jack Slevin

I want to ask about the '26 guide and some of the commentary around the EHR implementation. I guess just looking at how some of the G&A stacks and the initial guide and appreciate sort of the conservative approach and all the execution you all have been been undertaking recently. But like it looks like the EDA drop-through is going to be a bit lower. So I was just curious if you could speak a little bit more to like the process of implementing that EHR. And if there's anything specific on the cost side we need to be thinking about there.

Yes. Sure. So Jack, I appreciate the question. So I'll start off with the HR, and then I'll talk a little bit just in terms of like G&A in totality between 25% and 26% in the growth rates. So first and foremost, as I mentioned on the call in my prepared remarks, the overall EHR kind of implementation that we wanted to put out like just in terms of the representation of the cash usage. And as I mentioned, it's $20 million to $30 million. Most of these costs will be adjusted through EBITDA or capitalized. So again, we're still -- we're in the early stages just in terms of overall the journey to implementation of a new EHR, which we're all really excited about.

When you look at G&A in totality, so when you look at '25, our growth rate was 7%, which is unnaturally low when you peg it against the growth rate of the business. if you recall and you go back to our original guide. Our original guide was closer to 10%. And so when you look at our full year guide from a G&A perspective, like what it implies that grew at 13%, which stacks up well against the 15% overall growth rate. So you're able to leverage your operating expenses, but at the same time, it provides us flexibility as it relates to being able to continue to make the investments in growth.

And where Craig went earlier just in terms of capabilities to kind of the line kind of pencil out. So overall, that's kind of the cause of the step-up year-over-year.

Really helpful. And then maybe just a follow-up, thinking about some of the M&A commentary. I guess to take a step back a bit, can you maybe just level set on like any sort of KPIs or things you think about as you look at organic growth in the business versus M&A opportunities. I would think the hurdle rates are getting higher because of the broad network you have and your sort of track record of being able to add on the organic side, but I wasn't sure if there's any way you can think about either to return profiles or other things on on sort of growth via those 2 vectors, given where the portfolio stands right now?

Yes. We just talked a minute ago about M&A. I think just to pile on with a few comments. So certainly, from a financial discipline perspective, we have a profile around multiple on EBITDA and things like that, that we have our hurdle rates, which we're not going to -- we obviously aren't going to publicly disclose. But we are -- we do have financial metrics that were big and very disciplined on. The down market opportunities are the ones that are currently the most attractive to us. And attractive primarily for geographic expansion. So we do not see doing small tuck-ins in geographies where we already have a meaningful presence the economics are actually much more attractive for us to just grow those organically.

Your next question is from the line of Richard Close with Canaccord Genuity.

Yes. Congratulations on a great year. Dave, in the past, you talked about differentiation and optimization phase that included, I guess, several strategies like specialty services expansion. So I'm interested in how that has progressed -- and then also becoming the referral partner of choice, just what you're doing there, maybe more details in terms of payer relationships and provider organizations with respect to referrals?

Thanks for the question, Rich. There's a number of components there, so I'll try to hit them all. So first of all, to your point around specialty services, that is an important part of our future growth story. And we are doing that because what we want to be able to do is holistically treat the patients. So whether it's therapy, psychiatry kind of those core services or if they need additional services like neuro site testing or if they have treatment-resistant depression, and they need a step up in care in regards to like a [indiscernible] or TMS or things like that. So we -- this is all about treating the patient holistically and driving to a better health outcome.

And so specific to specialty, just to ground you, previously, we had talked about it as about $50 million of revenue. We are targeting $70 million of revenue for 2026. So about a 40% increase. And that's consistent with how we've talked about that business segment in the sense of that it would grow at a rate larger than our core book of business. And that growth is primarily coming from this treatment-resistant depression services of SPRAVATO and TMS. Just a couple of things I'd mention is this is low capital intensity. What we're doing is we're leveraging our existing centers.

And again, we just think this is a tremendous opportunity for us in the coming years, and it's going to contribute to both growth and margins. So that was on the specialty. In regards to the -- being the partner of choice, I'm going to say primarily to the medical providers because we addressed that a little bit in our prepared remarks. So we're continuing to invest in those resources that everything from a technology perspective and how we interface with them and the unique requests we get from, for example, a health system. As well as we're investing in additional feet on the street. We've implemented a new operating model to make those resources even more local to be able to support our state practices and drive increased referrals from the medical practices.

So we feel really good. We feel really good about that. And then we also mentioned last year the new Com relationship. And I think that was more about the signal of a different kind of referral partner than our typical PCP or a hospital system or those kinds of referral sources. And I think it's just an exciting example of of a different opportunity that we think we're uniquely positioned for because of our large scale, the focus on the patient experience and outcomes as well as our hybrid model of both in-person and virtual those kinds of services and characteristics are very appealing to some of these national digital players.

And from William Blair. Your next question comes from the line of Ryan Daniels.

This is Matthew Mardula on for Ryan. And I just want to kind of touch up on the answer to the last question. So can you kind of provide an update on how the patient growth segments have been trending? And then how should we think about the momentum. When patient referrals into 2026. I know the net outpace the supply in the industry, but I do want to focus on those newer initiatives like the partnership with Calm and then additional investments of the provider and partner referrals for 2026. And now this is a kind of big main point of my question. But are you expected to see maybe a newer or a different type of patients because of these patient referral segments?

This is Dave. I'll take that. So in regards to the referrals, this is a primary channel for us to get new patients. It's one of the things that differentiates LifeStance versus many of our competitors in the outpatient mental health space. And that we only spend about 2% of our revenue acquiring new patients. And that's a very efficient model. The way we're able to do that is through these referral programs with the medical practices. And that continues to grow I'd say, commensurate with the business. So I wouldn't point to anything that's unique there from a growth rate perspective. .

And then in regards to the update on Com, it's still early days on that relationship in both sides. We're still working together to optimize that partnership we are getting new patient volume from the Com relationship, but it is not to a level that is so that is very meaningful at this point. We expect it will build in the coming months and years, but it's not something that is going to meaningfully move the needle for us in 2026. And then as far as the demographics go, it's one of the reasons that the partnerships with some of these large digital players like Com are intriguing to us because we do believe that, that will attract a younger, more digitally native type demographic than what we've historically had at LifeStance. And so it's a completely different demographic.

Your next question comes from the line of David Larsen with BTIG.

Can you please talk a bit about the EMR? Like what are you using now? Who are you going to be switching to? And then what capabilities do you expect to get from this new EMR? So for example, will the workflow be easier? Will this contribute to even more physician productivity? And then any thoughts on like reporting from the new EMR, what do you hope to get from that 1 that you don't get from your existing one?

Yes, all of the above, David. But thanks for the question. So first of all, we have a practice. We do not mention other companies on our earnings call. So I'm not going to talk about where we are today or where we're going from an EHR perspective but tick it up a level. We put a lot of work in over the last year in regards to the discovery process, which we've now completed, and we have decided upon a new EHR vendor.

So a new one, it will be going away from our existing one. It is foundational for the future. So it goes to your question of what we're trying to get out of it. And I mean at a high level, it's about unlocking advancements in both clinical and operational excellence. So yes, from a clinical perspective, it's going to improve workflows. I think things like care pathways and in the next best action to support our clinicians, they being able to tie in new AI point solutions, things like that as well as a much better patient experience both from an administrative as well as a care perspective.

There's a lot around the HR that is core and foundational to where we want to take the company over the next 5 years. We're going to begin the planning now and throughout this year, and then we expect the rollout to be next year.

And then with regards to like the payer relationships, a lot of times, like health plans will view mental health providers as like ancillary providers. we'll spend a lot of time with like the large acute care medical centers, maybe some of the large physician groups of mental health based on my experience has been more of a price taker from the handful of large dominant commercial plans in each city. Can you maybe just talk about that? Are you a price taker where they're like, okay, here's the mental health rates, here's a fee schedule, that's what you get? Or is it much more of a collaborative approach. And just any discussion around like the quality care you're providing with patients fewer ER admissions, improvements in cost of care. I just want to make sure you're not a price taker.

Yes. I mean as far as the payer relationships, what I said earlier is we're having constructive conversations with most payers. There's always going to be tension. There's tension in all providers across the entire health care ecosystem and payers. So it's -- but that's a normal level of tension. The thing that I would point you to in regards to outpatient mental health is that the payers are still getting a lot of pressure from their employer clients and their members for access to in-network outpatient mental health care.

And so that's really the balance to the pricing conversation and what leads to those constructive dialogues. For the more thought-leading payers, the ones that are are now thinking about quality and outcomes in addition to access, those are the payers that I think have really gotten their head around the mind-body connection, and that there is opportunity for even increased mental health utilization leading to a total cost of care reduction.

Thanks very much. I'm a big believer, obviously, in mental health and how we can keep people productive and at work and improve the total health of the market. .

And from Barclays, our next question comes from the line of Peter Warendorf.

I just wanted to touch on the 20 to 30 new center adds that you guys are expecting this year. I know you said the costs are accounted for in guidance. But I'm -- is it right to assume that those come on with lower margins? Just trying to get a sense for kind of the cadence of margins throughout the year.

Yes, Peter, this is Ryan. I appreciate the question. You got it right. So like overall, 20 to 30 new centers, they do come on with a lower margin profile, but that's fully contemplated in the guidance and what we put out to the market. But again, we look at as a very nice accelerator kind of overall growth strategy in terms of where we decide to plant a flag for a new center. And again, they're very -- the the return profile is relatively quick on them, too. So again, you get the initial piece where it's lower, but then it gets up to normal at a relatively fast pace.

And then maybe just one quick follow-up from a high level on the competitive landscape. I mean are you seeing anybody yet more or less aggressive? Is there anything worth calling out on the competitive landscape early in the year?

I wouldn't point out anything in particular that's new in the competitive landscape. So first of all, it is and remains a very competitive environment for attracting and retaining clinicians. They have lots of choices. So that's not new. That's the environment we've been in now for years. When I think about the competitive dynamics, because it is such a fragmented industry, it is really a very local conversation. So at the local level, we have competitors but there's not any one across the nation that I would flag for you. .

From Keybanc, we have a question from Steve Dechert.

Congrats on a solid quarter. I just wanted to ask 1 around visits per clinician. Sequentially into '26, how should we think about the move into 1Q from the level you were at in 4Q?

Yes. So I appreciate the question. This is Ryan overall. And so when you look into 1Q overall, maybe I'll just take this from a overall kind of revenue perspective and then we can kind of get into like the contribution just in terms of how to think about productivity versus at clinicians. So when you look at the revenue step up from Q4 to Q1, it goes up approximately $8 million, which is 17% year-over-year, which I went through on the on the prepared comments earlier. So when you think about the actual step-up in visit volume, really, you can think about as that clinician where Dave won earlier just in terms of being the driving force between the sequential growth and then supported by rate, right?

Overall, those are kind of the key components that you kind of build from Q4 into Q1. And then as Dave mentioned, like we have high confidence just in terms of the durability as it relates to productivity. In terms of what we're doing from a practice management perspective, around productivity as an enabler that.

And I wanted to ask 1 around free cash flow. So I think previously you guys had guided to it being down in '25, but was actually up. Just wondering, did any of those de novos in '25 get bumped into '26. And then are you expecting free cash flow to be up in '26 versus '25.

Yes. When you look at just -- there's always the timing and movement between new centers just in terms of being able to fully execute on the implementation. I call that like relatively minor when you think about the 20 or 30 centers kind of consistent with what we've been doing here for a bit. When you talk about free cash flow. So free cash flow did exceed our expectations in 2025, so at $110 million versus 2024 was $86 million. As we think ahead, and Dave went through this earlier, is the super capital-efficient business that we have. We expect to be positive again in '26 as we continue to grow our adjusted EBITDA kind of consistent with the guidance that we put out there. Again, this is a relatively new phenomenon for us being for the last 2 years being free cash flow positive, and we're pleased with the progression and happy to be able to our expectation being that will again be free cash flow positive in '27.

From BMO Capital Markets. Our final question comes from the line of Sean Dodge.

Dave, your comments on technology and using that to drive savings. I'd imagine a big chunk of your costs related to the clinicians and occupancy costs. But if we add up all the support costs, the things you mentioned like the scheduling credentialing in the revenue cycle, we call the labor-intensive stuff. What proportion of your cost base is that, so things that are addressable impactable with technology over time. And then maybe how much of that you think you can actually drop out over the coming years? And then just maybe any thoughts on kind of like what inning we're in with all this.

Yes, Sean, this is Ryan. I appreciate the question there. And so I think I would kind of handle this question by grounding you again just in terms of our long-term growth algorithm. So as it relates to Dave were through the mid-teens revenue growth, we expect center margin to expand out to mid-30s from the low 30s where it sits today. And part of the center margin expansion is from leveraging things like your occupancy has. And then you get down to the G&A line. And overall, that's where with the new part of our long-term guidance that we put out today is expected to be in mid-teens EBITDA by 2028. And you can think of that both from expansion of center margin plus the G&A line. And in the G&A line, that's getting at the crux of your question just in terms of being able to drive efficiencies to be able to pull out 7 To be able to get the leverage. So we feel really confident in our ability to be able to do that. We've proven our ability to be able to implement technology to be able to drive our overall lower expense base.

With no further questions in queue. I will now turn the call over to CEO, Dave Borden, for closing remarks.

Thank you, operator. I'd like to thank our nearly 11,000 mission-driven teammates who make sure that our patients get the quality care that they need and they deserve. I continue to be inspired by the passion and the resilience that you all bring every day. Our services are needed more than ever. and we look forward to furthering the positive impact that we can have on the millions of Americans whose lives can be improved by the high-quality mental health care services that life stance provides. Thank you for joining us today. And operator, that will conclude our call. Thank you.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the LifeStance Health Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Monica Prokocki. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's Third Quarter 2025 Earnings Conference Call.

I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer and Ryan McGroarty, Chief Financial Officer.

We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call.

Before turning over to management for their prepared remarks, please direct your attention to the disclaimers 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, business model and strategy. Those statements involve risks, uncertainties, and other factors, as noted in our periodic filings with the SEC that could cause actual results to differ materially.

Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix.

Unless otherwise noted, all results are compared to the comparable period in the prior year.

At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave?

Thanks, Monica, and thank you all for joining us today. I'm incredibly proud of the LifeStance team for the exceptional results we delivered in the third quarter. For the past 3 years, we have met or exceeded our guided metrics, a testament to our consistency, execution and the resilience of our commercial pay hybrid model.

Offering both in-person and virtual care continues to be a key differentiator, especially in a fluid landscape that favors providers like LifeStance who can deliver high-quality care in both settings. Additionally, given our focus on commercial insurance, we have minimal exposure to government pay, largely insulating us from legislative shifts and stroke of the pen risks. Our business model positions us well in a dynamic health care environment.

Now turning to our quarterly results. This was a quarter of records for LifeStance. First, the team delivered remarkable organic visit growth of 17%, providing increased access for patients. This was driven by both record organic clinician net adds and clinician productivity improvement. This growth reflects the strong demand for our services and the effectiveness of our model.

Additionally, we achieved adjusted EBITDA of $40 million and margins of 11% in the quarter. Both are the highest since we went public in 2021. Given the outperformance in the third quarter, we are once again raising full year guidance for adjusted EBITDA.

From an operational perspective, our record organic net clinician growth in the quarter has resulted in a team of now roughly 8,000 clinicians, validating that our value proposition continues to resonate strongly in the market. At the same time, we are continuously looking to improve that value proposition as our clinicians' unwavering commitment to delivering high-quality patient care remains the cornerstone of our success.

Earlier this year, we outlined several initiatives designed to better fill the time clinicians give us to see patients. I'm pleased to report that these efforts are paying off. In the third quarter, we achieved the largest improvement of quarterly organic productivity in our company's history.

For example, one of the initiatives is our Cash Incentive Program launched in May, which has been highly effective in rewarding clinicians for improving access and quality. We also saw strong patient acquisition and improved retention, which was partially driven by the new engagement platform, which fosters deeper connections with patients.

Additionally, we have implemented a tech platform to assist our phone scheduling team. This has delivered a meaningful improvement in conversion of phone calls to booked appointments, which also results in a higher number of new patients. By providing live guidance and summary AI, our team members are able to automate documentation, capture critical insights and focus on more meaningful patient interactions. The result is stronger conversion rates, higher patient satisfaction and greater workforce efficiency.

Through multiple initiatives we've implemented this year, we have been responsive to clinician feedback to better optimize their schedules while at the same time, expanding access to high-quality mental health care for our patients. This milestone of meaningfully improved productivity underscores the strength of our operational strategy and our commitment to operational and clinical excellence.

We also recently announced our partnership with Calm, a leading evidence-based mental health company. This collaboration allows Calm Health members to be seamlessly referred to LifeStance when higher acuity care is needed and is an example of new referral partners giving us access to patients we may not see through our existing channels.

For patients, this will streamline access to trusted, personalized support through both virtual and in-person care. Together, we're expanding access to mental health care and empowering individuals to take proactive steps towards wellness.

As we look ahead to 2026 and beyond, we will continue to advance operational and clinical excellence to further differentiate ourselves in the marketplace. In addition, we remain focused on deepening strategic partnerships with payers, health systems and partners from other channels like Calm, while also building on our position to be the employer of choice for clinicians. By combining disciplined execution with innovation and care delivery, we aim to strengthen our leadership in outpatient mental health and create lasting value for patients, providers and shareholders.

With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan? 

Thanks, Dave.

I am pleased with the team's operational and financial performance in the third quarter. We delivered strong growth across revenue, visit volume and clinician count. Revenue grew 16% year-over-year to $364 million. This outperformance was driven by visit volumes.

Visit volumes of 2.3 million increased 17% year-over-year. This outperformance was primarily driven by better-than-expected clinician productivity as well as net clinician adds. Our visits per average clinician increased 5% year-over-year. This was achieved while at the same time adding a record 288 organic clinicians, an 11% increase year-over-year, bringing our total to 7,996 clinicians. Total revenue per visit of $158 was flat year-over-year as expected. 

Turning to profitability. Center margin of $117 million increased 16% year-over-year and was 32% as a percentage of revenue. The outperformance in the quarter was driven by the revenue beat. Adjusted EBITDA of $40 million in the quarter exceeded our expectations. This 31% year-over-year increase resulted in our adjusted EBITDA as a percentage of revenue of 11.1%. As Dave mentioned, the adjusted EBITDA margins we achieved this quarter were the highest in our history as a public company. The outperformance in the quarter was primarily attributable to favorable center margin. 

Additionally, we delivered meaningful operating leverage on the G&A line for the second consecutive quarter with our adjusted General & Administrative Expenses increasing only 10% in the quarter versus 16% revenue growth. After making strategic investments in 2023 and 2024, we said we would drive operating leverage on the G&A line, and that's exactly what we're delivering.

These results validate our disciplined approach and position us well to continue expanding margins while achieving sustainable growth. We also finished with positive net income of $1.1 million in the quarter. This is the second quarter this year and in our history as a public company that we achieved positive net income. We view this as a key profitability metric for our business, and our progress this year increases our confidence in delivering positive net income and earnings per share for the full year in 2026. 

Turning to liquidity. In the third quarter, free cash flow remained solid at positive $17 million. We exited the quarter with a strong cash position of $204 million and net long-term debt of $269 million. This cash balance, which is roughly double of our position from last year, is the result of the strength of our operating cash flows this quarter and year-to-date.

We have additional capacity from an undrawn revolver of $100 million. DSO for the quarter improved once again and is now down to 31 days, an improvement of 3 days sequentially and 16 days year-over-year. This DSO is the lowest since we went public, and we remain confident in our ability to deliver strong positive free cash flow for the full year. We are pleased with our leverage ratios and continue to delever with net and gross leverage of 0.6x and 2x, respectively. We have significant financial flexibility to run the business and fully execute on our strategy, including potential acquisitions. 

In terms of our outlook for the full year, we are maintaining the midpoint of our revenue range of $1.41 billion to $1.43 billion. We are raising our center margin range by $2 million at the midpoint to $448 million to $462 million and raising our adjusted EBITDA guidance range by $4 million at the midpoint to $146 million to $152 million. This puts us on track for approximately 1 point of margin expansion year-over-year and double-digit margins for the full year.

As previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volumes, with total revenue per visit being roughly flat. For the fourth quarter, we expect revenue of $368 million to $388 million, center margin of $113 million to $127 million and adjusted EBITDA of $37 million to $43 million. We expect the step-up in revenue quarter-over-quarter to be driven primarily by continued growth in our clinician base and modest sequential rate improvement.

We are pleased with the productivity gains delivered in the third quarter, and we expect to maintain those elevated productivity levels in the fourth quarter. These factors position us to deliver another strong quarter of revenue growth to close out the year.

Based on the adjusted EBITDA outperformance so far this year, we have flexibility through the remainder of the year to make additional investments to better position us to achieve our 2026 growth objectives. Additionally, we continue to expect stock-based compensation of approximately $70 million to $85 million. We now expect to open 20 to 25 new centers in 2025, modestly lower than our previous range of 25 to 30 due to shifts in timing.

Looking ahead to 2026, we continue to anticipate mid-teens revenue growth. We expect this to be driven by low double-digit visit volume increases and low to mid-single-digit rate improvements. We plan to drive volume growth with continued clinician expansion balanced with year-over-year productivity improvements, supported by strong demand for mental health care.

At the same time, while our full year guidance implies exceeding our initial expectations for 2025 margin expansion, we expect continued expansion in 2026 and beyond. These will be driven by the operational efficiencies we have been introducing as we enter a new chapter of tech enablement such as leveraging AI and digital solutions to automate processes, improve accuracy and support our clinicians.

These initiatives, combined with disciplined execution and technology-driven operating leverage will strengthen our financial profile and support sustainable profitable growth.

With that, I'll turn it back to Dave for his closing comments.

In closing, this was another outstanding quarter for LifeStance. While we are pleased with what we've accomplished, we feel the best is yet to come.

Our progress this year and the incredible dedication of each of our clinicians and team members serve to reinforce our confidence in the future as we focus on expanding access to high-quality, affordable mental health care.

Operator, we'll now take questions.

[Operator Instructions] Your first question comes from the line of Craig Hettenbach with Morgan Stanley.

I wanted to touch on clinician productivity, the context of 17% growth in visits versus 11% clinician adds. And just how you're thinking about the durability of that in terms of being able to continue to see leverage there?

Craig, this is Dave. I'll take that one. So first of all, we feel great about the productivity improvement that we saw in the quarter. As we mentioned in the prepared remarks, it was a record increase for us. And we achieved that while also having really strong net clinician adds in the quarter. And that just shows that we're able to balance both productivity and the net clinician adds and drive what you noted, the 17% visit growth. And that's a testament to our value prop as well.

And as we think about the initiatives that drove that, I mentioned a few on the call, it was the Cash Incentive Program that incentivizes access and quality, the Patient Engagement platform and then some new things around tech and AI that we're implementing that's driving new patient volumes. All of those are durable. They're not onetime in nature. We feel really good about those continuing. And we still have additional initiatives like our Care Matching Enhancements and things like that, that will be coming online in the fourth quarter and as we step into next year.

And then just as a follow-up on operating leverage, consistent with how you've been talking about the business the last couple of years in terms of that increase in investment in the business, and then you'll see that in G&A. So encouraging to see it kind of come through. Can you maybe just expand a little bit more on kind of productivity on the AI side of things, understanding it's kind of early days, but just how much of a lever that adds on the operating leverage front?

Yes, Craig, I'll take this one as well. I wouldn't dimension it with specifics. It is definitely part of the story as when we think about getting to margins of 15% to 20% in the out years, the expansion of operating leverage that's a big part of that story. We are a heavily manual business when you think about the work we do behind the scenes to support our clinicians and even what our clinicians do is very manual. So there's a lot of opportunity for us to be able to implement technology, digital AI-type tools and we do expect those to, again, to be a big part of the story of driving that operating leverage.

Your next question comes from the line of Lisa Gill with JPMorgan.

I just want to dig in a little bit on the revenue per visit, which increased more than we anticipated. I think previously, you talked about it being roughly flattish. Dave, I think I just heard you talk about when we think about '26 being flattish. Can you talk about what you saw in the quarter on the revenue per visit? Is it a higher acuity? Is there any change from a managed care contracting or anything else we need to keep in mind when we think about that?

This is Ryan. So I'll be happy to address that question. So when you think of TRPV like for the quarter, it was relatively flat, as you mentioned, and kind of sequentially stepped up like $1.3 overall. And so this was in line with our expectations. When you kind of look ahead, so this, obviously, we had the unique payer situation this year. So as you kind of look ahead, so from a full year perspective, we expect TRPV to be flat overall for the full year.

And then when we get into '26, we start to see the low to mid-single-digit rate increases as we get back to a more normalized kind of environment. So, we're really encouraged with the dialogue and the discussions that we're having with the payers right now. So again, so as you kind of go out into the next year, you get to that low to mid-single digits.

That's very helpful. And then just as a follow-up, the comments around potential acquisitions. I'm just curious around what you see out in the marketplace today. Are valuations reasonable? Is it you're looking for geographic coverage, you're looking for adding up clinicians? How do I think about your strategy on the acquisition side?

Lisa, it's Dave. I'll take that one. So, first of all, I appreciate where your question is coming from, which is we're excited about the free cash flow generation that we have and the strength of the balance sheet, which gives us a lot of flexibility to be able to deploy capital to enable the business. And M&A is certainly a part of that.

And we right now have a really good pipeline of opportunities for potential acquisitions that we're working through. The valuations for the ones that make our cut are what we feel is appropriate. We're being very thoughtful and disciplined. And to where you were going, the primary purpose of these acquisitions is for geographic expansion.

So, establishing beachheads in new MSAs or states, things like that. That's our focus area. But again, we feel really good about M&A being complementary to our organic growth. Organic growth is still going to be the primary driver in the coming years. And I think we'll have more to share in the coming quarters around M&A.

Your next question comes from the line of Ryan Daniels with William Blair.

This is Matthew Mardula on for Ryan Daniels. So I want to focus more on the clinician retention side of the productivity initiatives. And you've mentioned previously that a key objective of your productivity initiatives is improving clinician retention. Can you share how much of an impact these initiatives are having on retention? And then looking out in the future, how much these initiatives could kind of provide an improvement for clinician retention?

Matthew, this is Dave. I'll take that one. So as we mentioned, we had a really strong performance in the quarter with net adds of 288 clinicians. That was driven by stable retention and the strength of recruiting of adding new clinicians. So that's a similar story to what we've talked about in previous quarters with retention being what we call is like stubbornly stable.

At the same time, we're continuing to focus on enhancing the clinician experience and the value proposition for them. We talked about a number of initiatives, both last quarter as well as even in our prepared remarks. So that continues to be a big focus area for us. And as we think about the future, we still believe that we can move the needle on clinician retention.

And I'd say what gives me hope is when I look at our various regional businesses across the country, we have a region that is running at about 87% retention. So we've talked about that North Star being in the mid to high 80s. We can actually see that happening in one of our regions. We just got to get the other ones up to that similar level.

Great. And then regarding the Specialty Services, how has those offerings progressed throughout the year and the quarter? And how should we think about its progression into 2026? And lastly, how has the reception been from centers both in terms of adoption and overall engagement?

Yes. Matthew, it's Dave. I'll take that one as well. So, first of all, just to ground, Specialty Services is about $50 million of our revenue. So, from an annual perspective. So that's, it's meaningful, but it's still not a major portion of our business. We're excited about this as an opportunity to increase services to our patients and to improved care. The focus right now has been neuro-psych testing and services around treatment-resistant depression, so primarily Spravato and TMS.

And we have been rolling those out in phases, and that will continue actually for the coming years. The receptivity has been really great. The clinicians like it because it's more services that they can provide to be able to deliver better care for their patients and the patients obviously like it. It's one-stop shopping. And we expect these services to grow at a much higher rate than our core business in the coming years. And when we get to maturity, these will have higher margins than our standard psychiatry and therapy services.

Your next question comes from the line of Brian Tanquilut with Jefferies.

Ryan, maybe first question, as I think about the revenue guidance, obviously, you had a good Q3 here. The organic adds on clinicians in theory, would drive productivity gains to carry over into the quarter. Just curious, what are the moving pieces that factored into maintaining the revenue guide? I know you cut the new clinic openings guidance, but just curious what you can share with us on that.

Perfect, Brian. Yes, this is Ryan. So I'll be happy to take that question as well. So overall, just starting off, we're super pleased with the outperformance in the quarter as it relates to revenue, which was largely driven, as you mentioned, just in terms of productivity. And again, like if you take a step back, we're also very pleased that we're able to raise our full year EBITDA guide by the $4 million.

So, to go back to our Q2 call, we talked a lot about the step-up in second half over first half from an overall revenue perspective of approximately $60 million. So that step-up still holds. Essentially, all we've really done is just rebalance between the quarters versus anything else. And so, when you look at the fourth quarter in isolation, it's still really attractive when you look at the year-over-year growth of 16%, and it's a nice sequential step-up from Q3 as well of about $14 million. 

And so, we really feel good about the team's progress in Q3 around productivities. And as Dave mentioned in his prepared remarks, the ability to not only get productivity but have net clinician adds at such a high point bodes well as we kind of move into the fourth quarter this year. 

Got it. And then, Dave, maybe I know you alluded to your partnership with Calm. If you can just share with us how that works? And what are you expecting in terms of growth contribution or also the profile of the patients that Calm brings to LifeStance? 

Yes, Brian. So, we're really excited about the partnership with Calm. And this is great for patients and their customers. And it's an example of a different kind of referral partner for us than what we normally get through our existing channels. And we're uniquely positioned for these kinds of new partnerships with our large-scale and hybrid model. 

And in regard to the types of patients, we actually think this will have a different profile, like a younger demographic than what we typically get through our partnerships with health systems and primary care practices and things like that. 

Your next question comes from the line of Richard Close with Canaccord Genuity Corp. 

Congratulations on a great quarter there. Just curious your thoughts with respect to behavioral health has been called out over the last several quarters, I guess, by Managed Care. And I'm just curious your perspective, if you think this is a risk to LifeStance or why not? And then maybe also confidence in that rate commentary for 2026. 

Richard, it's Dave. I'll take that. So, agree, you've had multiple payers in recent quarters that have mentioned higher mental health utilization. And it really varies by payer and by service line. So, for example, a lot of the commentary has been directed towards Medicaid and towards the autism, the AVA services. We have very little exposure to both of those business lines. And so, it's not as relevant for us as it is to some of our competitors that are in the space. 

And then you always have to take a step back and think about there's still a significant unmet need in society today for mental health services. So that's going to continue to drive higher utilization as we come into the next few years as well as another trend that benefits LifeStance is the move from cash pay to insurance as it becomes more of an affordability issue for individuals and still wanting to be able to get care. 

So those are probably some of my big points that go to the recent commentary around the higher trends. As far as rates, the one thing that I'd always highlight is that payers continue to focus on access for their employer clients and members. They're still getting a lot of pressure for them around access. 

And then what we're starting to see is a few thought-leading payers that are focusing on quality. And we expect that the market will gradually shift towards quality and outcomes, and we welcome that change, and we think we're positioned really well for the market to go in that direction. 

Okay. And as a follow-up, obviously, great adds, clinician adds in the quarter. What are you hearing from the clinicians in terms of why they're choosing LifeStance? Any changes that you're seeing in the marketplace? Just curious there. 

Yes. It's Dave. I'll take that one as well. I wouldn't point to anything new in regards to the recruiting and retention dynamics. It's still a very competitive marketplace for mental health clinicians. And our value proposition continues to resonate. We're not for everyone. We're looking for a certain profile of clinicians. But within that profile, we certainly are doing very well from both a retention and a recruiting perspective. 

Your next question comes from the line of Kevin Caliendo with UBS Investment Bank. 

My first one, just looking at the implied guidance for 4Q, the gross profit and adjusted EBITDA margins are down a little bit sequentially. Normally, 4Q is a better quarter in terms of margin. I'm just wondering, you mentioned investments. Is there anything in particular there that's prompting that change or anything to call out? 

Yes, Kevin, this is Ryan. So, to your question, so you got it right. So, there is a little bit of a step down in margins going from Q4 from Q3. And overall, the way to think about that is an increase in G&A. And so, we as a team are looking at items and pulling forward some of the investment that helps get off to a strong start in 2026. Just in terms of execution of our plan and going back to the delivery of mid-teens revenue growth. 

So, an example of that, Kevin, would be accelerating our Business Development team, right? So, folks that we want to get on board to be able to kind of work out in the local MSA and the local community just to make sure that the LifeStance brand is out there with the community partners. So that's just an example. So, it provides some flexibility just in terms of some of the investments that are positive from a return perspective, kind of getting a jump start on those from '26. 

And the obvious logical follow-up question is you're pulling forward some spending, you're getting the productivity improvements that you said you're going to get and delivered on. You got better payer rates next year. When we think about the impact to margin next year, you said you expect the margin to expand, but should we think about expansion being greater than what we saw in '25? Is there any kind of color you can provide us in terms of an outline of where you think margins can be next year? 

So, really looking forward to providing more specific '26 guidance in our 4Q call. Overall, I kind of go back to some of the points that we've made is really like the momentum that we have going into '26 and then anchoring back to the mid-teens as it relates from a revenue perspective in terms of what the revenue growth is. When you look at it from an operating leverage perspective, we've had really nice momentum on that. We look forward to continuing to expand out the leverage, but we'll get more specific with guidance as we get into the conversation for the 4Q call. 

Your next question comes from David Larsen with BTIG. 

Congratulations on the good quarter. Can you expand, maybe on your comments around business development and in terms of filling the top of the funnel and patient volumes? And can you maybe touch on, number one, the Managed Care piece; number two, getting referrals in from other providers in the area? And then number three, any sort of digital selling efforts that might be going on? It's my understanding that Google has sort of maybe changed some algorithms recently. 

This is Dave. I'll take your question. So first of all, as I mentioned earlier, there's really strong patient demand in the marketplace for mental health services. And it's that unmet need that is out there, and we have this demand supply imbalance. And so again, we feel very good about our model. And then you put on top of that, what we're trying to provide is high-quality care that's affordable. And so that's people being able to use their insurance versus cash pay, which also adds some additional patient opportunity for us. 

So we continue to feel very good about the fourth quarter, and as we step into next year in regards to patient supply or new patient supply. As far as the channels, our primary channel of how we get new patients is through referral partners that are medical practices. And we continue to strengthen that, as Ryan mentioned, in that, that's what we call the business development team. These are the feet on the street. They're out there working with those medical practices to be able to provide a referral channel for their patients. 

And we continue to enhance that year-over-year to continue to drive higher volumes. And we certainly do a little bit of the paid search. And I'll remind you that we spend less than 2% of revenue on marketing and acquiring of new patients. So again, the bulk of our patients are coming organic or through the referral partners. And again, we expect that to continue into 2026. 

And then do you participate in like risk or ACOs or any sort of value-based care arrangements? It's obviously an important part of Primary Care in Medicare for the new physician fee schedule for '26. Just any thoughts around that? 

We do not. So we do not take risk today. And we have very limited exposure to government as a payer, right? That's about 5% of our total revenue for all government channels in regards to them being a payer. So we have very limited exposure to that segment. 

And your last question comes from Steve Dechert with KeyBanc Capital Markets.

I just want to ask another one around the guidance. What does the high end of your 4Q revenue guidance imply in terms of visit volumes and TRPV? And then could you provide a little bit more color on the 2026 strategic investments you mentioned earlier to meet your revenue goals? 

Yes. So Steve, I appreciate the question. This is Ryan. So the first piece, we don't provide specific guidance to that, just in terms of the range and kind of how to think through the numbers. As it relates to the 2026 investment, so we continue to make investments. So we mentioned the business development. So all health care is local. And so being able to be out there with the key referral partners, as Dave mentioned earlier. And then a whole host of just investments that drive efficiency, so continue to be able to drive operating leverage. 

So again, we're pleased with the momentum that we have overall just in terms of being able to drive leverage. And so the investments that we make will continue to have that orientation as well. 

And with no further questions in queue, I'd like to turn the call back over to Dave Bourdon, CEO, for any closing remarks. 

Thank you, operator. I'd like to thank our over 10,000 mission-driven teammates who make sure that our patients get the quality care that they need and deserve. I continue to be inspired by the passion and the commitment that you all bring every day. Have a great day, everyone. 

This concludes today's conference call. You may now disconnect.

All right. Great. Good morning, everyone. Thanks for being here at the second day of the conference. I'm Craig Hettenbach, I cover the health tech and provider space at Morgan Stanley. Very pleased to have with us LifeStance this morning. Just before we get started, just from a disclosure perspective, you can see the disclosures at www.morganstanley.com/researchdisclosures. So with that, Dave and Ryan, welcome, appreciate having you guys here.

Thanks for having us. I appreciate it.

Great. I think investors are familiar with the company at this point, but still would be great to just have kind of a refresher in terms of LifeStance? And most importantly, how the company kind of differentiates in what kind of a crowded kind of mental health field.

Yes. It's crowded but highly fragmented mental health space. And we're the leader in outpatient mental health and that leadership for the uniqueness comes from a combination of the first, I'd say, is scale. So we have over 7,500 clinicians. We'll do 8 million to 9 million visits or sessions this year, and we have nearly 1 million patients. So that's the first thing. Second thing is hybrid delivery. Many of the newer entrants in the marketplace are virtual only. We have the capabilities to do both in-person and virtually. We have nearly 600 centers spread across 33 states.

Third thing that I'd point to is the broad range of licensure. So we do both psychiatry and therapy, and we have everything from psychiatrists and nurse practitioners, the psychologists and therapists and being able to have all of that in one center to be able to holistically treat the patient is really powerful. And those are W-2 clinicians. They're not 1099. And then the fourth ingredient, I think that makes us unique is that our focus is on the commercially insured population. So we will do an accommodation for cash pay, where that's a very small percentage of our practice.

And we are focused on the commercial insurance and seeing patients that have that insurance card. So you add all that up, that's what makes us unique. It also is what allows us to be -- have a very durable model. If you think about the last couple of years, we've had really strong organic growth and margin expansion. And this model, I think, allows us to be flexible and respond in a dynamic environment to regulatory changes or patient preference changes or things like that. So that's -- that answers your question around why we're a little bit unique.

Perfect. And I'd love to dig in on just the clinician side as well, to your point, really good organic growth. It's something that, I think from a retention perspective, there's been stability. I know organizationally since you joined as it's coming up on 3 years now. You guys have put a lot into the organization. And so can you just give us a sense in terms of clinicians, what's really resonating today because that is, I think, a differentiator in the market.

Yes. The clinician, we call the value prop, right, to our clinicians, and why they're attracted to come to LifeStance and stay is first thing you always start out with is a competitive compensation package. And for us, that's a combination of both what we're paying them from further their services. And while we're W2, we are fee-for-service. So they get paid per visit, but also the benefits. So they get matching 401(k), health benefits, those kinds of things, which is differentiated from many of our competitors that are more 1099. So that's one thing.

The other would be the support that they get by being at LifeStance, and that's everything from the finding new patients for them to just all the administrative aspects of revenue cycle and collections and things like that. And a big thing for our clinicians is that because it's not -- it's a fee for service, they don't take the risk on collection. So if they see a patient, they get paid.

That was a big deal last year with the Change Healthcare environment, where if you were at 1099 percent of collections, you may not have gotten compensated for a couple of months. So that's a big one. And then Third thing that I would point to is what I mentioned around what makes us unique is that broad range of licensure and services. So if you're a therapist and you need your patient to be able to access medication management right in the center, you can refer them to a psychiatrist they're a nurse practitioner and that's not common in our industry to have the combination of both. And then what we've been talking about is the adding of additional specialty services. So neuropsych testing and then for treatment-resistant depression, things like TMS and Spravato. So having that broad range of services and licensure that along with other things is really what it makes us for a strong value proposition.

Got it. And you've recently shifted for clinicians from a bonus perspective, more away from kind of stock to kind of cash base. Can you just talk about the origin of that, what it means to the clinicians in terms of why they find that attractive and then for LifeStance?

Yes. Sure, I'd be happy to jump in on that one. So it was a very deliberate change that we contemplated in our planning process. So Craig, you got the key headlines as we move to a cash-based incentive program from LTIP, so longer-term incentives. And we were really reacting to the desires of the clinician population. They wanted to have a program that was more measurable and outcome-based in terms of being able to get paid within the current period versus the way the LTIP program was constructed was more longer durational, we're seeing really good feedback. So the program was implemented in May, and we're seeing really good feedback from the clinician population in terms of tracking with the program, engagement with the program. And so we're pretty excited just in terms of the implementation of the new incentive program and how it's being received by the clinician.

Great. And how about just from a scheduling and productivity perspective? I know you have some procedures in place. How is that resonating and help in terms of fill clinician schedule?

Yes, yes. It's definitely resonating, although early days, and this goes to that productivity piece. And I always want to make sure we're clear on this because it's different than how we were talking about it 18, 24 months ago in that back then, we were saying, well, the clinicians, they're giving us a certain amount of time and our utilization of that time is pretty high. And so we're asking them for more capacity, more time on their calendar. We've been successful on getting more time on the calendar, so now we're at the point where we have to -- we're back to we need to utilize that time better. And there's a few things that we're focused on. This year, we've talked about more of a balance of filling existing clinicians capacity versus hiring in new clinicians.

So our net clinician adds were a little bit lumpier, like first quarter was a little bit lower than traditional, but that was a deliberate choice that we've made. So when a new patient comes in the door instead of the priority being only the new clinicians, it's more of a balance of, yes, we still are hiring new clinicians. That's always going to be the primary growth driver for the business. But there's some marginal capacity with our existing clinicians that we're putting those new patients to.

And then there's initiatives around making the clinician -- making the patient stickier with the clinicians. So we rolled out a new patient CRM tool that is sending communications out to patients who maybe saw a clinician for 1 or 2 visits and then dropped off or they've booked an appointment, but we're sending the messages to ensure that they actually show up for the first appointment, things like that. So anything where we're adding an incremental visit to the clinician's calendar will obviously improve the productivity and visits and revenue for the company.

Great. Just wrapping up on clinicians. And again, it's good to see in the last year or 2 kind of stabilization retention. On a longer-term basis, are there things that you think could actually drive retention higher?

Yes, there's no silver bullet on this. The -- that's what we've come to realize over the last couple of years as we listen to the clinicians. And we -- and we've done things like last year, we went from monthly payroll of clinicians to biweekly, like how most of us get paid. That was a big pain point for them. This year, we moved from the stock-based productivity program to cash, as we've talked about previously. Now we're working on filling their calendars better so that they can make the kind of income that they want and see the level -- the number of patients that they'd like to see.

So all those things we think will contribute eventually to improved retention, but it's a journey rather than, oh, if we do this one thing, we'll see retention move up 5 points. Now having said all that, we think there's still -- we think there is room to improve retention. We've seen best-in-class with some of these smaller practices that we've either purchased or evaluating for -- purchased a few years ago or are currently evaluating probably in the 90% retention range. The last time we disclosed, we were at about 80%. So think of it as there's -- so there's opportunity. We think the North Star is probably 85 to high 80s as a percent for retention. And that's what we're marching towards in the coming years. But there's no one thing that I would point to that's going to get us there.

Understood. I want to shift gears just to kind of payer dynamics because on the one hand, payers have been under pressure in terms of utilization, the margins have been pressured. On the other hand, they need more access, particularly for mental health. So can you just discuss the puts and takes there, what you're seeing payers. And I think you still expect exiting this year kind of low to mid-single-digit rate increases. What gives you that confidence?

Yes. You just nailed it. You gave me the answer. And it's really -- thanks for the softball. It's really the fact that, yes, payers are under financial duress. This isn't new. It's actually been going on now for at least a couple of years. And so they're having financial challenges. At the same time, they're getting a lot of pressure from their employer clients and their members around access to mental health care. And access to mental health care can come in different flavors. It could be overall access, it could be access to in-person capabilities, which plays well for LifeStance, but they're getting pressure from both sides.

I think of it almost similar to -- it's no different than like a hospital system. The payers are under -- they have financial stress. They still need the hospital system in their network. They've got to negotiate. The hospital systems costs are going up. And so there's just going to be that -- there's that trade-off. We think based on all the signals that we see as we do negotiations and have conversations with payers that, that low to mid-single-digit rate increase in the coming years is a reasonable spot for us to assume. And while it's early days for next year, there was a positive signal in the early view of Medicare -- the Medicare rates for next year. We have about 25% of our book of business is tied to Medicare.

So we don't get Medicare rates. We get -- it could be 165% of Medicare, but it's tied to Medicare. It's early. So obviously, nothing is final as we know. But right now, that's solidly mid-single digits for a rate increase, which is a much better place to be than last year where we were staring at like a minus 3%. So again, we feel good. There's recognition around the mind body connection that mental health -- improving patients' mental health will contribute to lower total cost of care. Most payers get that and value our services.

Got it. Well, I think exiting this year, we probably won't have to talk about the 1 payer.

Yes. Thank you.

Maybe one last time on that. But why was that unique? Maybe just to kind of set the bed and just kind of what are other discussions like that again gives you that confidence?

Yes. So this was unique. This is a big national payer. Their reimbursement level was materially above market and their peers. And this was an agreement from years ago when LifeStance was significantly smaller. And I can only -- my hypothesis, I'm guessing is that this payer at the time was really trying to build out their mental health network and make sure they had access for their patients, and they had gone with this very high reimbursement. And a couple of years ago, as the companies that have -- the payers that have MA and exposure and things like were starting to feel the financial stress. They looked for opportunities across their corporation to improve earnings to try to offset some of that financial stress. And they looked at their entire provider portfolio for any provider, whether it was a hospital system or a LifeStance that stood out to be well above market.

And if they had the contractual right, which they did, they could renegotiate. And so that's what happened. The great thing for us or the silver lining was that we were able to negotiate with them, had a good partnership where they spread it out over 2 years so that we could digest the reduction because it was a sizable reduction. So there were 3 rate cuts, 2 were last year on March 1 and July 1, and then the last one was March 1 of this year. So we're past all those now. And so -- and we've been able to successfully digest those either with margin expansion last year while it was going on. And even this year, we're guiding to some modest margin expansion while digesting that.

Great. I want to touch on just kind of value-based care. I mean I think up into this point is mostly about access in terms of what you're providing and I think the management team has always cautioned that this takes time. But like how do you think about that on a longer-term basis in terms of outcomes and kind of where you fit in that?

Yes. So you're absolutely correct. Today, the value-based contracting with payers really centers around access. And even then, it's only a handful of, I think, of the more thought-leading, forward-leading payers that are even doing that. Most are just -- it's just straight reimbursement. As we look out, let's say, 5 years on the horizon, I believe that there is an opportunity for a company like LifeStance to be the best and to prove it. And the only way you can prove it is by demonstrating outcomes and proving that you're improving patients' health and working with the payers to be able to prove out that, that improvement in mental health is playing through also in the improvement of physical health, so you're lowering total cost of care.

And with our size and the volume of patients and visits that we do, I think we're uniquely positioned to be able to have those kinds of conversations with payers. I was just meeting with the Head of Behavioral of one of the big national payers a month ago, and she was frustrated around this topic, where she was like, we just got to do something. We've got to take a first step. And LifeStance, you're like nobody else, let's our 2 organizations partner together and see if we can figure something out. We just got to do -- we know it will be wrong when we start, but let's like get going on the journey. So I think as we get eventually, the value that mental health companies are creating through improved health outcomes will become increasingly important. And that's exciting for us.

Great. Let's shift gears just to kind of more in the near-term 2025 guidance, in particular, kind of the ramp in the back half. And I did feel like you guys did a really good job with details around them on the conference call. So can you just talk about that kind of first half to second half and in particular Q4, the visibility that you have or confidence that you can deliver on that?

Yes. So I appreciate the question. So First of all, we're really pleased with the first half performance that we've had on this year and jumping in the second half. And Dave kind of hit a lot of the initiatives that we have or the buckets of initiatives around increasing productivity. So Craig, as you referenced on the call, we kind of broke it down between -- you can think of second half over first half being -- the step up in revenues, like 90% from revenue, 10% to a little bit of rate in there. And on the revenue side, you get a mix between net clinician adds, which will be always important to our growth algorithm.

But this year, we're kind of putting in productivity as well. And so as you kind of step in between Q3, net clinician adds is more important than productivity when you think about the step up getting into Q4. And then in Q4, we have given enough time to be allowed for initiatives to take hold, and that's where you see productivity more of an influencer kind of going into Q4, but net clinician adds will always be important overall.

That's helpful. And margins have come in higher than expected in the first half of the year. What are some puts and takes into the back half on the margin front?

Yes. So overall, so Dave stated a couple of these points. So first and foremost, Q2, we increased our guide by $5 million on adjusted EBITDA perspective, guiding full year margin in double digits, so low 10%. And so we're really pleased with the trajectory of the business. When you think about puts and takes kind of going in second half versus first half, it really is on the ramp as it relates to the revenue in terms of being able to get their productivity from the clinicians. And again, Dave defined productivity, the way we think about it is really filling the capacity that our clinicians are providing us. And I link back to when we think about it from a patient engagement, when we think about it from the incentive program we've discussed, when we think about pure practice management and things we're doing to make the flow of patients easier on the clinical operations and the clinical team, they're all very good markers in terms of being able to get that unlock as it relates to productivity.

Great. And understanding it's early here, right? But when we think about kind of this year and transitioning into 2026, any high-level thoughts in terms of growth algorithm kind of margin.

Yes, absolutely. So you referenced it, Craig, it is early, and we have not guided '26, but we've had a lot of the conversation already. So when you think about the growth algorithm, our intention is to, we believe, will return to low middle single digits as it relates to rate. And then overall kind of thinking about the revenue in the mid-teens overall kind of when you think about it, just putting it all together. And then we expect to be able to continue to leverage G&A and operating expenses, and this is what we'll move from '26 to like the long-term guide is that we feel really good about the trajectory and being able to get to the 15% to 20% on an adjusted EBITDA perspective.

Great segue. Dave, when you and Ken came on board, I mean, margins were kind of mid-single digits, and you've doubled on I know at the time that was kind of an ambitious target, right? And there's a lot of work to be done to get there. So can you talk about just kind of some of the things that have helped margins 5% to 10%, but more importantly, the 15% to 20%, where is the operating leverage in the business from here?

Do you want to take this one?

Yes. So if you look at the historicals, right, so the team did a really nice job of being able to get margin expansion as it relates to center margin, Craig, like overall. So when you think about the opportunity in front of us is there's some leveraging that we expect at a center margin overall. Most of those costs really are related to the service now. So it would be your occupancy type costs. And then when you get to the general and administrative line, it really is from the benefit of deployment of both kind of that can grow scale and then also just technological initiatives and efficiencies to be able to have your revenue grow at a higher pace than what your G&A is growing. So overall, we feel that's the algorithm that kind of gets you from our current margins into the 15% to 20% range in the long-term margin perspective.

And is it incremental from here? Like if I think about a lot of the operating initiatives you took in terms of you reduced your payer network, right, you consolidated some of the physical footprint on centers. So a lot of kind of heavy lifting, so to speak. Are there any other initiatives out there in terms of to get to 15% to 20%? Or is it more just incremental at this point?

So I would look at -- I mean, and Dave can comment on some of what we're doing just around AI in totality, but a lot of it is enablement as it relates to driving efficiencies within your business. And so I don't think there's this big bang, Craig, like where all of a sudden, you get this like huge unlock, right, to be able to kind of step into the 15% to 20%. So there's a bit of just the initiatives taking hold and kind of being able to get to that long-term margin. But Dave, I don't know if there's anything you want to add.

Yes, that's well said. I think if we go back a couple of years ago, it was all about simplification and standardization. And we did things like we reduced the number of payer contracts we had in half. We did things like that. But we still are a very heavily manual people-intensive business from behind the scenes, the administration. And so whether it's AI or RPA or just digital tools like new vendor solutions, there's a lot of opportunity for us to become more efficient and be able to drive operating leverage in the coming years. But it won't be like 400 bps of leverage in 1 year. I think it's going to be, as Ryan is saying, we'll just keep chipping away at it. We feel good about every year, we'll be able to generate operating leverage.

Got it. Maybe just building on that from an AI perspective, any interesting kind of use cases you're evaluating? And then I know you're also evaluating kind of an EHR, kind of how important that is?

Yes. Yes, so first, I'll start with your second part of your question. So we are evaluating an EHR. We talked about it in the last couple of earnings calls. This is a huge decision for us. It's foundational for everything that we want to do. You got to get the EHR right to be able to plug in a lot of the point solutions. And so that's ongoing. We've said we'll decide the new EHR, and it could be our existing EHR vendor, but we'll decide on that new vendor this year. And so that's one thing. The second thing is that just when we think about technology in general, we're not going to build a lot ourselves. This is going to be more about going out partnering with the best-in-class solutions. We did that with digital patient check-in.

We've done that with our clinician onboarding and some of these new tools that we've implemented. So we're doing the same thing with the AI vendors. And a lot of these are smaller venture-backed, private equity backed, but they're the ones -- it's moving so fast that we're -- that's our process -- that's our thought process, which is let's just go out and partner. And every year, we can stress test whether that they're still best-in-class or should we move somewhere else. And then to now get to your AI part of your question, a number of use cases. We highlighted in the earnings call, we're doing some things in our phone intake or new patient scheduling team.

And as you can imagine, whether that's an AI agent answering the phone and being able to being able to take some work off of the actual -- the people that are answering phones work. So making that more efficient or using AI from a quality perspective. There's a lot that's going on there. And then on revenue cycle, there's just -- there's several use cases. I think those are -- that's going to become standard fare in the industry. It's moving fast, but that's going to be standard fare. The more exciting piece to me is what you can do to augment the clinician. And I'll be clear as I talked about augment or support the clinician, not replace the clinician.

And the first use case that's out there is AI, AI Scribe, AI note taking, it's called different things. But that is one where it's going to take mundane work off the clinician's plate. They -- most of them love this concept. The other thing is as we've been piloting it, patients appreciate it because if you think about you're having a conversation with your clinician and you're pouring out your soul to them and they've got their head down in their computer and they're typing, you're not getting like the best connection. So we -- not that every clinician does that, but many do. And so the -- so we're getting great feedback from the patients as well.

So we think of AI documentation in 2 buckets. There's for the prescribers and then the ones that are doing therapy. We're looking to roll out company-wide the solution for the prescribers or the clinicians are doing medication management or psychiatrists and nurse practitioners in the back half of this year. And then we're piloting a number of solutions for the therapists. And so -- but again, I think that 6 months from now, a year from now, we'll be talking about other types of use cases that are relevant to be able to support and augment the clinician.

Great. And just going back for a second to your comment on the digital check-in. I know that was an important initiative. I think it also had some positive implications for cash flow and things. Can you just give us an update in terms of how that got rolled out and...

Yes. So fully rolled out. It's -- we went out and we evaluated the various vendors and chose a best-in-class solution, and it's gone really well. But let's take a step back, why did we do this? So today, about 70% of our visits are virtual, 30% are in person. And during COVID, when we went from 100% in-person to 100% virtual, what we did was we made sure that we had the right technology and tools to be able to deliver care to patients. That was really important. But what we didn't do was make sure we had the right tools to be able to do the administration. And that's everything from making sure we had the right forms signed or that they had -- we had their ID card or driver's license.

Think of the things that you do when you go into your primary care physician's office and they ask you for that information. We didn't have a good way of doing that if it was a virtual appointment. And so that was the genesis of we need to get to a digital patient check-in tool. And then yes, in addition, it has really changed the game for us on collecting of patients cost share. And it's one of the reasons why we're at -- since we've been public, a record low for us for DSO. We're at 34 days.

And I think at the worst last year, we were in the 50s after Change Healthcare, but we were in the 40s typically as more of a stable number, and now we're at 34. And every day is worth $3.5 million, $4 million of cash on the balance sheet to us. And there's still room to improve the 34 days. So that was a contributor to the improved cash collection that you all have seen this year.

Perfect. Just as we wrap things up in the next couple of minutes, I want to spend time on capital allocation. You've been very clear in terms of looking for kind of tuck-in deals and capabilities. What's the latest from the Board in terms of that approach? How do they view that versus buybacks?

Yes. Yes. So really from a -- so capital deployment. So first of all, I love the question because the assumption then is we actually have a strong balance sheet. We've got cash on the balance sheet. We've got some debt capacity. We have really low leverage ratios versus 2.5 years, 3 years ago when I first joined, we were talking about, are you guys going to run out of cash and have to go out into the capital -- out to the debt and capital markets. So we're in a really good spot from that perspective, gives us a lot of flexibility financially in executing on our business strategy. Craig, you and I we've talked about our priorities for the deployment of capital are -- number one is organic -- supporting organic growth. The example there would be building of de novos. Number two would be inorganic, which would be M&A. Right now, that's primarily tuck-ins as we -- for geographic expansion is how we're thinking about those. And the third would be a stock buyback.

There's a lot of opportunity for us in those first 2 buckets that we feel really good about the deployment of capital on organic and inorganic, and that's been our focus. What's different this year is the level of the stock price. And we believe as a management team and as a Board that there's a dislocation between where we should be valued and the current stock price. And so I think for the first time, we're having conversations with the Board around does it make sense from a capital deployment strategy to be doing -- to potentially be doing stock buybacks. It's a conversation at this point. So there's nothing that I would be announcing. It's early days, but it is a change in mindset because we do -- because otherwise, we do feel really good about those first 2 buckets on being able to deploy capital in those.

Great. And last one, I don't want to have you speak for Ken, but he did an open market purchase, which certainly was a shot in the arm to the stock. And then I think got a lot of attention. Any thoughts there in terms of whether that's sort of confidence or maybe similar dislocation.

Yes. Yes. I mean I think, Ken, -- so Ken, the previous CEO and is currently Exec Chair for LifeStance was pretty annoyed at where the stock price was. And as an investor, and he had some discretionary funds to invest, he decided that he would invest in LifeStance. And I mean, think of it as it was a vote of confidence on the management team, the business strategy, the performance and also in combination with the stock was really low. And so it was great to see. I appreciate him doing that.

Great. All right. I think we're right at time. So Dave and Ryan, thank you so much for your time today. I appreciate you being here.

Thanks and we're in a great conference. We appreciate the invite.

Thanks for that.

Thank you.