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David Bourdon

Thanks, Ken. I am honored to serve as Lifestance's next CEO and to lead such an incredibly dedicated and talented team as we continue to focus on transforming mental healthcare. I'm proud of the strong progress we've made and look forward to further driving operational and clinical excellence, exceptional service for our patients and in turn profitable growth for shareholders. It's been a privilege to work alongside Ken and the management team, and I look forward to our continued collaboration in our new roles as we build on our positive momentum.
This will be a seamless transition. I share the same vision for Lifestance as Ken, and you should not expect to see any major pivots in our strategy. I believe wholeheartedly in the potential of our hybrid, commercially insured business model and look forward to leading Lifestance as we continue on our path toward unifying mental and physical healthcare.
I'd also like to welcome our new CFO, Ryan McGroarty to the Lifestance team. As Ken mentioned, Ryan brings in an extensive amount of experience and knowledge, leading large healthcare organizations. I had the pleasure of working alongside Ryan at Cigna for over two decades and can personally attest that his leadership, business acumen and passion for improving mental healthcare make him uniquely qualified to take over the reins of our finance organization.
With that, I'll turn it back over to Ken.

Kenneth Burdick

Thanks, Dave. Turning to our updates for the quarter. I'm extremely proud of what we have accomplished in 2024. Through our financial, operational and clinical advancements, we have begun to show the true potential of Lifestance as the leader in outpatient mental healthcare. The success in 2024 starts and ends with the exceptional care our clinicians provide to our patients every day. With our team of over 7,400 clinicians, Lifestance provided nearly 8 million visits to nearly 1 million patients in 2024.
The quality of care provided by our clinicians continues to be reflected in the feedback from our patients. In 2024, Lifestance received a patient net promoter score of 85. And our average Google reviews across all Lifestance centers stood at 4.6 out of 5 stars. Both of these metrics improved modestly from last year's already exceptional scores of 82 and 4.5.
Turning to operational execution. In 2024, we continue to advance our goals of streamlining the business and improving performance. First, we implemented our new operating model which standardizes our organization with consistent staffing and processes to better support our clinicians and serve our patients at our hundreds of centers across the country.
The operating model rollout is built upon the concept of practice groups, which are clusters of centers providing a localized community approach to our operations. We are confident that this new operating model, which drives local decision making and accountability, will enable Lifestance to successfully scale in 2025 and beyond.
Second, we improve the patient experience and administration of virtual visits. A great example of this is the rollout of our new digital patient check-in tool. As of mid-February, we have implemented it successfully across 21 of our 33 states and are on track to complete the national rollout by mid-year. We continue to see higher patient satisfaction, operational efficiencies and significant improvements in patient collections where this tool has been deployed.
Third, we continue to enhance our value proposition to clinicians with the implementation of a biweekly payroll cycle for our clinicians who were previously paid on a monthly basis. We've received positive feedback about this change and will continue to focus on initiatives to enhance clinician satisfaction at Lifestance.
In regard to financial performance, in 2024, we beat on all guided metrics for the second consecutive year. We achieved three other notable financial milestones. This was the first quarter in our history as a public company in which we delivered double digit adjusted EBITDA margins. Second, for the full year, we more than doubled our adjusted EBITDA. And third, we achieved significant positive free cash flow for the year and are pleased to have reached this goal one full year ahead of our original expectations.
Our focus on operational and financial discipline over the last two years have contributed to the positive trajectory of the company. With a more standardized operating model as well as an improved capital position and positive free cash flow generation, we are now at a stage both operationally and financially, where we are ready to return to acquisitions as early as this year.
Going forward, our approach to M&A will be very disciplined. We will be selective in pursuing acquisitions that are focused on expanding capabilities, services or customer segments. We will continue to be primarily dependent on organic growth, and we will be strategic in pursuing deals that meet our stringent criteria.
While there is still work to do, I couldn't be more proud of the progress we have made as a company. As we look ahead to 2025, we will continue to enhance the patient and clinician experience while delivering on our mission of expanding access to the millions of Americans who seek to improve their lives to the care of Lifestance clinicians.
With that, I'll turn it over to Dave to provide additional commentary on our financial performance and outlook. Dave?

David Bourdon

Thanks, Ken. Like Ken, I'm pleased with the team's operational and financial performance in 2024, which exceeded our expectations. In the fourth quarter, we delivered strong top line results with revenue of $325 million, representing growth of 16% year-over-year. The outperformance was driven by higher total revenue per visit and better-than-expected clinician productivity.
Visit volumes of 2 million increased 14% year-over-year, driven primarily by clinician growth. We drew our net clinicians by 155 in the fourth quarter and 779 for the full year, bringing our total clinician base to 7,424, representing growth of 12% year-over-year.
With regard to clinician productivity, it came in slightly ahead of our expectations in the fourth quarter. Total revenue per visit increased 2% year-over-year to $160 primarily driven by modest payer rate increases. For the full year, we delivered revenue of $1.251 billion, up 19%. Visit volumes increased 15% and total revenue per visit increased 3%.
Regarding profitability, the better-than-expected top line results flowed through to center margin. Center margin of $109 million in the quarter increased 31% year-over-year. The outperformance in the quarter was driven by the revenue bee and lower-than-expected spending. Full year center margin of $402 million grew 33%.
Adjusted EBITDA of $33 million in the quarter was very strong and exceeded our expectations, increasing 62% year-over-year. Adjusted EBITDA, as a percentage of revenue, was 10.1%. As Ken mentioned, this is the first time as a public company that Lifestance has achieved double-digit margins in a quarter. The outperformance in the quarter was primarily attributable to the improvement in center margin.
Additionally, in the fourth quarter, we resolved the labor-related litigation noted in our SEC filings, which had an immaterial impact to our financial results. For the full year, adjusted EBITDA was $120 million, increasing 103%, with margins increasing 4 points to 9.6%.
Turning to liquidity. In the fourth quarter, we generated strong free cash flow of $56 million. For the full year, we generated $86 million in positive free cash flow, far exceeding our expectations. We are proud of the progress that we have made on this front over the last 12 months, especially in light of the industry-wide challenges resulting from the change healthcare cyberattack.
We exited the quarter with $155 million in cash and net long-term debt of $280 million. DSO improved 10 days sequentially to 37 days in the quarter, which is a tremendous outcome and the result of the team's dedication and resilience. We continue to see improvement in our leverage ratios, with both our net and gross leverage ratios improving over 50 basis points and 25 basis points sequentially to 1.1 times and 2.4 times, respectively. This represents a significant improvement from the [3.6] net and 4.9 times gross leverage in Q4 of last year.
Additionally, we are pleased to have announced in December that we refinanced our existing debt with favorable terms, including a significant improvement in pricing and enhanced flexibility to fund future investments and potential acquisitions. The credit spread in our new agreement has been reduced to 2.25% based on our current net leverage, which is down from 3.75%. We estimate that the annualized benefit of lower interest expense from this refinancing is greater than $4 million per year.
We also expanded our capacity by increasing our revolver from $50 million to $100 million. These better terms and lender interests are a testament to the company's improving visibility, predictability and positive track record over the past two years.
In terms of our outlook for 2025, we expect full year revenue of $1.400 billion to $1.440 billion. Center margin of $440 million to $464 million and adjusted EBITDA of $130 million to $150 million. These financials are solely based on organic growth, as we did not contemplate any potential acquisitions in our planning assumptions.
Our annual guidance assumes year-over-year revenue growth, primarily driven by higher visit volumes, with total revenue per visit being roughly flat. Regarding rates, as a reminder, we previously stated we would experience downward pressure in total revenue per visit in the first part of 2025 due to the last of three rate decreases from a single outlier payer, negotiating their reimbursement to be more in line with our overall book of business.
When considering the overall payer rate environment, including the unique payer rate decrease, our guidance contemplates roughly flat rates year-over-year. Factoring this in, along with clinician compensation increases, we anticipate pressure on center margin year-over-year, which we expect to offset with G&A operating leverage.
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. We expect earnings to build throughout the year as the first quarter is disproportionately impacted by payroll tax expense. And in the back half of the year, we expect modest rate improvement along with higher specialty revenue.
For the first quarter, we expect revenue of $320 million to $340 million, center margin of $100 million to $114 million and adjusted EBITDA of $27 million to $33 million. Additionally, we expect stock-based compensation of approximately $70 million to $85 million in 2025.
Regarding free cash flow, we expect to once again generate meaningful positive free cash flow for the full year 2025. However, we expect lower free cash flow versus 2024, driven in part by the switch to biweekly payroll for clinicians and higher capital expenditures related to opening 25 to 30 de novos in 2025. Similar to last year, we expect negative free cash flow in the first quarter due in part to these items, as well as bonus payments for 2024 performance.
As we look at 2026, we expect to return to low-to-mid single digit annual rate improvement. With these rate improvements, we will be well positioned to grow revenue in the mid-teens while expanding margins. Furthermore, we believe that in 2026, we will achieve positive net income and earnings per share for the full year. This is a key milestone in our journey as a public company.
With that, I'll turn it back to Ken for his closing remarks.

Kenneth Burdick

Thanks, Dave. In closing, I'd like to thank each Lifestance employee for the passion and dedication they bring to their work every day. 2024 was a fantastic year. And in the face of challenges, we had our best year yet. We have demonstrated our resilience, and I am confident that we will continue to deliver on our financial commitments while we transform the mental health industry.
As this is my last call as CEO of Lifestance, I'd also like to thank everyone, including the Board and our shareholders, for allowing me to serve in this role over the past 2.5 years. It has been a tremendous honor to lead this dynamic and purpose-driven organization. Well, I am proud of our accomplishments, there is still so much runway ahead of us. As I transitioned into my new role as Executive Chairman, I am more confident than ever in the future of Lifestance.
Operator, we will now take questions.

Question and Answer Session

Operator

(Operator Instructions) We will now begin with our question-and-answer session. Craig Hettenbach, Morgan Stanley.

Craig Hettenbach

Yes, thanks. Dave, congrats on a new role and Ken for all the hard work and in turning the company around. I want to focus first on just margins given that you hit the 10% a year ahead of schedule. How are you thinking about the operating leverage and margin profile on a longer-term basis?

David Bourdon

Thanks, Craig. It's Dave. Good morning. As far as the long-term margins, so first of all, as we step into 2025, our guidance contemplates roughly flat margin year-over-year, which is consistent with the comments we had in last quarter's call. And that's related to the dynamic of the rate pressure from the one large unique pair with the last of the three rate increases that we're digesting this year.
Then, as we move into 2026, as I mentioned in my prepared remarks, we do expect to resume margin expansion. And while we're still working through long range planning, certainly can see a path to mid mid to high teens to 20% EBITDA margins.

Craig Hettenbach

Got it. Thanks for that. And then just as a follow up on the clinician growth, 12% year-over-year. Can you just touch on the backdrop there in terms of your ability to continue to recruit clinicians and also perhaps what you're seeing in the competitive backdrop on that front?

David Bourdon

Yes, it's Dave. I'll take that one as well. So, nothing from a change in the environment that I would point to, it's still a very highly competitive marketplace in regards to recruiting and retaining clinicians. We're very pleased with the clinician growth that we saw in 2024. And that's what on the back of stable retention along with strong recruiting, and we would expect that to be a similar dynamic in 2025.

Kenneth Burdick

Great. One thing that I would point to, this is Ken, we continue to invest, as we said in the prepared remarks, to enhance the clinician experience. But as difficult as that change healthcare disruption was, it actually proved to really reinforce one of our value propositions, which is that when one of our life stance clinicians conducts a session, they get reimbursed whether or not we get reimbursed from the payers. And while that was sort of a throw away perhaps up until this past year, it became very meaningful as there were many in the industry that experienced a significant disruption in their pay because of that change healthcare phenomenon and cyberattack.

Operator

Lisa Gill, JP Morgan.

Lisa Gill

Good morning. It's Lisa Gill. Let me just echo those comments as well. Congratulations to Dave and Ken. Ken, you've done a great job of really turning around, especially on the contracting side. So just a couple of questions there. Dave, you noted that '26, you would see rate improvements of low-to-mid-single-digits. Is that because the contracting is done at this point or is it just your expectation? Like I'm just curious around the visibility that you have there would be my first question.

David Bourdon

Yeah, Lisa, so first of all, I would not say that we have signed contracts at this point that give us -- that we can point to for 2026. So we actually do the majority of our contracting on an annual basis, so we do not lock in typically two, three-year type contracts. We actually feel it's better to engage with the payers on an annual basis rather than, again, locking something around multi-year.
My comment is more of, if you look at last year, for 2024, we achieved a 3% rate increase and that's while digesting a significant reduction from that one payer. This year we have the annualization of that rate decrease from last year and the third and final rate decrease from that payer. So that's why we're having to overcome that, which is why we're going to be flat rates this year. As we go into 2026, we don't have that dynamic anymore. And so we would expect to be back to what we saw, last year, absent the one rate decrease and being in that low-to-mid-single-digit rate increase with the payers.

Lisa Gill

Okay. Great. And then just secondly, you comment down on the M&A environment and what you'd be looking for as far as making an acquisition capabilities, services, customer base, etc. Do you have specific targets? And I know that it's been a pretty competitive environment for mental health assets, especially with PE. Like has that changed at all? Like how are you thinking about the current M&A environment?

Kenneth Burdick

Yes, Lisa. I'll take that one. So first, the history of building Lifestance in part was the history of tuck-in acquisitions. And what we were trying to signal on the call is that while there may be tuck-ins, we will have a more expansive view of ways in which we can strengthen and enhance our value proposition to all stakeholders. So it could be a business that provides a particular service that's going to strengthen the way we do business. It could be a new customer segment.
I would say that while the valuations are probably still higher than they ought to be, it is a better environment than it was two and three years ago to do acquisitions for reasons that everyone on this call understands. At this point, it's not about multiples of revenue, it's about earnings. And for companies in our space that have not yet been able to demonstrate that they can deliver a bottom-line result, this is becoming a very difficult sort of macroeconomic environment for them. So this is a good time for us to sort of resume M&A.

Operator

Jamie Perse, Goldman Sachs.

Jamie Perse

Hey, thank you. Good morning, and I'll add my congrats to Ken on the transition and Dave and Ryan on the new rules. I wanted to start with center level costs, they've been down six quarters in a row. And I'd love any color you can provide on the breakdown of labor costs versus non-labor costs embedded in your center level costs. Dave spoke about some of the increase in wages going forward, but any additional color you can provide on unit cost growth between those two buckets, and I guess the sustainability of COGS declines in '25.

David Bourdon

Yes, thanks, Jamie. It's Dave and I'll take that one. So first of all, as you point out, we did see our cost per visit go down in 2024, which was a great outcome, primarily driven by the benefits that we received from the real estate consolidation towards the end of 2023.
So I would actually view the cost per visit decline phenomenon as more of a 2024 and it will not repeat itself in 2025. And the reason for that is we're going to increase the compensation for our clinicians, which we do every year. We did that in '24 as well. And so that will always put some upward pressure on that cost per visit. And we'll have some mitigation of that through the operating leverage of our center costs that are non-clinician fee for service compensation related, but I would expect to see that cost per visit go up in 2025.

Jamie Perse

Okay, great. Thank you. And then I guess on G&A excluding stock-based comp, it was a pretty materially in in the fourth quarter. I guess, first, is there any pull forward and spend just given the strong top line and center level margin that you spent in the fourth quarter or is the $78 million or thereabouts a good run rate for thinking about '25? And then just how are you broadly prioritizing investment in the operational infrastructure of the business at the G&A line? Thank you.

David Bourdon

Yes, so, you're correct in what you're noting as far as the dynamics on G&A spending. So in the fourth quarter, we did have the step up in G&A. As we have been signaling, we were looking for opportunities to invest in the business to better position ourselves for '25 and '26.
There were two buckets that we were looking at. One was, pulling forward spend that we had already identified that we wanted to make investments in 2025, pulling those into '24 just to get a jumpstart on this year. An example of that is we hired a number of business development teammates who are out working with the fiscal health partners around developing referral partnerships.
So there's certainly some recurring component of that bump of spend. And then we had the non-recurring, which was just one-time in nature where we were clearing the decks on various initiatives, none that I would point out. It was more of an accumulation of a number of small things.
The total of that is roughly $5 million that we spent in the fourth quarter. So then you step into the first quarter and you're like, okay, well, if the spending levels for G&A are comparable, but you had $5 million of kind of these special items in the fourth quarter, then why is the level similar in the first quarter of '25? And that's because of two things.
The first is some of that spend and that increased investment, as I mentioned, is recurring and so that continues into the first quarter. But really the bulk of the explanation is payroll taxes. So you have the big increase in payroll taxes in G&A, that's $4 million to $5 million in the first quarter by itself.
So then let's see the last part of your question is, as we think about the full year '25, you're going to see relatively flat G&A. I think the implied guidance is about [$77 million], $78 million a quarter throughout the year. And so what's going to drive that is you'll see a reduction in payroll taxes as we step into the second through fourth quarters but that will be replaced with increased compensation from the annual merit, other investments and spend, that normal volume related spend that we're doing as normal course of business. So that will replace the payroll taxes in the remainder of the year and again roughly flat G&A.

Operator

Brian Tanquilut, Jefferies.

Brian Tanquilut

Hey, good morning, guys, and congrats to both of you and to Ryan as well. Very good pick up on the CFO side. I guess maybe as I think it's kind about your answer to an earlier question on the clinicians. And how you mentioned change healthcare, you're kind of like driving some dynamics highlighting the value you bring to the clinicians. Just curious what you're seeing if the trend is starting to move among the clinician population to where the employed model is becoming a viable, if not primary option for practicing versus the independent model that's probably in the industry?

Kenneth Burdick

Yes, it's a great question, Brian. I don't know that there's been a massive shift. I think from our perspective, it's obviously the preferred model because we're trying to create a long-term home for our clinicians, and we think that that will absolutely lead to a better experience for patients and clients. It's still the exception to the rule. The vast majority our competitors have 1,099 clinicians versus employed clinicians, but we like where we're positioned.

Brian Tanquilut

Understand. And then maybe Dave as I think about the de novos you're adding 25 to 30 clinics this year, should we think of this as maybe the new trend, especially as we see more returns to office orders across the economy? Do you think that we're going to see this level if not higher level of de novo openings going forward?

David Bourdon

It's a good question. First of all, I would say that the 25 to 30 for this year is a little bit elevated because we had six de novos from last year that just due to the timing -- the timing of the rollout and how long it takes to build and get a center up and running slid into the first quarter. So it's a little bit elevated in regards to the level for 2025.
And as far as the return to the office, I actually don't think of that as the driving phenomenon for us. There's two things. One is, do the patients want to receive care in person, and that has, again, modestly increased. We went from roughly 71% virtual to 70% virtual in the fourth quarter. So that continues to modestly move, and we expect that to continue.
At the same time, we still have a lot of excess capacity in our centers today. So as we look at each center, we look at the usage from the clinicians and the patients, and we look at our recruiting goals and growth goals for those markets, and then that really is what drives whether we're going to add a de novo rather than, I think, more of the return to office phenomenon.
The other reason why we do a de novo is, again, we did almost 100 acquisitions. We have a lot of acquired centers that we have leases with. And as those leases come up, we're always evaluating them for whether they're fit for purpose for the future for us. So it might not be the appropriate size, it might be 5 or 7 offices rather than we'd like it to be 11 to 14 offices just to be able to justify that center support and things like that, or it might not be of the equality that we'd like for the standard for Lifestance. So there's a few things that go into those replacement de novos as well. And so that's how we're thinking about it with the 25 to 30 this year.

Operator

Kevin Caliendo, UBS.

Andrea Alfonso

Yes, hi, good morning, everyone. It's Andrea Alfonso in for Kevin Caliendo. Thank you so much for taking the question, and I'd also like to echo the congratulatory remarks on the new roles.
I just wanted to follow up on the high-level comments regarding 2026, specifically when bridging from '25 to '26, and what that implies for how you're thinking about the magnitude of EBITDA growth versus revenue growth. You discuss the rate of improvement, the rate improvements rather to the center margins. I guess from an expense perspective, just kind of trying to think about the pushes and pulls here, whether the rate of comp increases remain stable or do they moderate. And maybe any 2025 headwinds that you would cycle operationally that would drive sort of a greater pace of EBITDA growth. Thanks so much.

David Bourdon

Yes, so I'll take the 2026 question. As we think about 2026, as mentioned in the prepared remarks, we expect from a top-line perspective to be in that mid-teens’ growth level again. And we expect to get back to improving margins, and I would expect to see that to come through both in the center margin as well as operating leverage on G&A. So you should expect to see that center margin, margin improve and the G&A leverage which will both drive an improvement in the EBITDA margin. So therefore, EBITDA will grow at a higher rate than our top line.
And I wouldn't just say that's for 2026, I really do believe that's for several years to come, which is why in response to Craig's earlier question, we do see that there is a path to 15% to 20% EBITDA margin in the coming years as a result of being able to move both of those center margin as well as G&A levers. And I wouldn't point to any particular components or things like that, just more on the overall business.

Operator

Ladies and gentlemen, that concludes our Q&A session. I will now turn the conference back over to Ken Burdick, CEO of Lifestance for closing remarks.

Kenneth Burdick

Thank you very much, operator. Just a quick close, I want to express, once again, my sincere gratitude and appreciation to all of you that have Invested and demonstrated your interest in Lifestance. I am thrilled to be continuing my involvement with Lifestance as the Executive Chair because I truly believe that for all the progress we've made, we're still in the very early innings of what's going to be an incredible story as we continue to drive toward achieving our full potential as an organization. So thank you again to the 10,000 employees that make this happen, and that will conclude our call. Thank you very much.

Operator

This concludes our conference call for today, you may now disconnect.