After a year and a half of strategic scaling back and tempered growth, LifeStance Health (Nasdaq: LFST), a leader in providing behavioral health services, is preparing to advance its LifeStance Health growth strategy with a strong return to mergers and acquisitions (M\&A). The company, headquartered in Scottsdale, Arizona, has carefully outlined its path toward expansion, with plans to re-enter the M\&A market in 2026.
This shift follows a period of consolidation, during which LifeStance worked diligently to optimize its operations and streamline its business model. In doing so, the company aims to create a solid foundation that will support long-term, sustainable growth. At the 22nd Annual Morgan Stanley Healthcare Conference, David Bourdon, LifeStance’s Chief Financial Officer, provided an in-depth look at the company’s recent focus on efficiency and its future growth trajectory.
LifeStance’s Strategic Pause: Efficiency Over Expansion
For the past 18 months, LifeStance has largely shifted away from aggressive expansion in favor of optimizing its operations and reinforcing its financial standing. This period of scale-backs was not a retreat but a strategic pause designed to enhance operational efficiency and build a solid platform for future growth. LifeStance’s growth during this period has been primarily driven by clinician expansion, which has boosted visit volume, and modest productivity improvements. “In the last 18 months, our growth algorithm is primarily a little bit of rate, a lot of clinician growth, which drives the visit volume, and then … some modest productivity improvements,” Bourdon explained at the conference.
Looking ahead to 2025, the company’s LifeStance Health growth strategy remains cautious, with expectations for low single-digit rate increases. Bourdon emphasized that the primary source of growth in 2025 will come from the expansion of its clinical workforce, continuing the strategy that has proven effective during the past year and a half. Any productivity gains will be seen as an additional benefit on top of this clinician-driven growth.
The strategic pause allowed LifeStance to focus on improving the efficiency of its operations. In 2023, the company closed 82 locations, signaling its decision to scale back its physical footprint in favor of more efficient operations. Alongside the reduction of its geographical footprint, LifeStance limited its organic growth by setting a cap on the number of new facilities it planned to open. By the end of 2024, the company will have opened no more than 10 new de novo facilities, each strategically placed only when necessary to replace outdated or inefficient locations or when in-office usage is high enough to warrant expansion.
This measured approach has not only improved operational efficiency but has also led to significant cost savings. For instance, the reduction in its geographic footprint resulted in lower rent expenses for 2024, contributing to an improvement in margins. This is a key part of LifeStance Health’s growth strategy, aiming for sustainable profitability.
Building a Stronger Foundation: Operational Updates
Beyond the physical restructuring, LifeStance has made key investments in its operational infrastructure. The company has simplified its systems by consolidating to a single electronic medical record (EMR) system and streamlining its communication processes with one unified phone system. Additionally, LifeStance strategically reduced the number of payer contracts it holds, focusing on more meaningful relationships with insurance partners. These operational improvements have been complemented by a new credentialing onboarding system for clinicians, making the recruitment and onboarding process more efficient.
Despite these updates being behind-the-scenes “not sexy cool stuff,” as Bourdon put it, these operational improvements are essential for LifeStance to run a well-oiled business. It’s a move that ensures efficiency now and sets the stage for more significant growth in the future.
On the digital front, LifeStance is rolling out a new digital patient check-in tool, aiming to further streamline its patient experience and enhance overall operational efficiency. Though these changes may not grab headlines, they play a critical role in building a sustainable, scalable business model.
The results of these strategic changes have already been visible in the company’s financial performance. During its second-quarter 2024 earnings call, LifeStance reported $312 million in revenue, a remarkable 20% increase compared to the previous year. This uptick in revenue signals that the company’s focus on efficiency and disciplined growth is paying off, creating a solid foundation for future expansion and a key aspect of LifeStance Health’s growth strategy.
A Return to M&A: A Path Toward Aggressive Growth
After successfully completing its efficiency initiatives, LifeStance is now preparing for a more aggressive growth strategy. “We’ll start becoming more acquisitive next year,” Bourdon stated, signaling a clear shift in the company’s approach. With a stronger balance sheet and a return to free cash flow positivity in 2024, LifeStance is well-positioned to pursue acquisitions once again, setting the stage for an expansion-driven growth phase.
M&A is a critical point of interest for investors, and Bourdon highlighted the company’s ongoing commitment to EBITDA margin growth as part of its long-term strategy. LifeStance is still focused on achieving double-digit margins by the end of 2025—a target that Bourdon acknowledged the company still has work to do to achieve. However, he also noted that LifeStance has made significant progress this year, with improved margins in the first half of 2024 and a full-year guide between 7.5% and 8%. While LifeStance is well on its way to reaching its margin target, the company recognizes that it has further steps to take in 2025 to meet its goal.
Looking further ahead, LifeStance projects steady growth in per-visit revenue, driven in part by the expansion of its specialty service lines. This focus on service diversification will likely fuel revenue growth while enhancing margins. “There’s nothing in the coming years that we see as a cap or a ceiling on margin expansion,” Bourdon confidently stated, suggesting that LifeStance has significant room for long-term growth as part of its LifeStance Health growth strategy.
Navigating Telehealth and Regulatory Challenges
While LifeStance Health growth strategy focuses on acquisitions and operational improvements, it faces a significant challenge in the realm of telehealth. More than 70% of LifeStance’s patient visits are virtual, but this model is at risk if the DEA allows the COVID-era telehealth flexibilities to expire. If the DEA retracts its telehealth policies, LifeStance could see more of its business shift back to in-person visits, requiring adjustments to its operational model.
Dr. Ujjwal Ramtekkar, LifeStance’s Chief Medical Officer, has previously indicated that the company is preparing for the possibility of a complete rollback of telehealth flexibilities. To ensure continuity of care, LifeStance is working to ensure that all patients who may require an annual in-person visit are seen in person before any changes in policy take place. This proactive approach is part of LifeStance’s broader strategy to maintain high levels of patient care and operational stability, regardless of any regulatory changes. This is a vital aspect of LifeStance Health’s growth strategy, ensuring it can navigate changes in healthcare delivery.
Looking Toward the Future
LifeStance Health’s story over the past 18 months has been one of strategic recalibration. By prioritizing operational efficiency, reducing its geographic footprint, and investing in technology, the company has laid the groundwork for a strong comeback. With its sights set on 2026, LifeStance is preparing to accelerate its growth through acquisitions, all while navigating challenges such as potential regulatory changes to telehealth.
As the company returns to M&A and expands its service lines, LifeStance is well-positioned to continue its upward trajectory, strengthening its position in the behavioral health sector. The company’s strategic focus on clinician growth, operational improvements, and margin expansion, combined with its flexible approach to digital care, ensures that LifeStance is poised to thrive in an evolving healthcare landscape.
With a stronger balance sheet, improved margins, and a clear vision for the future, LifeStance Health’s growth strategy is driving a successful period of transformation, positioning the company for sustained success in the years ahead.
