# LifeStance Health Group, Inc.: Form 10-Q for the period ended Sep 30, 2021

- Company: [LifeStance Health Group, Inc.](/companies/lfst.md) (CIK 1845257)
- Form: 10-Q
- Filed: 2021-11-10
- Accepted by EDGAR: Nov 10, 2021, 16:25 ET
- Period: 2021-09-30
- Accession: 0000950170-21-004110
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1845257/000095017021004110/lfst-20210930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1845257/000095017021004110/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-07-01 to 2021-09-30 | $173.8m | us-gaap:Revenues |
| Revenue | 9 months, 2021-01-01 to 2021-09-30 | $1.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2021-07-01 to 2021-09-30 | $162.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2021-01-01 to 2021-09-30 | $281.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-07-01 to 2021-09-30 | −$124.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-01-01 to 2021-09-30 | −$172.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-07-01 to 2021-09-30 | $3.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-01-01 to 2021-09-30 | $35.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-07-01 to 2021-09-30 | −$8.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-01-01 to 2021-09-30 | −$15.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-07-01 to 2021-09-30 | −$120.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-01-01 to 2021-09-30 | −$199.2m | us-gaap:NetIncomeLoss |
| Operating cash flow | 9 months, 2021-01-01 to 2021-09-30 | −$21.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-01-01 to 2021-09-30 | $55.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2021-09-30 | $212.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-09-30 | $328.3m | us-gaap:AssetsCurrent |
| Total assets | at 2021-09-30 | $1.91bn | us-gaap:Assets |
| Current liabilities | at 2021-09-30 | $105.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-09-30 | $369.9m | us-gaap:Liabilities |
| Long-term debt | at 2021-09-30 | $157.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-09-30 | $1.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-09-30 | $1.54bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,740 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Final Prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under “Risk Factors” in the Final Prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

*LifeStance Health Group, Inc. (“LifeStance Health Group”) was formed as a Delaware corporation on January 28, 2021 for the purpose of completing an initial public offering (“IPO”) and related transactions in order to carry on the business of LifeStance TopCo, L.P. (“LifeStance TopCo”) and its consolidated subsidiaries and affiliated practices. LifeStance Health Group wholly-owns the equity interest of LifeStance TopCo and operates and controls all of the business and affairs and consolidates the financial results of LifeStance TopCo and its wholly owned subsidiaries and affiliated practices. Unless the context otherwise indicates or requires, the terms “we”, “our” and “the Company” as used herein refer to LifeStance Health Group and its consolidated subsidiaries and affiliated practices.*

### Our Business

We are reimagining mental health through a disruptive, tech-enabled care delivery model built to expand access, address affordability, improve outcomes and lower overall health care costs. We are one of the nation’s largest outpatient mental health platforms based on the number of clinicians we employ through our subsidiaries and our affiliated practices and our geographic scale, employing 4,375 licensed mental health clinicians as of September 30, 2021. Our patient-focused platform combines a personalized, digitally-powered patient experience with differentiated clinical capabilities and in-network insurance relationships to fundamentally transform patient access and treatment. By revolutionizing the way mental health care is delivered, we believe we have an opportunity to improve the lives and health of millions of individuals.

Our model is built to empower each of the healthcare ecosystem’s key stakeholders—patients, clinicians, payors and primary care and specialist physicians—by aligning around our shared goal of delivering better outcomes for patients and providing high-quality mental health care.

*Patients -* We are the front-door to comprehensive outpatient mental health care. Our clinicians offer patients comprehensive services to treat mental health conditions across the clinical spectrum. Our in-network payor relationships improve patient access by allowing patients to access care without significant out-of-pocket cost or delays in receiving treatment. Our personalized, data-driven comprehensive care meets patients where they are, through convenient virtual and in-person settings. We support our patients throughout their care continuum with purpose-built technological capabilities, including online assessments, digital provider communication, and seamless internal referral and follow-up capabilities. Our clinical approach also delivers validated outcomes—in a survey we conducted of over 20,000 patients between May 2020 and December 2020, we observed that after two visits to treat such conditions, 53% of patients report improvement with their symptoms of depression as measured by a change in Patient Health Questionnaire ("PHQ") 9 score, a clinical assessment of depression, 54% of patients report an improvement in their symptoms of anxiety as measured by a change in General Anxiety Disorder ("GAD") 7 score, a clinical assessment of anxiety, and 81% of our patients report a decrease in their suicidal ideation as measured by a change in both PHQ9 and GAD7 scores.

*Clinicians -* We empower clinicians to focus on patient care and relationships by providing what we believe is a superior workplace environment, as well as clinical and technology capabilities to deliver high-quality care. We offer a unique employment model for clinicians in a collaborative clinical environment, employing our clinicians through our subsidiaries and affiliated practices. Our integrated platform and national infrastructure reduce administrative burdens for clinicians while increasing engagement and satisfaction.

*Payors -* We partner with payors to deliver access to high-quality outpatient mental health care to their members at scale. Long-term analyses demonstrate that $1 spent on collaborative mental health care saves $6.50 in total medical costs, representing a compelling opportunity for us to drive improved health outcomes and significant cost savings. Through our validated patient outcomes and extensive scale, we offer payors a pathway to achieving these savings in the broader healthcare system.

*Primary care and specialist physicians -* We collaborate with primary care and specialist physicians to enhance patient care. Primary care is an important setting for the treatment of mental health conditions—primary care physicians are often the sole contact for over 50% of patients with a mental illness. We partner with primary care physicians and specialist physician groups across the country to provide a mental healthcare network for referrals and, in certain instances, through co-location to improve the diagnosis and treatment of their patients. Our measurable patient outcomes also provide primary care and specialist physicians with a valuable, validated treatment path to improve the overall health of our mutual patients.

### TPG Acquisition and Comparability of Results

On May 14, 2020, affiliates of TPG Global, LLC (collectively “TPG”) acquired a majority of the equity interests of LifeStance Health Holdings, Inc. in a series of transactions that we refer to in this Quarterly Report as the “TPG Acquisition.” Immediately prior to the TPG Acquisition, LifeStance Health, LLC completed a reorganization pursuant to which the equity holders of LifeStance Health, LLC, including affiliates of Summit Partners and affiliates of Silversmith Capital Partners, received a distribution of 100% of the equity interests of LifeStance Health Holdings, Inc., a direct, wholly-owned subsidiary of LifeStance Health, LLC, in complete redemption of their Class A common units, Class C common units, Preferred A units, and Preferred A-1 units of LifeStance Health, LLC. Pursuant to the TPG Acquisition, (i) the historic equity holders of LifeStance Health, LLC contributed a portion of their shares of LifeStance Health Holdings, Inc. to LifeStance TopCo in exchange for Class A-1 and A-2 common units of LifeStance TopCo and (ii) an indirect subsidiary of LifeStance TopCo merged with and into LifeStance Health Holdings, Inc., with shareholders of LifeStance Health Holdings, Inc. receiving cash consideration in connection with cancellation of the remainder of their shares.

For the period from January 1, 2020 to May 14, 2020 (Predecessor), we present the financial statements of LifeStance Health, LLC and its consolidated subsidiaries and affiliated practices. Affiliates of TPG formed LifeStance TopCo on April 13, 2020 for the purpose of facilitating the TPG Acquisition. For the period from April 13, 2020 (the date of formation of LifeStance TopCo) to September 30, 2020 and for the three and nine months ended September 30, 2021, we present the financial statements of LifeStance TopCo and its consolidated subsidiaries and affiliated practices. For the period from April 13, 2020 through May 13, 2020, the operations of LifeStance TopCo were limited to those incident to its formation and the TPG Acquisition, which were not significant. Because it resulted in a change of control, the TPG Acquisition was accounted for as a business combination using the acquisition method of accounting, which requires, among other things, that our assets and liabilities be recognized on the consolidated balance sheets at their fair value as of the acquisition date. LifeStance Health, LLC was determined by the Company to be LifeStance TopCo’s predecessor. As a result of the TPG Acquisition, the key financial metrics and historical consolidated financial data below are presented on a Successor and Predecessor basis, resulting in the 2020 historical results being presented separately for the period from January 1, 2020 through May 14, 2020 (the “Predecessor 2020 Period”) and for the period from April 13, 2020 through September 30, 2020 (the “Successor 2020 Period”). Due to the change in the basis of accounting resulting from the TPG Acquisition, the consolidated financial statements for the Predecessor and Successor periods are not necessarily comparable.

### Initial Public Offering

On June 14, 2021, the Company completed its IPO in which it issued and sold 32,800,000 shares of common stock and affiliates of TPG Global LLC (“TPG”), affiliates of Silversmith Capital Partners (“Silversmith”), and affiliates of Summit Partners (“Summit”) (collectively, the “Selling Shareholders”) sold 7,200,000 shares of common stock, at an offering price of $18.00 per share. The Selling Shareholders granted the underwriters an option to purchase an additional 6,000,000 shares of common stock. The underwriters exercised in full their option to purchase additional shares, and the sale of the option shares was completed on June 25, 2021. The Company received net proceeds of $548.9 million after deducting underwriting discounts and commissions of $32.5 million and deferred offering costs of $9.0 million. The Company did not receive any proceeds from the sale of shares by the Selling Stockholders, including the option shares.

Prior to the IPO, each of the holders of partnership interests in LifeStance TopCo contributed its partnership interests to LifeStance Health Group in exchange for shares of common stock (including shares of common stock issued as restricted stock subject to vesting) of LifeStance Health Group (the “Organizational Transactions”). Following the contribution of partnership interests, LifeStance TopCo became wholly owned by LifeStance Health Group. The number of shares of common stock that each such holder of partnership interests in LifeStance TopCo received was determined based on the value that such holder would have received under the distribution provisions of the limited partnership agreement of LifeStance TopCo, with shares of common stock valued by reference to the IPO price. All 1,046,195,481 of LifeStance TopCo’s outstanding redeemable and common Class A units and 152,619,565 Class B units (the “Class B Units”, “Profits Interests Units” or “Profits Interests”) were contributed in exchange for 310,082,697 shares of common stock of LifeStance Health Group plus 30,765,951 shares of common stock issued as restricted stock subject to vesting. As a result of this contribution and exchange, the Company reclassified $71.6 million of redeemable units and $1.0 billion of common units to additional paid in capital and $3.4 million to common stock on the Company’s consolidated balance sheets.

In connection with the voluntary prepayment of $294.0 million related to borrowings outstanding as of June 15, 2021, the Company recognized the extinguishment of debt charge within interest expense of $14.4 million during the second quarter of 2021 related to the prepayment charge and the write-off of unamortized debt issuance costs.

See further discussion related to the IPO as described in Note 1, Nature of Business to LifeStance Health Group, Inc.'s unaudited consolidated financial statements.

### COVID-19 Impact

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. The rapid spread of COVID-19 around the world and throughout the United States has altered the behavior of businesses and people, with significant negative effects on federal, state and local economies, the duration of which is unknown at this time. Various policies were implemented by federal, state and local governments in response to the COVID-19 pandemic that caused many people to remain at home and forced the closure of or limitations on certain businesses, as well as suspended elective procedures by health care facilities.

With the COVID-19 pandemic placing an unprecedented strain on daily life, existing trends in mental health care have worsened dramatically since the beginning of the pandemic—41% of adults reported at least one adverse mental health condition, including symptoms of mental illness or substance abuse related to the pandemic. Quarantining and lockdown measures have resulted in furloughs and layoffs, dramatically increasing stressors and leading to poorer overall mental and physical health.

In response to the COVID-19 pandemic, we took the following actions in 2020 and 2021 to ensure the safety of our employees and their families and to address the physical, mental and social health of our patients:

Implemented safety protocols including all Center of Disease Control directives in addition to state and local directives. This included distributing COVID-19 guidelines to all clinicians and employees as well as regular global communication from our Chief Medical Officer.

 Provided support to clinicians and administrative employees in the event they were unable to work due to a quarantine.

Trained all of our clinicians to meet patients virtually.

Upgraded acquired center websites to allow patients to readily access digital services.

Proactively communicated with patients about the availability of clinicians and treatment and appointment reminders.

While the impact of the COVID-19 pandemic has increased stressors associated with mental health, we believe that a combination of factors contribute to our total patient visits and related revenue, including, among others, long-term trends in reduced stigmatization of mental health. Even before the pandemic, we saw the need to have a platform supported by leading technology to give us the ability to treat patients virtually or in-person. Our prior investment in our technology platform, most notably in our digital capabilities, became an essential component for continuing to deliver care to our patients during the pandemic. We observed an impact on appointments in mid-March 2020 as patients moved to shelter-at-home and increased cancellations. By the end of March 2020, appointments and visits had returned to normal levels. Our clinician recruitment opportunities have also generally increased as a result of the pandemic, driven by an increase in clinician supply from those seeking more stable employment models. While we continue to take advantage of clinician recruitment opportunities, recent changes in the labor market dynamics driven by pandemic-related burnout have also impacted retention. With independent clinicians facing higher technology costs, shifting consumer behavior and challenges from the uncertain economic environment, our pipeline of acquisition targets grew and assisted in our 2020 footprint expansion.

Prior to the COVID-19 pandemic, our payor contracts or payor policies typically provided for rate parity for our care services regardless of whether visits are conducted in-person or virtually. As a result, even if temporary rate parity provisions that were enacted in response to the COVID-19 pandemic are not permanently extended, we do not expect such actions to have a meaningful impact on our business.

We believe COVID-19 represents a paradigm shift in the importance of and focus on mental health care. We have seen significant increase in patient demand as well as payor and employer adoption of mental health coverage options during the pandemic and it is now integrated into health care offerings more than ever before. We feel the spotlight the pandemic has put on the need for mental health care will have a positive impact on our industry and business for years to come.

### Key Factors Affecting Our Results

### Expanding Center Capacity and Visits Within Existing Centers

We have built a powerful organic growth engine that enables us to drive growth within our existing footprint.

#### Our Clinicians

As of September 30, 2021, we employed 4,375 psychiatrists, APNs, psychologists and therapists through our subsidiaries and affiliated practices. We generate revenue on a per visit basis as clinical services are rendered by our clinicians. As our existing centers mature, we grow capacity through investments in office expansion to increase our average clinicians per center and enhance overall utilization. Recruiting new clinicians and retaining existing clinicians in our existing centers enables us to see more patients per center by expanding our patient visit capacity. We believe our dedicated employment model offers a superior value proposition compared to independent practice. Our network relationships provide clinicians with ready access to patients. We also enable clinicians to manage their own patient volumes. Our platform promotes a clinically-driven professional culture and streamlines patient access and care delivery, while optimizing practice administration processes through technology. We believe we are an employer of choice in mental health, allowing us to employ highly qualified clinicians.

We believe we have significant opportunity to grow our employed clinician base—we estimate there are approximately 650,000 mental health clinicians in the United States, providing us with a meaningful runway to grow from our current base of 4,375 clinicians employed through our subsidiaries and affiliated practices, as of September 30, 2021. To capitalize on this opportunity, we have developed a rigorous and exclusive in-house national clinician recruiting model that works closely with our regional clinical teams to select the best candidates and fulfill capacity in a timely manner. As we grow our clinician base, we can grow our business, expand access to our patients and our payors and invest in our platform to further reinforce our differentiated offering to clinicians. We have available physical capacity to add clinicians to our existing centers, as well as an opportunity to add new clinicians with the roll-out of de novo centers and acquire additional clinicians through our acquisition strategy. Our virtual care offering also allows clinicians to see more patients without investments in incremental physical space, expanding our patient visit capacity beyond in-person only levels.

#### Our Patients

We believe our ability to attract and retain patients to drive growth in our visits and meet the availability of our clinician base will enable us to grow our revenue. We believe we have a significant opportunity to increase the number of patients we serve in our existing markets. In 2020, our clinicians treated more than 357,000 patients through approximately 2.3 million visits. We believe our ability to deliver more accessible, flexible, affordable and effective mental health care is a key driver of our patient growth. We believe we provide a superior and differentiated mental health care experience that integrates virtual and in-person care to deliver care in a convenient way for our patients, meeting our patients where they are. Our in-network payor relationships allow our patients to access care without significant out-of-pocket cost or delays in receiving treatment. We treat mental health conditions across the clinical spectrum through a clinical approach that delivers improved patient outcomes. We support our patients throughout their care continuum with purpose-built technological capabilities, including online assessments, digital provider communication, and seamless internal referral and follow-up capabilities.

We utilize multiple strategies to add new patients to our platform, including our primary care and specialist physician relationships, internal referrals from our clinicians, our payor relationships and our dedicated marketing efforts. We have established a large network of over 250 national, regional and local payors that enables their members to be referred to us as patients. Payors refer patients to our platform to drive improvement in health outcomes for their members, reduction in total medical costs and increased member satisfaction and retention. Within our markets, we partner with primary care practice groups, specialists, health systems and academic institutions to refer patients to our centers and clinicians. Our local marketing teams build and maintain relationships with our referring partner networks to create awareness of our platform and services, including the opening of new centers and the introduction of newly hired clinicians with appointment availability. We also use online marketing to develop our national brand to increase brand awareness and promote additional channels of patient recruitment.

#### Our Primary Care and Specialist Physician Referral Relationships

We have built a powerful patient referral network through partnerships with primary care physicians and specialist physician groups across the country. We deliver value to our provider partners by offering a more efficient referral base, delivering improved outcomes for our mutual patients, and enabling more integrated care and lower total health care costs. As we continue to scale nationally, we plan to partner with additional hospital systems, large primary care groups and other specialist groups to help streamline their mental health network needs and drive continued patient growth across our platform. Our vision over time is to further integrate our mental health care services with those of our medical provider partners. By co-locating and driving towards integration with primary care providers, we can enhance our clinician’s access to patients. We anticipate that we will continue to grow these relationships while evolving our offering toward a fully-integrated care model in which primary care and our mental health clinicians work together to develop and provide personalized treatment plans for shared patients. We believe these efforts will help to further align our model with that of other health care providers increasing our value to them and driving new opportunities to partner to grow our patient base.

#### Our Payors

We have over 250 payor relationships, including national contracts with multiple payors that allow access to our services through in-network coverage for their members. We believe the alignment of our model with our payor partners’ population health objectives encourages third-party payors to partner with us. We believe we deliver value to our payor partners in several ways, including access to a national clinician employee base, lower total medical costs, measurable outcomes, and stronger member and client value proposition through the offering of in-network mental health services. The strength of our payor relationships and our value proposition allowed us to secure rate parity between in-person and virtual visits, either by contract or payor policy, prior to the COVID-19 pandemic. To expand this network and grow access to covered patients, we continue to establish new payor relationships and national contracts while also seeking to drive regional rate improvement for our patients and clinicians. We believe our payor relationships differentiate us from our competitors and are a critical factor in our ability to expand our market footprint in new regions by leveraging our existing national payor relationships. As we continue to grow, we believe our scale, breadth and access will continue to be enhanced, further strengthening the value of our platform to payors.

### Expand our Center Base Within Existing and New Markets

We believe we have developed a highly replicable playbook that allows us to enter new markets and pursue growth through multiple vectors. We typically identify new markets based on the core characteristics of patient population demographics, substantial clinician recruiting opportunities, untreated patient communities and a diverse group of payors. To enter new markets, we seek to open de novo centers or acquire high-quality practices with a track record of clinical excellence and in-network payor relationships. Once we enter a new market, our powerful organic growth engine drives our growth through de novo openings, center expansions, clinician recruiting and tuck-in acquisitions. We anticipate focusing on continued expansion, both in our existing markets and in new geographies, where mental health care remains a large unmet need.

#### De Novo Builds

Our de novo center strategy is a central component of our organic growth engine to build our capacity and increase density in our existing MSAs. From our inception in 2017 through September 30, 2021, we have successfully opened 212 de novo centers, including 92 de novo centers in 2021, 78 de novo centers in 2020 and 27 de novo centers in 2019. We believe there is a significant opportunity to use de novo center openings to unlock potential patient need in our existing markets and new markets that we have determined are attractive to enter. We systematically locate our centers within a given market to ensure convenient coverage for in-person access to care. We believe our successful de novo program and national clinician recruiting team can support additions of new centers and clinicians in line with, or above, historical performance.

#### Acquisitions

We have built a proprietary pipeline of acquisition targets, providing us with significant opportunities to scale through potential acquisitions. We believe the highly fragmented nature of the mental health market provides us with a meaningful opportunity to execute on our acquisition playbook. We seek to acquire select practices that meet our standards of high-quality clinical care and align with our mission. We believe our guiding principle of creating a national platform built with a patient and clinician focus makes us a partner of choice for smaller, independent practices. Our acquisition strategy is deployed both to enter new markets and in our existing markets. In new markets, acquisitions allow us to establish a presence with high-quality practices with a track record of clinical excellence and in-network payor relationships that can be integrated into our national platform. In existing markets, acquisitions allow us to grow our geographic reach and clinician base to expand patient access. For newly acquired centers, we typically fully integrate them into our operational and technology infrastructure within four to six months following an acquisition.

### Center Margin

As we grow our platform, we seek to generate consistent returns on our investments. See “—Key Metrics and Non-GAAP Financial Measures—Center Margin” for our definition of Center Margin. We believe this metric best reflects the economics of our model as it includes all direct expenses associated with our patients’ care. We seek to grow our Center Margin through a combination of (i) growing revenue through clinician hiring and retention, patient growth and engagement, hybrid virtual and in-person care, existing office expansion, and in-network reimbursement levels, and (ii) leveraging on our fixed cost base at each center. For acquired centers, we also seek to realize operational, technology and reimbursement synergies to drive Center Margin growth.

### Key Metrics and Non-GAAP Financial Measures

We evaluate the growth of our footprint through a variety of metrics and indicators. The following table sets forth a summary of the key financial metrics we review to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions:

*(in thousands)*

|  | Successor Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | April 13 to September 30, 2020 | Predecessor January 1 to May 14, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total revenue | $173,835 | $101,982 | $477,516 | $147,435 | $111,661 |
| Revenue growth | 70% | 74% | \* | \* | \* |
| (Loss) income from operations | (124,668) | 2,691 | (172,594) | 2,795 | 8,695 |
| Center Margin | 52,052 | 33,135 | 147,258 | 47,313 | 32,884 |
| Net loss | (120,452) | (3,294) | (199,167) | (7,636) | (24,945) |
| Adjusted EBITDA | 10,694 | 14,984 | 37,813 | 20,994 | 12,665 |

\* Denotes not meaningful due to lack of comparability between partial periods.

Center Margin and Adjusted EBITDA are not measures of financial performance under GAAP and are not intended to be substitutes for any GAAP financial measures, including revenue, (loss) income from operations or net loss, and, as calculated, may not be comparable to companies in other industries or within the same industry with similarly titled measures of performance. Therefore, non-GAAP measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

### Center Margin

We define Center Margin, a non-GAAP measure, as (loss) income from operations excluding depreciation and amortization and general and administrative expenses. Therefore, Center Margin is computed by removing from (loss) income from operations the costs that do not directly relate to the delivery of care and only including center costs, exclusive of depreciation and amortization. We consider Center Margin to be an important measure to monitor our performance relative to the direct costs of delivering care. We believe Center Margin is useful to investors to measure whether we are sufficiently controlling the direct costs of delivering care.

Center Margin is not a financial measure of, nor does it imply, profitability. The relationship of (loss) income from operations to center costs, excluding depreciation and amortization is not necessarily indicative of future profitability from operations. Center Margin excludes certain expenses, such as general and administrative expenses, and depreciation and amortization, which are considered normal, recurring operating expenses and are essential to support the operation and development of our centers. Therefore, this measure may not provide a complete understanding of the operating results of our Company as a whole, and Center Margin should be reviewed in conjunction with our GAAP financial results. Other companies that present Center Margin may calculate it differently and, therefore, similarly titled measures presented by other companies may not be directly comparable to ours. In addition, Center Margin has limitations as an analytical tool, including that it does not reflect depreciation and amortization or other overhead allocations.

The following table provides a reconciliation of (loss) income from operations, the most closely comparable GAAP financial measure, to Center Margin:

*(in thousands)*

|  | Successor Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | April 13 to September 30, 2020 | Predecessor January 1 to May 14, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| (Loss) income from operations | $(124,668) | $2,691 | $(172,594) | $2,795 | $8,695 |
| Adjusted for: |  |  |  |  |  |
| Depreciation and amortization | 13,777 | 10,910 | 38,779 | 16,342 | 3,335 |
| General and administrative expenses (1) | 162,943 | 19,534 | 281,073 | 28,176 | 20,854 |
| Center Margin | $52,052 | $33,135 | $147,258 | $47,313 | $32,884 |

(1) Represents salaries, wages and employee benefits for our executive leadership, finance, human resources, marketing, billing and credentialing support and technology infrastructure.

### Adjusted EBITDA

We present Adjusted EBITDA, a non-GAAP performance measure, to supplement our results of operations presented in accordance with GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, and may be helpful to securities analysts, institutional investors and other interested parties in understanding our operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to companies in other industries or within the same industry with similarly titled measures of performance. Therefore, our Adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP, such as net income or loss.

We define Adjusted EBITDA as net loss excluding interest expense, depreciation and amortization, income tax benefit, (loss) gain on remeasurement of contingent consideration, stock and unit-based compensation, management fees, loss on disposal of assets, transaction costs, offering related costs and other expenses. We include Adjusted EBITDA in this Quarterly Report because it is an important measure upon which our management assesses, and believes investors should assess, our operating performance. We consider Adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis.

However, Adjusted EBITDA has limitations as an analytical tool, including:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash used for capital expenditures for such replacements or for new capital expenditures;

Adjusted EBITDA does not include the dilution that results from equity-based compensation or any cash outflows included in equity-based compensation, including from our repurchases of shares of outstanding common stock; and

Adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments.

A reconciliation of Adjusted EBITDA to net loss is presented below for the periods indicated. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Adjusted EBITDA in conjunction with net loss.

*(in thousands)*

|  | Successor Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | April 13 to September 30, 2020 | Predecessor January 1 to May 14, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net loss | $(120,452) | $(3,294) | $(199,167) | $(7,636) | $(24,945) |
| Adjusted for: |  |  |  |  |  |
| Interest expense | 3,503 | 6,421 | 35,309 | 11,983 | 3,020 |
| Depreciation and amortization | 13,777 | 10,910 | 38,779 | 16,342 | 3,335 |
| Income tax benefit | (8,751) | (1,074) | (15,300) | (2,444) | (2,319) |
| Loss (gain) on remeasurement of contingent consideration | 906 | (89) | 1,463 | (38) | (322) |
| Stock and unit-based compensation | 120,689 | 573 | 150,809 | 865 | — |
| Management fees (1) | — | 44 | 1,445 | 60 | 14 |
| Loss on disposal of assets | — | — | — | 6 | — |
| Transaction costs (2) | 126 | 683 | 3,656 | 864 | 33,247 |
| Offering related costs (3) | — | — | 8,747 | — | — |
| Endowment to the LifeStance Health Foundation | — | — | 10,000 | — | — |
| Other expenses (4) | 896 | 810 | 2,072 | 992 | 635 |
| Adjusted EBITDA | $10,694 | $14,984 | $37,813 | $20,994 | $12,665 |

(1) Represents management fees paid to certain of our executive officers and affiliates of our Principal Stockholders pursuant to the management services agreement entered into in connection with the TPG Acquisition. The management services agreement terminated in connection with the IPO and we were required to pay a one-time fee of $1.2 million to such parties.

(2) Primarily includes capital markets advisory, consulting, accounting and legal expenses related to our acquisitions and costs related to the TPG Acquisition. Of the transaction costs incurred in the period from January 1, 2020 to May 14, 2020 (Predecessor), $32.9 million relate to the TPG Acquisition.

(3) Primarily includes non-recurring incremental professional services, such as accounting and legal, and directors' and officers' insurance incurred in connection with the IPO.

(4) Primarily includes costs incurred to consummate or integrate acquired centers, certain of which are wholly-owned and certain of which are affiliated practices, in addition to the compensation paid to former owners of acquired centers and related expenses that are not reflective of the ongoing operating expenses of our centers. Acquired center integration, former owner fees, and other are components of general and administrative expenses included in our unaudited consolidated statements of income/(loss) and comprehensive income/(loss). These costs are summarized for each period in the table below:

*(in thousands)*

|  | Successor Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | April 13 to September 30, 2020 | Predecessor January 1 to May 14, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Acquired center integration (1) | $755 | $740 | $1,670 | $868 | $413 |
| Former owner fees (2) | 106 | 60 | 262 | 111 | 217 |
| Other (3) | 35 | 10 | 140 | 13 | 5 |
| Total | $896 | $810 | $2,072 | $992 | $635 |

(1) Represents costs incurred pre- and post-center acquisition to integrate operations, including expenses related to conversion of compensation model, legacy system costs and data migration, consulting and legal services, and overtime and temporary labor costs.

(2) Represents short-term agreements, generally with terms of three to six months, with former owners of acquired centers, to provide transition and integration services.

(3) Primarily includes severance expense unrelated to integration services.

### Results of Operations

The following table sets forth a summary of our financial results for the periods indicated:

*(in thousands)*

|  | Successor Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | April 13 to September 30, 2020 | Predecessor January 1 to May 14, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| TOTAL REVENUE | $173,835 | $101,982 | $477,516 | $147,435 | $111,661 |
| OPERATING EXPENSES |  |  |  |  |  |
| Center costs, excluding depreciation and amortization shown separately below | 121,783 | 68,847 | 330,258 | 100,122 | 78,777 |
| General and administrative expenses | 162,943 | 19,534 | 281,073 | 28,176 | 20,854 |
| Depreciation and amortization | 13,777 | 10,910 | 38,779 | 16,342 | 3,335 |
| Total operating expenses | $298,503 | $99,291 | $650,110 | $144,640 | $102,966 |
| (LOSS) INCOME FROM OPERATIONS | $(124,668) | $2,691 | $(172,594) | $2,795 | $8,695 |
| OTHER INCOME (EXPENSE) |  |  |  |  |  |
| (Loss) gain on remeasurement of contingent consideration | (906) | 89 | (1,463) | 38 | 322 |
| Transaction costs | (126) | (683) | (3,656) | (864) | (33,247) |
| Interest expense | (3,503) | (6,421) | (35,309) | (11,983) | (3,020) |
| Other expense | — | (44) | (1,445) | (66) | (14) |
| Total other expense | $(4,535) | $(7,059) | $(41,873) | $(12,875) | $(35,959) |
| LOSS BEFORE INCOME TAXES | (129,203) | (4,368) | (214,467) | (10,080) | (27,264) |
| INCOME TAX BENEFIT | 8,751 | 1,074 | 15,300 | 2,444 | 2,319 |
| NET LOSS AND COMPREHENSIVE LOSS | $(120,452) | $(3,294) | $(199,167) | $(7,636) | $(24,945) |

### Total Revenue

Total revenue increased $71.8 million, or 70%, to $173.8 million for the three months ended September 30, 2021 (Successor) from $102.0 million for the three months ended September 30, 2020 (Successor). This increase in total revenue was attributable to a

$72.7 million increase in patient service revenue due to the increased number of patient visits offset by a $0.9 million decrease in nonpatient service revenue.

Total revenue was $477.5 million for the nine months ended September 30, 2021 (Successor), $147.4 million for the period from period from April 13, 2020 to September 30, 2020 (Successor) and $111.7 million for the period from January 1, 2020 to May 14, 2020 (Predecessor). Total revenue was composed of $473.8 million of patient service revenue and $3.7 million of nonpatient revenue.

### Operating Expenses

#### Center costs, excluding depreciation and amortization

Center costs, excluding depreciation and amortization increased $53.0 million, or 77%, to $121.8 million for the three months ended September 30, 2021 (Successor) from $68.8 million for the three months ended September 30, 2020 (Successor). This was primarily due to a $45.4 million increase in center-based compensation due to the increase in clinicians and improved productivity and a $7.6 million increase in occupancy costs consisting of center rent and utilities and other operating expenses consisting of office supplies and insurance.

For the nine months ended September 30, 2021 (Successor), center costs, excluding depreciation and amortization was $330.3 million, primarily consisting of $289.7 million of center-based compensation. In addition, occupancy costs consisting of center rent and utilities and other operating expenses consisting of office supplies and insurance totaled $40.6 million. For the period from April 13, 2020 to September 30, 2020 (Successor), center costs, excluding depreciation and amortization was $100.1 million, primarily consisting of $88.8 million of center-based compensation. In addition, occupancy costs consisting of center rent and utilities and other operating expenses consisting of office supplies and insurance totaled $11.3 million. For the period from January 1, 2020 to May 14, 2020 (Predecessor), center costs, excluding depreciation and amortization was $78.8 million, primarily consisting of $70.3 million of center-based compensation. In addition, occupancy costs consisting of center rent and utilities and other operating expenses consisting of office supplies and insurance totaled $8.5 million.

#### General and administrative

General and administrative expenses increased $143.4 million, or 734%, to $162.9 million for the three months ended September 30, 2021 (Successor) from $19.5 million for the three months ended September 30, 2020 (Successor). This was primarily due to increases of $134.8 million in salaries, wages and employee benefits, which included $120.7 million of stock-based compensation expense, $2.6 million in occupancy costs and $6.0 million in other operating expenses, including professional services.

For the nine months ended September 30, 2021 (Successor), general and administrative expenses were $281.1 million, consisting primarily of $221.8 million in salaries, wages and employee benefits, which included $150.8 million of unit and stock-based compensation expense primarily relating to the modifications to convert the Class B Profits Interests Units to restricted stock, acceleration of vesting terms, and the additional RSUs granted at the time of IPO, as well as $12.7 million in occupancy costs and $46.6 million in other operating expenses, including professional services, directors' and officers' insurance and the endowment to the LifeStance Health Foundation. For the period from April 13, 2020 to September 30, 2020 (Successor), general and administrative expenses were $28.2 million, consisting primarily of $19.2 million in salaries, wages and employee benefits as well as $3.4 million in occupancy costs and $5.6 million in other operating expenses, including professional services and corporate insurance. For the period from January 1, 2020 to May 14, 2020 (Predecessor), general and administrative expenses were $20.9 million, consisting primarily of $14.6 million in salaries, wages and employee benefits as well as $2.5 million in occupancy costs and $3.8 million in other operating expenses, including professional services and corporate insurance.

#### Depreciation and amortization

Depreciation and amortization expense increased $2.9 million to $13.8 million for the three months ended September 30, 2021 (Successor) from $10.9 million for the three months ended September 30, 2020 (Successor). This was primarily due to increases in amortization of $0.6 million and depreciation of $2.3 million due to the increased number of corporate transactions during the periods.

Depreciation and amortization was $38.8 million for the nine months ended September 30, 2021 (Successor), $16.3 million for the period from April 13, 2020 to September 30, 2020 (Successor) and $3.3 million for the period from January 1, 2020 to May 14, 2020 (Predecessor). This was primarily due to corporate transactions during the periods.

### Other Income (Expense)

#### (Loss) gain on remeasurement of contingent consideration

(Loss) gain on remeasurement of contingent consideration decreased $1.0 million to a $0.9 million loss for the three months ended September 30, 2021 (Successor) from a $0.1 million gain for the three months ended September 30, 2020 (Successor). This was primarily due to changes in the weighted probability of achieving the performance and operational targets.

(Loss) gain on remeasurement of contingent consideration was a $1.5 million loss for the nine months ended September 30, 2021 (Successor), a $38 thousand gain for the period from April 13, 2020 to September 30, 2020 (Successor) and a $0.3 million gain for the period from January 1, 2020 to May 14, 2020 (Predecessor). This was primarily due to changes in the weighted probability of achieving the performance and operational targets.

#### Transaction costs

Transaction costs decreased $0.6 million to $0.1 million for the three months ended September 30, 2021 (Successor) from $0.7 million for the three months ended September 30, 2020 (Successor). Transaction costs decreased primarily due to fewer incremental fees related to corporate transactions.

Transaction costs was $3.7 million for the nine months ended September 30, 2021 (Successor), $0.9 million for the period from April 13, 2020 to September 30, 2020 (Successor) and $33.2 million for the period from January 1, 2020 to May 14, 2020 (Predecessor). Transaction costs decreased primarily due to the TPG Acquisition that incurred in May 2020 partially offset by new transactions during the periods.

#### Interest Expense

Interest expense decreased $2.9 million to $3.5 million for the three months ended September 30, 2021 (Successor) from $6.4 million for the three months ended September 30, 2020 (Successor). This decrease was primarily due to lower borrowings outstanding during the period as a result of our voluntary prepayment of outstanding borrowings with proceeds from our IPO, which occurred in the second quarter of 2021.

Interest expense was $35.3 million for the nine months ended September 30, 2021 (Successor), $12.0 million for the period from April 13, 2020 to September 30, 2020 (Successor) and $3.0 million for the period from January 1, 2020 to May 14, 2020 (Predecessor). This was primarily due to our voluntary prepayment of borrowings outstanding with IPO proceeds, in connection with which we incurred an extinguishment of debt charge within interest expense of $14.4 million during the second quarter of 2021 related to the prepayment charge, and the write-off of unamortized debt issuance costs.

#### Other Income (Expense)

Other income (expense) decreased $44 thousand to $0 for the three months ended September 30, 2021 (Successor) from $44 thousand for the three months ended September 30, 2020 (Successor) primarily due to the termination of the management services as a result of our IPO during the second quarter of 2021.

Other income (expense) was $1.4 million for the nine months ended September 30, 2021 (Successor), $66 thousand for the period from April 13, 2020 to September 30, 2020 (Successor) and $14 thousand for the period from January 1, 2020 to May 14, 2020 (Predecessor). The increase was primarily due to the management termination fee incurred of $1.2 million during the second quarter of 2021 as a result of our IPO.

#### Income Tax Benefit

Income tax benefit increased $7.7 million to $8.8 million for the three months ended September 30, 2021 (Successor) from $1.1 million for the three months ended September 30, 2020 (Successor) primarily due to the increase in taxable loss for the three months ended September 30, 2021 (Successor).

Income tax benefit was $15.3 million for the nine months ended September 30, 2021 (Successor), $2.4 million for the period from April 13, 2020 to September 30, 2020 (Successor) and $2.3 million for the period from January 1, 2020 to May 14, 2020 (Predecessor). The increase was primarily due to the increase in taxable loss for the nine months ended September 30, 2021 (Successor).

### Liquidity and Capital Resources

We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital needs, capital expenditures, including to execute on our de novo strategy, contractual obligations, debt service, acquisitions, settlement of contingent considerations obligations, and other commitments with cash flows from operations and other sources of funding. Our principal sources of liquidity to date have included cash from operating activities, cash on hand and amounts available under the credit agreement, dated August 28, 2018, with Capital One, National Association (the “Prior Credit Agreement”) and the May 2020 Credit Agreement executed simultaneously with the TPG Acquisition on May 14, 2020. We had cash and cash equivalents of $212.1 million as of September 30, 2021.

We believe that our existing cash and cash equivalents will be sufficient to fund our operating and capital needs for at least the next 12 months. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary because of, and our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to acquire new centers and expand into new markets and the expansion of marketing activities. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations and financial condition would be adversely affected.

Our future obligations primarily consist of our debt and lease obligations. We expect our cash generation from operations and future ability to refinance or secure additional financing facilities to be sufficient to repay our outstanding debt obligations and lease payment obligations. As of December 31, 2020 and September 30, 2021, there was an aggregate principal amount of $373.8 million and $161.6 million outstanding under the May 2020 Credit Agreement, respectively. As of September 30, 2021, our non-cancellable future minimum operating third-party lease payments totaled $129.6 million, and our non-cancellable future minimum operating related-party lease payments totaled $12.7 million.

### Debt

#### Prior Credit Agreement

On August 28, 2018, we entered into the Prior Credit Agreement, which provided for term loans of $15.0 million and revolving credit commitments of $20.0 million. On March 15, 2019, we executed the First Amendment to the Prior Credit Agreement, which added delayed draw term loan commitments of $40.0 million, and increased the outstanding term loans and revolving credit commitments to $65.0 million and $25.0 million, respectively. On March 13, 2020, we executed the Second Amendment to the Credit Agreement to further secure $50.0 million of delayed draw term loan commitments. On May 14, 2020, in connection with the TPG Acquisition, the Prior Credit Agreement, including the delayed draw term loan commitments, was repaid.

Borrowings under the Prior Credit Agreement were subject to an interest rate of a base rate plus 3% or LIBOR plus 4.00%, or 4.25% if the leverage ratio as determined under the Prior Credit Agreement (“Prior Credit Agreement Total Net Leverage Ratio”) exceeded 3.50:1.00. We were required to make interest only payments through June 30, 2019 and were required to make equal installments of 0.25% of the aggregate principal of the Term Loans (as defined in the Prior Credit Agreement) on the last business day of each March, June, September, and December thereafter. Under the terms of the Prior Credit Agreement, we were subject to a requirement to maintain a Prior Credit Agreement Total Net Leverage Ratio of less than 5.00:1.00 through 2020, stepping down to 4.00:1.00 by the end of 2021. We were in compliance with the financial covenants since the inception of the Prior Credit Agreement through payoff. The borrowings under the Prior Credit Agreement were collateralized by substantially all of our equity interests in subsidiaries and debt securities.

#### May 2020 Credit Agreement

On May 14, 2020 and in connection with the TPG Acquisition, LifeStance Health Holdings, Inc., one of our subsidiaries, entered into the May 2020 Credit Agreement. The May 2020 Credit Agreement provides for senior secured credit facilities (the “Credit Facilities”) in the form of (i) $37.5 million original and delayed draw principal amount of Closing Date Term B-1 Loans and $222.5 million original and delayed draw principal amount of Closing Date Term B-2 Loans (“Closing Date Term Loans”), and (ii) $20.0 million of Revolving Commitments. On November 4, 2020, we entered into the First Amendment to the May 2020 Credit Agreement which, among other things, provided for incremental Credit Facilities in the form of $16.6 million original principal amount of First Amendment Term B-1 Loans and $98.4 million original principal amount of First Amendment Term B-2 Loans (“First Amendment Term Loans”). On February 1, 2021, we entered into the Second Amendment to the Credit Agreement (“Second Amendment”). The Second Amendment provides for incremental delayed draw term loans in the aggregate principal amount of $50.0 million. The Second Amendment delayed draw term loans are subject to the same terms and conditions set forth in the May 2020 Credit Agreement. On April 30, 2021, we entered into the Third Amendment to the Credit Agreement (the “Third Amendment”). The Third Amendment provides for incremental delayed draw term loans in the aggregate principal amount of $70.0 million. The Third Amendment delayed draw term loans are subject to the substantially same terms and conditions as those set forth in the May 2020 Credit Agreement. In connection with the voluntary prepayment of $294.0 million related to borrowings outstanding as of June 15, 2021, the Company recognized the extinguishment of debt charge within interest expense of $14.4 million during the second quarter of 2021 related to the prepayment charge and the write-off of unamortized debt issuance costs.

The Closing Date Term Loans and First Amendment Term Loans are scheduled to mature on May 14, 2026, and the Revolving Commitments are scheduled to mature on May 14, 2025. The loans under the Credit Facilities bear interest at a rate per annum equal to adjusted LIBOR plus an applicable margin (i) in the case of Closing Date Term B-1 Loans, ranging from 3.25% to 3.75% per annum (depending on our first lien net leverage), (ii) in the case of Closing Date Term B-2 Loans, ranging from 8.22% to 8.72% per annum (depending on our first lien net leverage), (iii) in the case of loans under the Revolving Commitments, ranging from 4.50% to 4.75% per annum (depending on our first lien net leverage), (iv) in the case of the First Amendment Term B-1 Loans, of 3.00% per annum and (v) in the case of the First Amendment Term B-2 Loans, of 7.09% per annum. In addition, we are required to pay a quarterly undrawn commitment fee of 2.0% per annum on the undrawn delayed draw term loan commitments under the Closing Date Term B-1 Loans and Closing Date Term B-2 Loans (increasing to 3.0% per annum following May 14, 2021), and we are required to pay a quarterly undrawn commitment fee of 1.0% per annum on the undrawn delayed draw term loan commitments under the First Amendment Term B-1 Loans and First Amendment Term B-2 Loans (increasing to 2.0% per annum following the first anniversary of the First Amendment Date).

Our obligations under the Credit Facilities are guaranteed by Lynnwood Intermediate Holdings, Inc. and certain of our direct and indirect subsidiaries. We are subject to certain affirmative and negative covenants until maturity, including limitations on our ability to incur additional debt or make capital expenditures and to pay dividends. The Credit Facilities also contain a maximum Total Net Leverage Ratio (as defined in the May 2020 Credit Agreement) financial maintenance covenant that requires our consolidated Total Net Leverage Ratio as of the last day of each fiscal quarter to not exceed 8.00:1.00, which maximum level steps down to 7.25:1.00 beginning with the fiscal quarter ending June 30, 2022 and to 7.00:1.00 beginning with the fiscal quarter ending June 30, 2023. Total Net Leverage Ratio means the ratio of (a) Consolidated Total Debt (as defined in the May 2020 Credit Agreement) outstanding as of the last day of the test period, minus the Unrestricted Cash Amount (as defined in the May 2020 Credit Agreement) on such last day, to (b) Consolidated EBITDA (as defined in the May 2020 Credit Agreement) for such Test Period, in each case on a pro forma basis (“Credit Agreement Consolidated EBITDA”). These restrictive covenants utilize Credit Agreement Consolidated EBITDA, which reflects further adjustments beyond those included in Adjusted EBITDA.

Credit Agreement Consolidated EBITDA includes a cap for de novo start up costs of $1.5 million for each such new de novo facility, not to exceed 10% of Credit Agreement Consolidated EBITDA, in the aggregate, and allows for the adjustment of retention, relocation, recruiting or completion bonuses or recruiting costs, severance costs, transition costs, curtailments or modifications to pension and post-employment employee benefit plans costs in connection with the establishment or acquisition of a new practice, as well as certain pro forma acquisition run rate adjustments. As of September 30, 2021 and December 31, 2020, we were in compliance with all financial covenants under the Credit Facilities.

### Cash Flows

The following table summarizes our cash flows for the periods indicated:

*(in thousands)*

|  | Successor Nine Months Ended September 30, 2021 | April 13 to September 30, 2020 | Predecessor January 1 to May 14, 2020 |
| --- | ---: | ---: | ---: |
| Net cash (used in) provided by operating activities | $(21,215) | $(26,129) | $13,436 |
| Net cash used in investing activities | (114,514) | (691,447) | (25,078) |
| Net cash provided by financing activities | 329,023 | 742,644 | 35,385 |
| Net increase in cash | $193,294 | $25,068 | $23,743 |
| Cash and cash equivalents, beginning of period | 18,829 | — | 3,481 |
| Cash and cash equivalents, end of period | $212,123 | $25,068 | $27,224 |

#### Cash Flows (Used in) Provided by Operating Activities

During the nine months ended September 30, 2021 (Successor), operating activities used $21.2 million of cash, primarily impacted by our $199.2 million net loss and $207.2 million in non-cash charges. This was partially offset by changes in our operating assets and liabilities of $29.2 million. During the period from April 13, 2020 to September 30, 2020 (Successor), operating activities used $26.1 million of cash, primarily due to non-cash charges of $23.5 million, changes in our operating assets and liabilities of $42.0 million and our net loss of $7.6 million. During the period from January 1, 2020 to May 14, 2020 (Predecessor), operating activities provided $13.4 million of cash, primarily impacted by our $24.9 million net loss and net cash from the TPG Acquisition.

#### Cash Flows Used in Investing Activities

During the nine months ended September 30, 2021 (Successor), investing activities used $114.5 million of cash, primarily resulting from our business acquisitions totaling $58.7 million and purchases of property and equipment of $55.8 million. During the period from April 13, 2020 to September 30, 2020 (Successor), investing activities used $691.4 million of cash, primarily resulting from $646.7 million from the TPG Acquisition, purchases of property and equipment of $14.6 million and business acquisitions of $30.1 million. During the period from January 1, 2020 to May 14, 2020 (Predecessor), investing activities used $25.1 million of cash, primarily resulting from $12.8 million of property and equipment purchases and business acquisitions of $12.3 million.

#### Cash Flows Provided by Financing Activities

During the nine months ended September 30, 2021 (Successor), financing activities provided $329.0 million of cash, resulting primarily from our IPO of net proceeds of $548.9 million, borrowings of $98.8 million under the May 2020 Credit Agreement, partially offset by payments of loan obligations of $311.1 million, payments of debt issue costs of $2.4 million and payments of contingent consideration of $6.3 million. During the period from April 13, 2020 to September 30, 2020 (Successor), financing activities provided $742.6 million of cash, resulting primarily from $633.6 million of contributions from members related to the TPG Acquisition, borrowings of $235.9 million under the May 2020 Credit Agreement, partially offset by payments of loan obligations of $139.1 million, payments of debt issue costs of $6.4 million and payments of contingent consideration of $2.3 million. During the period from January 1, 2020 to May 14, 2020 (Predecessor), financing activities provided $35.4 million of cash, primarily resulting from additional borrowings under the Prior Credit Agreement of $74.4 million, partially offset by payments of loan obligations of $18.2 million, payments of debt issue costs of $0.7 million and payments of contingent consideration of $19.1 million.

### Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. For a description of our policies regarding our critical accounting policies, see “Critical Accounting Policies” in the Final Prospectus. There have been no significant changes in our critical accounting estimate policies or methodologies to our consolidated financial statements.

### Recently Adopted and Issued Accounting Pronouncements

Recently issued and adopted accounting pronouncements are described in Note 2 to our unaudited consolidated financial statements.

### Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our unaudited consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earlier to occur of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we have total annual gross revenue of $1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th; and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

## Market risk

As filed, 3,190 characters.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.

### Interest Rate Risk

Our primary market risk exposure is changing prime rate-based interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control.

The loans under the May 2020 Credit Agreement bear interest at a rate per annum equal to (but not less than 0%) LIBOR plus a range of 4.00% to 4.25% (depending on our first lien net leverage). The loans under the Credit Facilities bear interest at a rate per annum equal to (a) adjusted LIBOR (which adjusted LIBOR, (x) solely with respect to the Closing Date Term B-1 Loan, Closing Date Term B-2 Loans, and loans under the Revolving Commitments, is subject to a minimum of 1.25% per annum and (y) solely with respect to the First Amendment Term B-1 Loan and First Amendment Term B-2 Loans, is subject to a minimum of 0.75% per annum), plus an applicable margin (i) in the case of Closing Date Term B-1 Loans, ranging from 3.25% to 3.75% per annum (depending on our first lien net leverage), (ii) in the case of Closing Date Term B-2 Loans, ranging from 8.22% to 8.72% per annum (depending on our first lien net leverage), (iii) in the case of loans under the Revolving Commitments, ranging from 4.50% to 4.75% per annum (depending on our first lien net leverage), (iv) in the case of the First Amendment Term B-1 Loans, of 3.00% per annum and (v) in the case of the First Amendment Term B-2 Loans, of 7.09% per annum or (b) an alternate base rate (which will be the highest of (w) the prime rate, (x) 0.5% above the federal funds effective date and (y) one-month adjusted LIBOR (subject to the floors set forth above) plus 1.00% per annum), plus an applicable margin (i) in the case of Closing Date Term B-1 Loans, ranging from 2.25% to 2.75% per annum (depending on our first lien net leverage), (ii) in the case of Closing Date Term B-2 Loans, ranging from 7.22% to 7.72% per annum (depending on our first lien net leverage), (iii) in the case of loans under the Revolving Commitments, ranging from 3.50% to 3.75% per annum (depending on our first lien net leverage), (iv) in the case of the First Amendment Term B-1 Loans, of 2.00% per annum and (v) in the case of the First Amendment Term B-2 Loans, of 7.09% per annum.

As of September 30, 2021, we had an aggregate principal amount of $161.6 million under our credit facilities. As of September 30, 2021, a 100 basis point increase or decrease in market interest rates over a twelve-month period would result in a change to interest expense of $1.6 million.

### Inflation Risk

Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

## Controls and procedures

As filed, 7,611 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, as a result of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2021.

### Previously Reported Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. As previously reported in the Final Prospectus, in connection with the preparation of our consolidated financial statements as of and for the year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting. The material weaknesses we identified were as follows:

We did not design and maintain an effective control environment commensurate with our financial reporting requirements due to an insufficient complement of resources in the accounting/finance and IT functions, with an appropriate level of knowledge, experience and training. This material weakness contributed to the following additional material weaknesses:

|  |  |
| --- | --- |
| **•** | We did not maintain formal accounting policies and procedures, and did not design and maintain controls related to significant accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over account reconciliations, segregation of duties and the preparation and review of journal entries. |
|  | These material weaknesses resulted in material misstatements related to the identification and valuation of intangible assets acquired in business combinations that impacted the classification of intangible assets and goodwill, related impacts to amortization and income tax expense, and the restatement of our previously issued annual consolidated financial statements as of and for the years ended December 31, 2019 and 2018 with respect to such intangibles assets acquired in business combinations. Additionally, these material weaknesses could result in a misstatement of substantially all of the financial statement accounts and disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. |
| **•** | We did not design and maintain effective controls over IT general controls for information systems that are relevant to the preparation of our consolidated financial statements. Specifically, we did not design and maintain: (i) program change management controls for financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements. |

These IT deficiencies did not result in a material misstatement to our consolidated financial statements; however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, we have determined these deficiencies in the aggregate constitute a material weakness.

### Remediation Plan for Material Weaknesses

We are in the process of implementing measures designed to improve our internal control over financial reporting and remediate the control deficiencies which led to the material weaknesses. As of September 30, 2021, we are in process of performing the following remedial actions:

- hired, and plan to continue to hire, additional accounting and IT personnel to enhance our technical reporting, transactional accounting, and IT capabilities. We are developing and implementing controls to formalize roles and responsibilities which align with our team’s skills and experiences as well as formal segregation of incompatible duties,
- performance of detailed risk assessments for significant financial processes to identify, design, and implement control activities related to internal control over financial reporting, including enhancement of account reconciliations, journal entries, monitoring controls, and IT general controls.
- development and implementation of IT security and governance policies to address (i) program change, (ii) user access, (iii) computer operations, and (iv) program development procedures associated with information systems impacting the preparation of our consolidated financial statements.

We have made progress towards implementing the plan to remediate the material weaknesses and will continue to review, revise, and improve the design and implementation of our internal controls as appropriate. Although we have made enhancements to our control procedures, these material weaknesses will not be considered remediated until our controls are operational for a sufficient period of time, tested, and management concludes that these controls are operating effectively.

We intend to evaluate current and projected resource needs on a regular basis and hire additional qualified resources as needed. Our ability to maintain qualified and adequate resources to support the Company and our projected growth will be a critical component of our internal control environment.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 306 characters.

Investing in our common stock involves a high degree of risk. For a detailed discussion of the risks that affect our business, please refer to the section titled “Risk Factors” in the Final Prospectus. There have been no material changes to our risk factors as previously disclosed in the Final Prospectus.

Filed Nov 10, 2021.
Source: SEC EDGAR, the filing index for accession 0000950170-21-004110. Last ingested by Listed: Nov 10, 2026, 19:02 ET. No prices; not investment advice.